ANALYSIS: State Budget Lays Foundation for Future Stability

While the final budget bill addressed long-standing needs to strengthen the state’s fiscal position, the bill did little for Kansas children and families working hard to balance the rising costs of food and housing with stagnant wages. Hopefully, the improved fiscal management will prove to be a worthwhile tradeoff if future savings are diverted to support urgent needs. In the coming years, lawmakers must improve access to affordable child care, health care for hundreds of thousands of uninsured Kansas residents, and food assistance. These supports help families thrive, as well as help create a foundation for a healthy, productive state workforce.

The Omnibus budget bill (HB 2510) was signed into law by the Governor on May 16, 2022. This was one bill in a series of state budget legislation, which also included the Mega budget (for fiscal year 2023) approved in early April and the K-12 Education funding bill.

Like the Mega budget bill, this bill prioritized building a structurally sound budget to withstand future recessions, addressing major unfunded liabilities and other long-term debt, and allocating dollars for rural economic development and higher education project funding using the state’s portion of American Rescue Plan Act (ARPA) federal dollars.

The bill adds $390.3 million, including $373.7 million from the State General Fund (SGF), to the FY 2022 budget and $119.8 million, including $60.1 million SGF, to the FY 2023 budget.

Here’s some of what was (and wasn’t) included.

Education

• K-12 funding was moved to a separate budget bill – HB 2567. The funding meets the constitutional requirement of providing adequate and equitable funding for Kansas public schools and maintains funding for early childhood programs. Unfortunately, neither HB 2567 nor the Omnibus bill included additional special education funding to meet the state’s legally-required reimbursement rate of 92 percent of these excess expenses.
• $34.8 million, all from federal ARPA funds, for certain state universities, community colleges, and technical colleges to help modernize facilities and programs to better produce competitive, workforce-ready graduates.

Child care

No provisions were included in this budget bill to address the state’s child care crisis. However, a separate bill (HB 2237) expanded an existing $3.0 million a year tax credit to make eligible all Kansas businesses that provide child care for employees or help employees pay for other child care. Previously, this credit was only available to large corporations and financial institutions, but small businesses can now support their employees with this critical need.

Economic growth and stability

• $1.5 million from ARPA funds to increase capacity for senior nutrition programs, such as Meals on Wheels.
• $12.5 million from ARPA funds for economic development infrastructure, primarily in rural areas to attract businesses and workers and slow population migration to urban areas.
• $23.1 million from ARPA funds — plus $1.0 million from the Economic Development Initiatives Fund — to develop affordable, middle-income housing, primarily in rural areas. This was in response to the immense need identified in the 2021 Kansas Statewide Housing Assessment.

Health and human services 

• $110.4 million in FY 2022 and $221.5 million, including $61.3 million SGF, in FY 2023 for increased Human Services Caseloads. The increase is primarily due to a higher than normal number of individuals served due to the Public Health Emergency (PHE) federal restrictions on removing individuals from Medicaid until the end of the month in which the PHE ends.
• Originally included in the final budget bill, but passed as SB 19 on the final day of the session, $10.0 million SGF to fund the 9-8-8 suicide prevention and mental health crisis hotline, which will provide short-term services to diagnose, manage, observe, and stabilize people in crisis, as well as refer follow-up services. The separate bill provides continual funding and creates a committee to measure outcomes of the hotline and related services.
• $5.1 million SGF to expand regional mental health bed access in the Sedgwick County regional area to address a growing need and long wait times for residential care in the south central part of the state.
• $15.0 million from ARPA funds to help nursing facilities across the state cover rising costs associated with staffing shortages.

Fiscal policy

• $250.0 million SGF to be transferred to the Budget Stabilization Fund (BSF) for a total transfer of $750.0 million in FY 2022. The BSF is the state’s rainy day fund designed to collect remaining money from strong economic times to protect vital state operations in case economic downturns cause revenue shortages. This will be the highest balance ever achieved in the fund.
• $373.7 million SGF to pay off several bonds (including those for the National Bio and Agro-Defense Facility and the John Redmond Reservoir) earlier than scheduled, which will save the state more than $100 million and free up that funding for other programs in future budgets.
• Factored into the total cost of the budget but contained in a separate bill, $1.125 billion will be transferred from the SGF into the Kansas Public Employees Retirement System, or KPERS, to catch-up on missed payments from past years of underfunding and reduce the remaining debt, saving the state money in the long-term.

Takeaway

Overall, the budget is successful in fixing structural funding issues that had been kicked down the road for years and in using one-time surplus funds to make big investments, which will save the state hundreds of millions in the future. Aside from a big tax package passed to court an anonymous business to the state and a bill passed in the eleventh hour providing tax refunds to businesses that endured a government-ordered shut down during the COVID-19 pandemic, the Legislature mostly resisted the urge to give away the surplus to corporations and special interests.

A sure relief for all Kansans, HB 2106 begins the gradual decrease of the state-level sales tax on food. While the initial effective date of January 1, 2023, is later than ideal, it is promising to see a pathway to complete elimination by 2025.

Of the $2.8 billion surplus expected at the end of this fiscal year, lawmakers have appropriated more than $1.4 billion for debt payments since the April CRE budget profile was released, including the payments to KPERS. Estimates say this will save the state close to half a billion dollars within the next five years. With the three quarters of a billion put into the state’s rainy day fund, the Legislature has shored up the state coffers in preparation for potential economic upset. Prior to the COVID-19 pandemic, Kansas was one of a few states to have an empty rainy day fund and at great risk of economic disaster. While the budget does not provide immediate relief nor an immediate tangible benefit of the budget surplus for Kansas residents, there is some peace of mind in knowing that the state is not on the precipice of financial ruin as it has been in the past.

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