From: Greg.Smith@house.ks.gov
To: Greg.Smith@house.ks.gov
Date: Fri, 8 Apr 2011 17:01:25 -0500
Subject: How Kansas Produces a Budget (Lesson 3)
I have posted three educational pieces on my Facebook page concerning the state school finance formula and how we produce a budget in Kansas. I am sending them to you, in case you did not see them on Facebook. I would encourage you to share them with as many people as you can. It is only by education that we can truly be successful in making Kansas a better place for all.
In my previous two notes I have summarized the complex and confusing School Finance Formula our state uses as it is the most frequently asked about subject by constituents. The second most asked question I get as of late has been, “How does Kansas produce a budget?” This note, Lesson 3, in the budget series I appear to be writing attempts to address that without bloviating, opining or posturing. I’ve done my best to keep the rhetoric out and put factual information you can use in the note.
Article 11, paragraph 4 of the Kansas Constitution directs the Kansas Legislature to “provide, at each regular session, for raising sufficient revenue to defray the current expenses of the state for two years.” In short, the legislature has a constitutional mandate to prepare a budget for the state. Sounds simple, doesn’t it? It is amazing how many moving parts there are and what this simple phrase truly entails.
First, the governor provides his budget proposal to the legislature. It is based on the governor’s vision for the direction he believes the state should take. It is based on revenue reports from the previous fiscal year as well as expenditures from that year. A preliminary review of programs is done to judge the both effectiveness and usefulness. Projected revenues for the state are also taken into account. This is considered the starting point for the budget. Both chambers, the Kansas House and the Kansas Senate come up with their respective proposals for a state budget.
Each chamber has a committee that deals with the budget. In the House it is referred to as Appropriations. In the Senate it is referred to as Ways and Means. Each of the committees holds hearings, gathers data, listens to testimony, and discusses expenditures they feel the state needs to make to fulfill its duty to provide the core functions of government. It takes most of the regular session for the committees to gather their data and propose a budget.
To complicate matters the budget as referred to by the media, and by most legislators, is not the true budget. An article in Forbes.com dated March 31, 2001 commits this error. In the article is this statement,”The budget spends $800 million more in state revenues than the 2010.” In truth, the State General Fund spends $800 million more in revenues. The All Funds budget, the true budget of the state, is reduced by almost a billion dollars. If you recall Lesson 1 on School finance, the budget consists of two silos or wells.
The first silo of the total state budget is known as the State General Fund or SGF. This part of the budget is about $6 billion. Again this is not the entire state budget although it is frequently portrayed that way by the media. It is the only portion of the state budget that the Kansas Legislature has the full authority to control, however. The SGF is slightly less than half of the entire state budget. The SGF is funded by taxes. These taxes are:
1) Individual Income Taxes
2) Corporate and Financial Income Taxes
3) Sales and Compensating Use Taxes
4) Insurance Premium Taxes
5) Alcohol Taxes
6) Tobacco Taxes
7) Severance Taxes
8) Other taxes and income
The second silo of the budget is All Funds, about $12 billion, which is where all other monies collected by the state go. The All Funds portion consists of the State General Fund and the following other revenue sources:
1) Federal Monies
2) Non-Federal Highway Fund Monies
3) University Tuition and Fees
4) Dedicated Agency Fees
5) Dedicated Tax Receipts
6) Other Dedicated Tax Receipts
The legislature has control over some of these fees directly but in some cases, pursuant to Article 2, paragraph 30 of the Kansas Constitution, agencies created by the legislature have this power.
“The legislature may confer legislative powers upon interstate bodies, comprised of officers of this state or its political subdivisions acting in conjunction with officers of other jurisdictions, relating to the functions thereof. Any such delegation, and any agreement made thereunder shall be subject to limitation, change or termination by the legislature, unless contained in a compact approved by the congress.” What this means is that agencies may be created by the legislature with the authority to levy fees and/or regulate how business is done by the government. An example would be the Kansas Corporation Committee (http://www.kcc.state.ks.us/). These agencies are needed since the legislature is not a full time body and cannot provide year round oversight of the daily operations of government.
Now you can see how complex that simple phrase from the Kansas Constitution, directing the legislature to “provide, at each regular session, for raising sufficient revenue to defray the current expenses of the state…” actually is. It is further complicated by the fact that the governor has powers to modify the budget both before it is signed into law and after. According to Kansas Statute, KSA 75-3722 the executive branch “shall, in such manner as he or she may determine, inaugurate the allotment system so as to assure that expenditures for any particular fiscal year will not exceed the available resources of the general fund or any special revenue fund for that fiscal year. The allotment system shall not apply to the legislature or to the courts or their officers and employees.” To summarize the statute, the governor may reduce the budget that is in place to make sure that the bills are paid. Allotments cannot be used for the legislative budget or the judicial budget.
