Editor’s note: The story was revised to clarify that the state’s 2022 budget has a $2.7 billion surplus and a projected $3.1 billion surplus for the 2023 budget.

In a stark turn from its more austere budgetary past, the state of Kansas will likely close out the fiscal year in June with a larger-than-expected $2.7 billion surplus and a projected $3.1 billion surplus for the budget year that starts in July — thanks in large part to federal relief funds.

Much like Kansas, states nationwide saw budget surpluses this year because revenues weren’t as badly impacted by the pandemic as initially anticipated, according to a report by the National Association of State Budget Officers. 

Another reason is the unprecedented amount of federal relief dollars pumped into state coffers over the past two years: Kansas is estimated to receive $4.9 billion in federal coronavirus relief funds under the American Rescue Plan Act (ARPA). About one-tenth of that is earmarked in one of the state’s two main 2022 appropriations bills.

State Rep. Henry Helgerson, D-Wichita, who is on the Appropriations Committee, said federal aid to individuals and businesses overall — not just ARPA — has artificially ballooned the state’s tax revenues this year.

“First, individuals received direct aid. Then businesses could get (Paycheck Protection Plan) loans. Cities and counties received windfalls, and then the state got billions. All those contributed to direct cash stimulus,” Helgerson said.

While ARPA funds cannot be used to pad the state’s bank accounts, lawmakers are using the flexibility provided by the influx of cash to pay back some of the debts and financial maneuvering they used in 2017 and 2018 to keep the state afloat. 

“I came from the days when we had to cut the budget or reduce spending,” said state Sen. Carolyn McGinn, R-Sedgwick, who is on the Ways and Means Committee. “You certainly knew where money was going in traditional programs and you were very careful about starting a new program knowing you would have to fund it in years out.”

Lawmakers passed this year’s $22.4 billion budget across three major appropriations bills — the main appropriations bill passed during the regular session that keeps the government running, the omnibus appropriations bill passed during the veto session that includes revised revenue estimates, and a third bill that funds K-12 education. Gov. Laura Kelly has yet to sign the omnibus and K-12 education bills. 

Despite this year’s surplus, Kansas lawmakers did not fund a number of items that Kelly requested, including $30 million in special education funding, Medicaid expansion or a $250 rebate to everyone who filed taxes in Kansas in 2021. 

The legislature also put the brakes on Kelly’s food sales tax cuts, slowing the full tax reduction until 2025. The hesitation comes in part, McGinn said, from creating a yearly financial obligation for the state.

Meanwhile, Democrats think that this year’s windfall is the perfect opportunity to fund Kelly’s priorities. 

“We clearly can afford those things this year,” said state House Minority Leader Tom Sawyer, D-Wichita. “It doesn’t make any sense to not give any relief until 2023.”

What does Wichita get in the Kansas budget?

Included among the ARPA grants allocated for higher education is $25 million for the joint University of Kansas/Wichita State University Healthcare Sciences Educational Center in Wichita. 

It’s too soon to know exactly what part of the $200 million center the APRA grant will fund, said Wichita State University spokesperson Lainie Mazzullo-Hart. The center will open in 2026, Mazzullo-Hart said, and will host around 3,000 students in one of its dozen or so programs.

Envision, a nonprofit center in Wichita that provides rehabilitation and training to visually impaired people with intellectual disabilities, will get $500,000 to help fund the more than $600,000 in renovations mandated by Medicaid by next year’s deadline. 

The omnibus budget creates a committee of legislators to assess a future project that would add about 50 mental hospital beds to Sedgwick County. About 20% of beds in Osawatomie State Hospital are occupied by people from Sedgwick County, McGinn said. But the hospital is nearly three hours away from Wichita, separating families if someone is admitted. Elected officials have been calling for a new state mental health facility in the county for years. 

