How Does the State Budget Work?
Updated November 15, 2023
(Download this brief here. Previous version here.)
The budget is more than dollars and cents. It touches the everyday lives of Kansans in every corner of the state. The budget affects the quality of life of almost 3 million Kansans across the state’s many diverse communities.
The budget is more than dollars and cents. It touches the everyday lives of Kansans in every corner of the state. The budget affects the quality of life of almost 3 million Kansans across the state’s many diverse communities.
It is one of the most significant pieces of public policy the Governor and Legislature create each year. The budget establishes how the state will invest in education, health, transportation, public safety, human services, and other areas that help build a strong state economy and citizenry. The budget details how money will be collected and spent to achieve these goals.
Here are some of the ways the state budget affects the lives of Kansans:
- About 484,000 students supported by 73,300 teachers, administrators, and staff in Kansas K–12 public schools during the 2022-2023 school year
- Nearly 90,000 postsecondary students enrolled in public colleges, universities, or technical colleges during the 2022-2023 school year
- An average of 200,000 adults and children received food assistance each month in FY 2023
- Almost 10,000 miles of state highways maintained by the Kansas Department of Transportation
- More than half a million Kansans who are seniors, disabled, children, or parents with low incomes received health care coverage and services monthly in FY 2023
A budget that supports a prosperous future for all Kansans invests more and cuts less. By understanding the state’s fiscal picture and the budget process, lawmakers can fully weigh different priorities against each other while keeping the budget balanced and serving the best interests of all Kansas residents.
This primer provides a basic, high-level overview of how the budget is developed and implemented, and where the resources that support it come from.
Budget Basics
Throughout the year, Division of the Budget staff work with each agency’s budget staff to manage three budgets at once – closing out the prior year’s, implementing the current year’s, and beginning work on the following year’s recommended budget.
- The Kansas fiscal year (FY) runs from July 1 through June 30 and is named for the year in which the fiscal year ends. For instance, the current fiscal year, “FY 2024,” started on July 1, 2023, and will end on June 30, 2024.
- Money received through taxes, fees, and federal dollars is known as revenue.
- When revenue money is to be spent, the Legislature passes laws that direct where that money goes, making expenditures.
- The budget must be balanced. The Kansas Constitution requires that the state budget be balanced, meaning that expenditures cannot exceed revenues and reserves.
- If expenditures exceed the revenue, the state is running a budget deficit and is out of balance.
- The Department of Revenue, Division of the Budget, Legislative Research Department, and economists from the state universities, known collectively as the Consensus Revenue Estimating Group, meet twice a year to forecast revenues for the upcoming budget to determine if the resources needed for planned expenditures will be available.
- The budget must fund certain items. For instance, the Kansas Constitution requires the state to pay back debts and fund the state public education system. A collection of federal mandates and court orders impose other requirements.
- The budget may be revised. The state’s finances must be monitored throughout the year to ensure that revenues and expenses remain balanced and adhere to what the Legislature approved. When the next budget is being developed, the Governor and Legislature can adjust the current fiscal year budget to add money if surplus revenues become available, or to cut expenses if revenues are lower than expected.
- The Governor proposes the first draft; the Legislature passes the final draft. The Governor submits a budget to the Legislature the start of each legislative session. During session, the Legislature reviews and revises the Governor’s budget and passes its own version, which the Governor can sign into law or modify and send back to the Legislature.
Annual Budget Process
The budget process begins just a few months after the fiscal year begins in July, and largely ends on the last day of the legislative session.
Where Does the State's Money Come From?
The state’s fiscal health depends on the state’s ability to raise money from a variety of sources in a reliable way. Like most states, Kansas collects revenue from a mix of individual and corporate income taxes, sales taxes, and other various smaller taxes and fees. A fair, reliable revenue system requires both types of taxes.
Sales & Compensating Use Taxes — In FY 2024, $3.6 Billion, or 35%
Sales taxes are Kansas’ second-largest revenue source, representing slightly less than two-fifths of annual collections.
Sales taxes are levied for the purchase of goods or services, but they provide a less consistent source of yearly revenue as they are more affected by economic trends. Sales taxes tend to be regressive, meaning low-income households pay a larger share of their incomes for these taxes than higher income households.
Kansas is also one of the few states that still has sales tax on food. Due to a law passed in the 2022 Session, though, the 6.5 percent tax rate on food began to gradually reduce on January 1, 2023, and will decrease two more times until it is fully eliminated in January 2025.
The state’s reliance on individual income and sales taxes has its advantages and disadvantages. During FY 2023 when Kansans had returned to work at almost pre-pandemic numbers and many were receiving higher wages, sales and income tax revenue collections were much higher than estimated, leading to a historic surplus.
However, both revenue sources are more easily affected by changes in the national or global economy, as we saw at the start of the COVID-19 pandemic in 2020 when schools, workplaces, and businesses were closed and people were not spending much, leading to the lowest State General Fund revenue since 2017. Had it not been for substantial federal funding, the state may have had to cut vital services in order to maintain a balanced budget.
Kansas residents pay different amounts of taxes based on their incomes and spending habits. However, a regressive income and sales tax structure leads to lower-income families paying a higher percentage of their income in sales taxes while higher-income families pay a higher percentage in income taxes.
