- Associated Press - Friday, May 30, 2014

TOPEKA, Kan. (AP) - Kansas collected $217 million less in taxes than it expected in May, news that is likely to intensify a political debate over income tax cuts championed by Republican Gov. Sam Brownback, though his administration said Friday that the shortfall is a temporary problem tied to federal tax issues.

The Department of Revenue released preliminary figures showing the state collected about $389 million in taxes during May, when it expected to collect about $606 million. Tax collections also failed to meet official projections in April, and the total two-month shortfall is nearly $310 million.

The official fiscal forecast, used in budgeting, projected $5.2 billion in taxes from last July through May, but the state took in only $4.9 billion, a difference of 5.9 percent.

Revenue Secretary Nick Jordan said both months’ shortfalls are tied to past disputes in Washington over federal tax and spending policy. He said that because taxpayers feared an increase in federal taxes on capital gains in 2013, they claimed their gains for 2012 and lessened their potential taxable incomes in 2013.

“The big chunk should be over,” Jordan said during an interview. “The big lug is done.”

A similar trend has recently been reported in other states, including Connecticut, Massachusetts, Pennsylvania and Virginia. The Rockefeller Institute of Government at the State University of New York also said in a report in April that states faced “extraordinary challenges” in forecasting income tax revenues because of the issue.

The shortfall in April - less than half the size of May’s gap - raised questions about whether the state can sustain the spending lawmakers have approved into the future. But even then, some prominent Republicans said they expected state revenues to bounce back.

Democrats questioned the Brownback administration’s explanation for the shortfalls and suggested that personal income tax cuts he championed in 2012 and 2013 are at least partly to blame. The state will cut its top income tax rate by 40 percent by 2018, and it also has exempted the owners of about 191,000 businesses from paying any personal income taxes on their firms’ earnings.

“There is simply no way Gov. Brownback can still claim that his tax experiment is working,” said Kansas House Minority Leader Paul Davis, a Lawrence Democrat who’s running for governor this year.

The Department of Revenue’s figures Friday showed that tax collections for the current fiscal year are running 12 percent behind collections for the previous fiscal year.

“It’s time he accept responsibility,” Senate Minority Leader Anthony Hensley, a Topeka Democrat, said, referring to Brownback.

But Department of Revenue officials said taxes withheld from workers’ paychecks and other income taxes not tied to capital gains are close to official projections. They also noted that the state continues to see higher employment by private companies than it did a year ago.

“This is a trend brought on by the federal government that will probably affect revenue collections for a few months,” House Speaker Ray Merrick, a Stilwell Republican, said in a statement. “The Kansas economy shows significant signs of improvement, which will lead to increased revenues in future months.”

The GOP-dominated Legislature ignored the April shortfall when finishing up work on the budget for the next fiscal year, beginning in July. Legislators boosted aid to poor school districts by $129 million to comply with a Kansas Supreme Court ruling in an education funding lawsuit.

Even with the last two months of revenue shortfalls, the state still expects to have more than $375 million in cash reserves at the end of June, compared with $6 billion in annual spending financed with state revenues. However, without a rebound in revenues, those reserves would dwindle to less than $60 million by June 2015.

But Jon Hummell, Brownback’s acting budget director, said the administration is confident it won’t have to trim already approved spending or delay covering its largest bills, such as monthly aid payment to public schools - steps the state took in the past when it faced financial difficulties.

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Follow John Hanna on Twitter at https://twitter.com/apjdhanna .

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