State budget toughest challenge in Holmes' career

Thursday, 08 January 2009 00:00

EDITOR’S NOTE — This is Part 1 of a two-part series dealing with the
upcoming legislative session. Part 1 deals with the budget shortfall.
Part 2 will address other issues facing the Legislature including the
coal fired plant in Holcomb and other energy issues.

By EARL WATT
• Daily Leader
When Carl Holmes heads to Topeka for the 2009 legislative session, he
will be facing one of the worst economic pictures since he began
serving in the Kansas House of Representatives in 1984.
Kansas is facing a $200 million shortfall on its current fiscal
budget that ends in June 2009.
But Holmes said that was just the tip of the iceberg.
“With revenues flat and promises made, you take the shortfall this
year plus next year, and it adds up to $1 billion,” he said.
Holmes said the state has faced budget crunches in the past,
including 1987, 1993 and 2003.
“None of them compare to what this is,” he said.
With the projected shortfall and a challenging economy, there are
only two ways to correct — increase revenues to the state through
taxes or cut spending.
“There is going to have to be cuts,” Holmes said. “Let’s face it,
Kansas is weathering the economic storm better than some other
states, especially western Kansas. The feeling a few months ago was
we are in pretty good shape. But a lot has happened. Grain prices are
half what they were six months ago. Oil is a third of what it was a
year ago. Natural gas is half what is was six months ago. That may be
good for the consumer, but it decreases income to the state.”
In discussions Holmes has had with other legislators, increasing
taxes does not seem likely.
“We’re all going to have to tighten our belts,” he said.
And by all, he meant Kansans as individuals and the public entities
that are funded by them.
The state has a general fund of about $6 billion annually. Almost $5
billion of it is used for education and social services alone,
leaving the remaining $1 billion to fund all other components of
government, plus user fees that some agencies charge.
Holmes said that a tax increase to make up the shortfall would be
about a 2.5 percent sales tax increase.
In Liberal, that would mean a rate hike from the current 7.95 percent
to 10.45 percent. That’s a scenario Holmes said would not be acceptable.
The remaining alternative is to cut spending.
One of the issues that caused the shortfall was the Kansas Supreme
Court mandate that an additional $400 million per year be spent on
K-12 education.
“At that time, we had a $1 billion surplus,” Holmes said. The
Legislature used those funds to pay the additional money, but the
surplus is gone.
“It’s like a family who starts spending their savings account money,”
Holmes said. “If they don’t put it back, it’s not going to be there.”
With the surplus expended and the mandate still in place, the
Legislature now has to find the money or make cuts in other areas,
and the lion’s share of the state’s general fund goes to education.
It seemed unlikely that the cuts could come from all other agencies
other than education.
“We could close down the state prison system, the state government,
cut off all reimbursements to local governments, suspend all highway
construction, close down the highway patrol and the court system, but
I don’t think the people want that,” he said.
When facing budget crunches in the past, Holmes said several agencies
used increased user fees to make up the difference. For example, the
Division of Water Resources dramatically increased the cost on water
applications. That made it highly unlikely that user fees could
address the shortfall again.
Gov. Kathleen Sebelius has already canceled all highway construction
work in December and January, and while expanding Highway 54 to four
lanes is a high priority to those in Southwest Kansas, Holmes said it
was highly unlikely anything could be done to further the cause
during the upcoming session.,
“Lets be frank, education always has a higher priority than highway
projects,” Holmes said. “Our gasoline tax is higher than it is in
Oklahoma and Missouri. It will be difficult to raise gasoline tax.”
The industries in Southwest Kansas have been insulated from the
national crisis to this point, but Holmes believed the signs
indicated that tough times might be on the horizon.
“This economic situation is serious,” he said. “People in Southwest
Kansas at this point and time haven’t seen the collapse of the
economy that is being seen on the two coasts and large urban areas.
It’s starting to be reflected. New drilling programs are being put on
hold. There is a question of whether grain will be planted for fall
harvest or not. Input prices (seed, fertilizer, etc.) are up, and
grain prices have gone down. We may start seeing the problems here
that we haven’t.”
So far, the Legislature has yet to see the governor’s proposed budget
or recommendations for cuts.
The Legislature will attempt to handle the shortfall with a new
leadership team in the House, starting with incoming Speaker Mike
O’Neal from Hutchinson. The House will also have one of its smallest
freshmen classes it has seen. Only about 20 of the 125-member body
are newcomers.
“I think the newly elected legislators do not realize what they are
getting themselves into with the budget situation,” Holmes said. “At
this point and time I don’t know how it will play out. By far, this
is the most difficult situation I’ve faced.”