Kansas leaders shift $675M in funds to aid state cash flow amid partisan debate on economy

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TOPEKA, Kansas — Kansas will shift $675 million among various accounts so the state can pay its bills on time over the next year, but a meeting Thursday in which Republican Gov. Sam Brownback and legislative leaders approved the move turned into a contentious, partisan debate over his fiscal policies.

Brownback met with eight top lawmakers, including the Legislature's two Democratic leaders, because state law requires his administration to have their consent for the routine shifting of funds. The state credits money from various accounts to its main bank account — the general fund — to cover gaps between revenue collections and spending, but must reverse the transactions before the following July.

The internal borrowing last year was $300 million, and it had declined since 2010. Democratic legislative leaders suggested the amount is jumping this year because the state's finances are crumbling after massive personal income tax cuts enacted by the GOP-dominated Legislature at Brownback's urging. Brownback and top Republican lawmakers offered a spirited defense of his policies, saying the tax cuts are creating economic growth as intended.

House Minority Leader Paul Davis, a Lawrence Democrat, is challenging Brownback's re-election this year, and Senate Minority Leader Anthony Hensley, a Topeka Democrat, is a vocal critic of Brownback's administration.

"Is, in fact, the fiscal situation of the state deteriorating?" Hensley asked.

The state will cut its top personal income tax rate by 40 percent by 2018, and it already has exempted the owners of 191,000 businesses from paying any income taxes. The reductions were expected to save taxpayers $4.1 billion through June 2018, though some critics believe the cost to the state has been underestimated.

Brownback said the state's situation is far better now than when he took office in January 2011 because private sector employment is growing and unemployment remains well below the national average.

The state Department of Labor released a report Thursday showing that the seasonally adjusted jobless rate remained at 4.8 percent in May and the total number of people employed hit a record high, at nearly 1.43 million. Also, the state has added nearly 56,000 nonfarm, private sector jobs since January 2011.

"If we hadn't cut taxes, particularly for small business, to create jobs and opportunities, we wouldn't be in near as good a situation as we are," Brownback said. "We're seeing growth take place."

However, the state's tax collections in April and May fell a total of $310 million short of expectations. Davis and other Brownback critics contend it shows that the tax cuts championed by Brownback were reckless and are endangering funding for public schools, social services and other key programs.

Projections earlier this month from the Legislature's nonpartisan research staff showed a budget shortfall developing by July 2016, with collective shortfalls of nearly $1.26 billion through July 2019.

"What unfortunately nobody is talking about here is what the future of our fiscal situation looks like," Davis said.

Brownback's administration contends tax collections in April and May were less than expected because disputes in Washington over federal fiscal policies in 2012 made investors uncertain about tax rates on capital gains, causing them to claim gains early to avoid potentially higher rates for 2013. Administration officials said Thursday they don't expect such drop-offs in tax collections again.

"We have a growing economy," said Shawn Sullivan, the governor's budget director. "We are going to be good."

Follow John Hanna on Twitter at https://twitter.com/apjdhanna .

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