Just up the road from Wichita, the Kansas State Fair in Hutchinson will get a face-lift. The fair didn’t take in the money it planned for during 2020 due to pandemic-related closures, said Topeka Republican state Rep. Ken Corbet during a budget hearing, and parts of the fairgrounds fell into disrepair. Lawmakers are giving the fair $14.45 million to renovate the Bison Arena, install a public address system, lay asphalt on walkways and renovate exhibition facilities. 

What is the state spending money on?

“The long-term things are good things to do right now,” Sawyer said, citing broad bipartisan support for those long-term items, like paying down debt.

This year, taxpayers will foot the bill to pay off two bond debts early, totaling $332.2 million, with the intent that the early payment will save money in the long run. Both of the bonds — one of which funded the state’s obligation for building National Bio and Agro-Defense Facility in Manhattan, the other funding both the University of Kansas Medical Center’s Health Education building in Johnson County and the John Redmond Reservoir in Coffey County — are due to mature in 2035. The governor’s office estimates the early payments will save around $80 million. 

In a standalone bill, lawmakers decided to transfer $1.125 billion from the state’s general fund into the Kansas Public Employees Retirement System, or KPERS. Starting in 2017, the legislature approved a layering process for KPERS, effectively moving money in and out of accounts to keep cash on hand. This transfer stops that layering and pays back what was used.

“KPERS will be whole again,” McGinn said, adding that with the new transfers, the fund will be on track to catch up to actuarial numbers by 2033. “We just need to leave KPERS alone.”

Lawmakers also directed $750 million to the state’s budget stabilization fund — also called a rainy day fund — which serves as a savings account for the state to fall back on during an unexpected economic downturn. 

Before 2020, Kansas was one of a handful of states that didn’t have any money in a rainy day fund. During the two years it did, the amount topped out at $82 million, or around 1.1% of the state’s expenditures, well short of the median 7.9% of expenditures most states set aside. That amount would have funded Kansas’ operations for about four days; the median nationwide is 29 days. 

The $750 million one-time expense to shore up savings is about 8.7% of the state’s annual expenditures and should fund operations for about 30 days, an all-time high for Kansas on both measures.

Also, state employees are getting a 5% pay raise, after getting no raise the previous two years. 

Around $440 million of ARPA funding is earmarked in one of the state’s two general appropriations bills for FY 2023. Nearly $250 million of that will go to higher education, including state universities, community colleges and technical schools. Another $165 million will go toward housing and economic development projects, and around $30 million will go to meet short-term staffing needs, including shortages at nursing homes. 

How is the Kansas budget developed?

The process to develop the state budget begins nearly a year before each fiscal year begins at the end of June. In September, agencies send their budgets to the governor and legislative researchers, who, along with the state’s Department of Revenue and economists from state-funded universities, compile a comprehensive estimate of the state’s income. That estimate, called the Consensus Revenue Estimate, is used to plan spending for the following year.

Officially, the plan is just a proposal, as it requires approval from the legislature, which has plenty of opportunity to make changes. But the governor’s budget report is likely the most thorough single document prepared during the entire budget process — the report for FY 2023 topped out at nearly 900 pages over two volumes. 

At the start of the legislative session, the governor’s budget director presents the plan to the legislative committees responsible for the main budget bill — the House Appropriations Committee and the Senate Ways and Means Committee. 

Once the proposed budget has been presented to the legislative committees, the subcommittees then usher the budget through a vetting process, including hosting hearings with testimony from experts and analysis from legislative researchers, to assess spending requests. Using the information they gather, subcommittees then make budget recommendations for specific agencies and line items.

Committees compile those recommendations into a cohesive bill, or a few bills, and then those proceed through the normal legislative process, where it must eventually be agreed to by a conference committee, approved by both chambers and signed by the governor.

Unlike with most bills, for appropriations bills, the governor is allowed to veto specific line items without vetoing the entire bill, as she did this year with two items. The legislature can override those line-item vetoes using the same two-thirds majority vote in both chambers that they would need to override any other veto; the legislature opted not to this year.