In 2012, when Kansas Gov. Sam Brownback first pitched his plan to drastically slash the state's income taxes, he promised "a shot of adrenaline into the heart of the Kansas economy." Brownback brought in Arthur Laffer, Ronald Reagan's trickle-down economics guru, to help sell the idea that the cuts—which zeroed out taxes for 200,000 businesses and slashed rates for top earners—were guaranteed to boost the state's fortunes, prop up the economy, and bring in countless new jobs as businesses and individuals flocked to Kansas to escape the tyrannies of higher-tax states.
Two years later, those rosy predictions have turned to doom and gloom. Next week, when the state legislature kicks off its new session, lawmakers will face a daunting budget deficit that will require either overturning Brownback's tax cuts or shaving hundreds of millions from the state's budget. A recent string of court cases mandating increased funds for education will make that job trickier. Thanks to Brownback's efforts to transform the state into the Koch brothers' dreamland, Kansas is now mired in a fiscal disaster.
Unlike the federal government, which can leave deficits on its books, state governments have to keep their budgets balanced from year to year. Throughout 2014, monthly tax revenues in Kansas came in far below expectations. Tax revenue in December alone came in $15 million below target.
Before the end of the fiscal year this summer, Brownback will need to trim $279 million from the current budget. Brownback's proposal would take $100 million away from spending on the state's highways and use a bit of numbers jujitsu to tinker with pension spending. But these tweaks will only carry the state through the current year. As further tax cuts phase in over time—the state's income tax rate, which has already fallen from 6.45 percent to 4.9 percent, is set to fall another point by 2018—the gap between spending commitments and revenue will only grow more dire. For fiscal year 2016, which starts in July, state legislators will need to slash an additional $650 million, according to the legislature's research office. Standard & Poor's and Moody's, two of the top three credit-ratings agencies, downgraded the state's credit rating last year due to the budget woes.
Brownback eked out a reelection victory in November, winning by 4 points, even as voters turned on the tax reform. Four points is a solid margin of victory in most places, but in a deep-red state in which Brownback won his first gubernatorial term by 30 percent, it counts as a squeaker. And Brownback lucked out. Revenue was coming in below projections all year, but it wasn't until shortly after he won reelection that the legislative researchers released the $279 million figure.
The governor's initial pass at solving the fiscal crisis spared the state's schools. He has indicated that he'd like to reduce education funding during the next round of budget reductions. But unfortunately for Brownback, the courts say the current level of school funding is too low. In March, the state Supreme Court ruled that the government was violating the state's constitutional guarantee of an adequate education. The court said the government had failed to allocate enough money for its students, and the justices tossed the decision back to a lower panel to determine what exactly would constitute a sufficient level of spending. Last week, that lower court ruled that funding for students "is inadequate from any rational perspective of the evidence presented or proffered to us." The three-judge panel held that per pupil spending should be between $4,654 and $4,980 per year. Either number would be a huge jump over the $3,852 per student that the state currently spends.
That district court ruling is bound to be stuck in the appeals process for the foreseeable future. But if upheld, it would cost the state somewhere between $550 million and $770 million each year. The state's current money troubles would essentially double.
Pair that jump in education spending with the already massive hole in next year's budget, and Brownback's tax cuts are too big not to fail. Social welfare programs have already been cut to the bone, leaving little room for the Republicans to reduce them further. Brownback touted the benefits of his billions in tax cuts throughout his reelection campaign, but even he is recognizing that his plan might not be sustainable. "Everything is on the table, including the tax policy," the governor's budget director told the New York Times last month. Brownback might have held on for a second term in office, but his dream of becoming a trendsetter for his fellow Republican governors is no more.