The governor has line item veto power on the proposed budget as well. So even after the House and Senate agree on a budget proposal the governor can eliminate specific sections of the budget prior to signing it into law.
To get a budget in Kansas the following process is followed:
Each chamber’s budget committee goes through the process of creating their version of the SGF budget. Each chamber then debates, offers amendments and votes on their respective budget bill (or proposal). A final product comes out of each chamber. Prior to this year, however, for the last two years, because of philosophical differences, posturing and rhetoric the Kansas House has not produced a budget proposal. So, for the first time in two years, the Kansas House has actually produced a budget proposal. This may not seem like an important detail but it is. Since both chambers produce a budget proposal and they are not identical in content, a conference committee must be held to form a single budget proposal from the legislature. A conference committee consists of 3 members from the House Appropriations Committee and 3 members from the Senate Ways and Means Committee. As a regular practice each committee is represented by the respective committee chairperson, vice-chairperson and the ranking minority member. 2 members of each committee must agree to the compromise budget proposal before it can be voted on by each chamber. The committee report is a crucial document because it details what was done to get the budget proposal to its compromise form. No amendments may be added to the compromise budget proposal. If a 2/3rds majority of each chamber passes the compromise budget proposal then it goes to the governor for approval, or line item veto and approval, or, possibly a complete rejection by the governor.
In the conference committee each chamber’s budget proposal is considered the official position statement of that chamber. Each side refers to their bill to support their position. For the last two years, the House has not had a proposal and therefore has not had a bargaining position, so the Senate budget has for all intents and purposes been the default position on the legislative budget. It could be argued that the House has abdicated its constitutional obligation to produce a budget proposal.
A second consideration when working on the budget compromise is how strongly the budget proposal was supported by each chamber. The larger the majority, then the stronger the position. A constitutional majority is required by each chamber to pass any bill. That majority of the House is a minimum of 63 representatives. The Senate majority is a minimum of 21 senators. The Senate passed their budget proposal by a 36 – 3 margin. In other words, 90% of the Senate supports their budget proposal. The House budget proposal passed by a margin of 69 – 52, or a much weaker 55%. What this means is there is good and bad news for the conference committee process. The good news is that for the first time in two years the House has an official budget position to bargain from so they can’t be “rolled” by the Senate, whose budget proposal is in the red. The bad news is that House margin of support is much weaker than the Senate so it will be more difficult for the House to maintain leverage in the negotiation process.
The points of comparison that need to be considered in this compromise process are:
A) The Senate’s budget is in the red since revenue is down from the projections that were used to formulate their budget. The Senate budget had an $8.1 million reserve but with revenue down $20 million, their budget proposal is actually a -$11.9 million.
B) The House budget proposal is in the black even though the same revenue projections were used to formulate their proposal. The House budget proposal had $80 million in reserve, so even with the revenue shortfall, the House budget still has $60 million in reserve.
C) The House budget proposal (All Funds) is almost $1 billion dollars smaller than last year’s budget.
D) Remember that the reserve amounts are for the SGF portion of the budget only and not the All Funds portion.
E) The House has an official position to negotiate from for the first time in two years.
F) The Senate has stronger support for their proposal then the House does.
G) Regardless of the final product the House and Senate agree to, the governor can selectively reduce the budget even further and probably will.
So, there you have a summary of the budget process and how things play out. There are some representatives who are disappointed in the House budget proposal. They do not feel the cuts went deep enough. I feel more cuts could have been made, and in fact I voted in favor of every amendment that would have provided deeper cuts (except for one that was not a realistic amendment but instead was a grandstanding tactic and garnered only 8 votes in support of it). However, what the House budget proposal represents is the deepest cuts that a constitutional majority of the House could support.
It took years for the Kansas Budget situation to become so crucially flawed. To expect it to be fully corrected in 90 days, without causing critical damage to the state, is not being intellectually honest. The House position is a step in the right direction in fixing the defects. A much more conservative House was elected in November as well as a conservative Republican governor. Before rounding up a posse to run the legislature and governor out of town, wait and see what the final product is instead of reacting emotionally to proposals that do not and will not have the effect of law.
The legislature is on break until April 27 and the members are back in their home districts. If you have questions about the budget I encourage you to contact your representative. Feel free to contact me whether I represent you or not. I will explain the House position and my rationale for supporting it. 913.302.9983 is my cell phone number. You can email me at greg.smith@house.ks.gov
This is the last of the three pieces. Thank you for your support and the emails I have received encouraging me.
Greg Smith
Kansas State House of Representatives
District 22
“Do not separate text from historical background. If you do, you will have perverted and subverted the Constitution, which can only end in a distorted, bastardized form of illegitimate government.” James Madison
