Kansas legislators will have a $2.8 billion budget surplus to work with when they return to Topeka in January with tax cuts and an election year on their minds.

Adam Proffitt, the secretary of administration and the governor’s budget director, and J.G. Scott, director of the Kansas Legislative Research Department, reported new financials from the Consensus Revenue Estimating Group on Thursday.

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Fiscal year 2023, which ended June 30, had a $2.4 billion ending balance plus $1.6 billion in a rainy day fund.

Fiscal year 2024, which started July 1, is projected to have an ending balance of $2.8 billion plus $1.7 billion in the rainy day fund. That’s off an estimated $12.7 billion in available revenue and $9.9 billion in expenditures from the state general fund.

Fiscal year 2025 is projected to have an ending balance of $3.5 billion with $1.7 billion in the rainy day fund. Estimated revenue to the general fund is $13.1 billion with $9.6 billion in expenses.

“The $3.5 billion is certainly the highest that we can recall seeing,” Proffitt said. “It’s important to note though, of the $3.5 billion that we’re showing a fiscal ’25, exactly $1 billion of that is tied to one-time federal money.”

Scott said the budget stabilization fund, also known as the rainy day fund, “is in a pretty good place.”

Despite projected ending balances of $2.8 billion at the end of the current fiscal year and $3.5 billion at the end of the next fiscal year, that does not mean all the budget surplus is available for tax cuts.

How much tax cuts can Kansas afford?

So how much money does Kansas need to have a healthy bank account as lawmakers look to cut taxes?

Proffitt pointed to a state law requiring an ending balance of at least 7.5% of total expenditures. That would mean a little less than $1 billion in ending balance, but lawmakers are able to waive the requirement if they so choose.

Proffitt noted that Gov. Laura Kelly has previously proposed tax cuts.

“One of which would have been about $820 million of a direct rebate to Kansans to be paid out this past summer,” he said. “That could have reduced it and not have been an ongoing hit to the SGF revenues such that we can maintain structural balance.

“So when looking at tax cuts, you have to look at determining what is actually in the in the balance — again, a billion dollars of that is one-time federal dollars that will not be there going forward — and then also you project out a couple of years to ensure that you can maintain structural balance, whereas ongoing revenues exceed ongoing expenditures. That’s the best answer I can provide.”

In fiscal year 2023, the state ended with $576 million more in receipts than expenditures. Fiscal year 2024 is projected to have $413 million more in revenue than expenses, with the figure growing to $700 million for fiscal year 2025.

Proffitt did not indicate what number would make for a sustainable tax cut that Gov. Laura Kelly would sign.

“I’m not going to speak for her as to what her tax plan might be,” Proffitt said. “I think she’s been consistent about identifying that we need to responsibly and targetedly cut taxes. So I would anticipate a plan coming forward from her at some point in time. I don’t have any idea what that could be.”

More: Kansas Republicans want an income tax cut. Can they override Laura Kelly’s veto next year?

The budget profile represents a snapshot in time, he said, and costs may rise or revenues may not be as strong as they are now.

“We’re looking across our horizon and making sure that we maintain structural balance so that we don’t find ourselves in a bind down the road,” Proffitt said.

Brianna Johnson, a Kelly spokesperson, said, “We need to give this money back to Kansans through responsible tax cuts” while noting the governor’s past support for an income tax rebate and cutting property taxes and taxes on retirement income.

“She will once again work with the legislature to cut taxes in a way that does not risk the financial future of our state or our strong public schools and roads,” Johnson said.

The Republican-led Legislature bundled its tax cut proposals into two packages, each with some popular, bipartisan pieces and some more divisive ones. Both bills were vetoed by the Democratic governor, and the GOP supermajorities did not override.

The proposals in Senate Bill 169 totaled roughly $1.4 billion in tax cuts over three fiscal years. The proposals in Senate Bill 8 totaled $244 million in tax cuts over three fiscal years.

Revenue estimate is lower but not cause for alarm

The revenue estimating group lowered its estimate for fiscal year 2024 total receipts by $67.7 million from the previous forecast.

Proffitt said it is not a reason to be concerned, noting that revenues so far had been within 0.2% of the last forecast from April. He and Scott attributed the difference to a shift in tax revenues between fiscal years under a newer law that allowed certain businesses owners to pay corporate income tax instead of personal income tax.

“We simply didn’t have the data available to us at the April meeting,” Proffitt said. “So I would say that the revenue forecast is relatively consistent with what we had in April and we feel confident about the direction it’s going.

“All the economic indicators lead us to believe that things are on track and actually slight improvement in some of those when you look at the GDP that we’re forecasting and the disposable income for Kansans.”

Meanwhile, the group issued its first estimates for fiscal year 2025, projecting that year’s total taxes will drop $65 million or 0.6% from fiscal year 2024.

Proffitt attributed that to the scheduled food sales tax cuts reducing the sales tax revenue, and corporate income tax cuts from megaproject economic development legislation reducing the income tax revenue. If it weren’t for those tax cuts, then there would be modest growth in tax revenue, he said.

Jason Alatidd is a statehouse reporter for the Topeka Capital-Journal. He can be reached by email at jalatidd@gannett.com. Follow him on X @Jason_Alatidd.