Kansas avoids short-term loans as fiscal year ends with $1B for rainy day, $438M surplus tax revenue

For the first time in 23 years, Kansas state government ended the fiscal year without needing a short-term loan to cover operating expenses.

Kansas closed the fiscal year with nearly $1 billion in the rainy day fund and $438 million in surplus tax revenues.

"FY22 marks the first year since Fiscal Year 1999 that the Kansas State Finance Council did not have to vote to take out a short-term loan to cover the state’s day-to-day expenses," Gov. Laura Kelly's office said in a Tuesday news release.

Such certificates of indebtedness can help the government account for monthly ebbs and flows of state tax revenues when there isn't money in a rainy day fund or ending balance. Accountants use the budgeting tool to borrow against future revenues without paying interest.

The office said the lack of loans and beefing up the rainy day fund highlight Kelly's "record-setting levels of fiscal responsibility."

The state closed the year with $969 million in the budget stabilization fund — the most ever since the state created a rainy day fund in 2017 following the tax experiment of former Gov. Sam Brownback.

The state budget bill put $500 million into the rainy day fund, the budget omnibus added $250 million and $219 million more was transferred from the general fund before the fiscal year closed at the end of June.

"The last deposit was made because FY22 revenues continued to beat estimates, leaving the state with higher than anticipated levels of cash," the governor's office said.

More: Here's why Laura Kelly, Derek Schmidt are claiming policy wins from Kansas legislative session

Rainy day fund had bipartisan support

Attorney General Derek Schmidt, the Republican frontrunner to challenge Kelly in November's election, was the first gubernatorial candidate this election cycle to publicly propose putting money in the rainy day fund. His call for $500 million was released in a pair of fiscal proposals two days before Kelly's State of the State address and subsequent budget recommendation.

Kelly, who has long supported putting money in a rainy day fund, proposed $600 million in her budget at the start of the session. That amount of money was expected to cover 25 days of operating expenses.

Schmidt also called for paying down public pension debt in the Kansas Public Employees Retirement System, which Kelly also supported. The Legislature ultimately paid down $1.1 billion in KPERS obligations, saving hundreds of millions of dollars in the long run.

"These prudent measures will help stabilize state services for years to come, and help make possible my plan to let Kansans Retire Tax Free," Schmidt said.

More: Derek Schmidt proposes tax cuts on retirement income after House Republicans killed similar plans

Before this year, the most the fund ever had was about $82 million, which would only cover operating expenses for four days. That FY21 figure came as the national median was 34 days, according to The Pew Charitable Trusts.

In 2020, U.S. News & World Report ranked Kansas as having the worst rainy day savings of any state.

"When I first came into office, Kansas had no savings, and in fact, was going into debt every year," Kelly said in a statement. "My Administration worked to put Kansas on a consistent path of fiscal stability and economic growth."

Kelly said those efforts "paid off" by supported funding for K-12 education, higher education, law enforcement and tax cuts.

Kansas tax collections beat projections

Kelly announced Friday that the state ended the fiscal year with $9.8 billion in total tax collections, exceeding estimates by $438 million or 4.7% above projections.

Annual income tax collections performed especially well. Corporate income taxes beat estimates by 11.2%, or $81 million, while individual income taxes beat estimates by 7.5%, or $366 million.

"The higher-than-expected corporate estimated payments send a strong signal that corporations anticipate greater profits in 2022," Secretary of Revenue Mark Burghart said in a statement.

Retail sales and compensating use tax receipts have likely benefited from inflation, the governor's office said, but consumer spending has remained consistent.

Schmidt has characterized the high revenue as a product of federal spending and inflation, not Kelly's budget acumen.

"As I have said repeatedly, Kansas — like most other states — is riding a national wave of revenue caused by Joe Biden's inflation — and that's nothing to brag about," Schmidt said in a statement.

Pew has previously credited much of the state budget surpluses nationwide to federal stimulus efforts and pandemic shifts in personal spending.

Despite rising tax revenue, inflation-adjusted tax collections in Kansas were below their pre-COVID growth trends, Pew research found. That March study used the eight quarters ending June 30, 2021, and does not include the most recent fiscal year's worth of revenue.

Disputes over Kansas economic health

June's tax receipts accounted for $20 million of the annual surplus.

"In June, we brought in more money than was estimated — re-enforcing that our state’s economy is continuing its forward momentum," Kelly said. "Our efforts to be the most fiscally responsible and pro-business administration in Kansas history has helped our state become a hub for economic growth."

While Democrats have touted record-low unemployment and government-assisted economic development, Republicans have disputed their claims of economic growth, citing surging inflation and abundant job openings amid lower employment figures than pre-pandemic days.

More: How is the Kansas economy? You're going to see a wide range of assessments in ads for governor

"Unfortunately, Kansas ranks among the states that lag behind pre-pandemic growth projections, has many fewer Kansans working today, and is seeing a slower job recovery than the nation as a whole after our governor's ill-advised lockdowns," Schmidt said.

Schmidt said it is necessary to grow the state and to work with the Legislature to "ensure a strong fiscal foundation to weather the inevitable storm that will come when the federal largesse wanes."

Jason Tidd is a statehouse reporter for the Topeka Capital-Journal. He can be reached by email at jtidd@gannett.com. Follow him on Twitter @Jason_Tidd.

This article originally appeared on Topeka Capital-Journal: Kansas economy and taxes produce state budget surplus, rainy day fund