Kansas Senate bill funnels $1 billion into rainy-day fund to bridge economic downturns

TOPEKA — State Treasurer Steven Johnson endorsed legislation Tuesday adding $1 billion to Kansas’ budget stabilization fund and recommended the bill include provisions prohibiting withdrawals from the rainy-day account for one-time state government expenditures.

The state’s reserve fund contained $980 million on Jan. 1. It was build by state law mandating total transfers to the fund of $969 million in 2022. A straight $750 million was deposited in the account. In addition, $219 million was forwarded to the fund because actual state revenue exceeded the revenue forecast.

The meat of Senate Bill 67 would require a supplemental $1 billion be placed in the fund by July 1. That would create a budget stabilization account in Kansas of nearly $2 billion.

Johnson, a former Republican member of the Kansas House elected treasurer in November, told the Senate Ways and Means Committee the foundation of a sound financial plan for a business or family was a cash reserve. The same advice was relevant to state governments, he said.

“I support your efforts to add funds to the state’s rainy day fund, which will help prevent the need for tax increases or dramatic cuts to state services when the financial highs we have been riding built on the unprecedented federal stimulus dollars of the past few years runs out,” he said.

He said shielding the fund from one-time expenditures would “provide a greater guarantee that taxpayers won’t be asked to fill a hole blown in the state’s budget in future years.”

The Senate bill introduced by Sen. Rick Billinger, a Goodland Republican and chairman of the Ways and Means Committee, called for the $1 billion investment. In the State of the State speech to the Legislature, the governor recommended $500 million be added to the fund.

Adam Proffitt, the governor’s budget director, said Kelly concluded infusion of $500 million would bring the fund to nearly $1.5 billion and provide a sufficient cushion to weather economic downturns. He said obligations of state government during the deep recession from 2008 to 2010 would have been covered by that size of reserve fund.

He said the governor proposed the reserve fund be equal to 15% of annual state general fund revenue. The average of states in terms of savings as a percent of expenditures stood at 12.4%, he said.

“We all know that economies are cyclical and at some point the economy will turn. We just don’t know when, so we have to have a healthy balance there,” Proffitt said. “Governor Kelly and I believe that if you maintain a structurally balanced budget, a cushion of 15% is sufficient to deal with unexpected revenue loss.”

Proffitt said the Kelly administration intended to introduce a bill setting “more stringent safeguards” on use of budget stabilization fund. He said the legislation would set a 40% maximum annual withdrawal from the fund and require a revenue shortfall of at least $100 million before withdrawals began. In addition, he said the governor was interested in placing a cap on the amount of money placed in that account.

Johnson said the Senate should give consideration to approving legislation allowing a portion of the state’s emergency fund to be invested in ways that would generate more interest income for the state.

He said the state could reasonably expect a return of 4.5%, which could mean $45 million in interest on a balance of $1 billion over the course of one year.

“It is real money that would be returning to the state general fund,” Johnson said. “For comparison, that amount is nearly equal to the state general fund budget for the Hutchinson Correctional Facility.”