Income Taxes — In FY 2024, $6.1 Billion, or 59% ($4.8 Billion from Individual and $1.3 Billion from Corporate)
Income taxes are the cornerstone of Kansas’ revenue system, making up just under three-fifths of the State General Fund. Income taxes can be collected from individual households or businesses. Individual income taxes alone are more than half the revenue received and are based on what an individual household earns, including wages, salaries, dividends, interest, and other income. Corporate income tax is based on business profits (net income).
Property Taxes
Property taxes are another significant source of revenue for many governments. In Kansas, a local portion is levied by townships, cities, counties, and school districts to fund local area services; a statewide portion levied by the state is used to fund public K-12 education. This school funding state tax is a fixed rate that is applied to a percentage of a property’s value (known as the assessed value), resulting in a tax of $20 for every $1,000 of assessed value.
Beginning in 2022, the first $40,000 of a residential property’s value is excluded from the tax calculation. There are also programs to reduce the cost of property taxes on lower-income Kansans who are seniors, blind or permanently disabled, or have dependent minors living with them.
Other Taxes
Several other smaller taxes contribute to the state’s revenue stream, including:
- Severance taxes for the extraction and production of coal, oil or gas for profit or commercial use;
- Tobacco taxes imposed on all cigarettes sold;
- Alcohol taxes imposed on alcohol sold by retailers to Kansas consumers, or sold by distributors to clubs, drinking establishments or caterers; and
- Privilege taxes assessed against the earnings of all financial institutions
Federal Funds
Kansas receives several billion dollars in federal funds every year. Most is restricted to specific uses and requires the state to commit a certain amount of state funds to receive the full allocation. These funds then flow through state agencies to Kansas residents, service providers, and communities.
The federally funded portion of the FY 2024 budget is still slightly elevated due in part to increased funds from several fiscal relief packages issued during the COVID-19 pandemic, some of which can be spent through 2026. Federal funds account for 29 cents of every dollar (down from 30 cents in FY 2023) of the total budget.
Where Does the State's Money Go in FY 2023?
Kansas’ total FY 2024 budget, including federal funds, is $23.8 billion. The state has an extensive bookkeeping system that assigns all revenues to specific funds and accounts. Revenues are deposited into these funds and then distributed to agencies. The money in a fund may be used for a specific purpose as directed by law.
The major funds of the state include the following.
State General Fund: The state’s largest unrestricted fund. It is the primary funding source for state agency operations and major public services like health care and education. The main revenue sources for the State General Fund include individual and corporate income taxes, and sales and compensating use taxes.
Federal funds: All federal tax-supported funding allocated to the state covering a large share of Kansas overall spending for health care, K-12 education, transportation, and other services. These funds typically come with restrictions for use and reporting.
Other revenue funds: There are several hundred special funds, which receive revenues from federal grants as well as from special fees or levies assessed by the state. These funds must be used for purposes specified by state law, or in the case of federal grants, for purposes specified by the federal government.
Building a Budget for the Future
The state budget is complex and can be impacted by external factors like inflation or economic downturns. But careful planning and sensible investments can help grow revenues and manage expenditures, allowing the state to afford services relied on by Kansans.
Recent actions to improve the state’s overall fiscal position — such as paying off hundreds of millions of dollars in early debt, making overdue payments to the state employees retirement plan (KPERS), and making much-needed deposits into the state’s rainy day fund — have provided the assurance of operational continuity in a possible recession and freed up millions in interest payments to be reinvested in programs to help residents.
Even as inflation has steadily increased the total budget over time, the proportion of SGF to all other funds has remained relatively constant at around 40 percent over the last decade. Particularly during the COVID-19 pandemic where billions of dollars in federal funding were allocated to all states, some expenditures that normally would have come from the SGF were made with federal dollars, which further lowered the SGF portion.
The April 2023 revenue estimate projects that FY 2024 will end with a $ 3 billion surplus, exceeding the 7.5 percent ending balance for the third consecutive year. This creates opportunities for significant one-time investments.
Overall, the state is currently in a solid fiscal position as planning for a new budget year begins. However, there are still some items to monitor:
- Volatility in U.S. monetary policy, energy prices, and U.S. trade and foreign policy continue to cause significant concern and could lead to an economic downturn, significantly decreasing revenues.
- High inflation could increase expenditures across all services but especially education and human services costs, which make up most of the budget.
- Tax expenditures (revenue losses outside of the appropriations process seen from tax exemptions, deductions, and credits), totaled $10.4 billion in 2021, affecting the state’s fiscal health. There is currently no process in place to regularly assess whether these expenditures are achieving their intended goals and if their benefits justify the foregone revenue cost.
Taking Action for Every Kansan
Building a state where all children and families have the resources they need to thrive requires constant and careful management of the budget. A challenge for the 2024 Legislature will be navigating the impact that continued inflation and economic volatility could have on state revenues. Robust tax collections are contingent on economic strength, so close monitoring and appropriate adjustments may be needed should expected revenue fall short.
Kansans deserve a budget that invests in everyone, regardless of race, income, zip code, identity, or ability. This can only be achieved by creating a stable revenue stream through a fair tax system, elevating policies that recognize and correct systemic disparities and barriers faced by marginalized groups, and by understanding the impact budget decisions will have now and in
the future.
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To create a solid budget policy, Kansas lawmakers must:
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