Kelly, Schmidt clash over development of $969M Kansas state rainy day reserve fund

TOPEKA — The state of Kansas had sufficient cash flow for the first time in more than 20 years to avoid borrowing to cover day-to-day operating expenses while simultaneously building a reserve fund in the just-completed fiscal year with a balance of nearly $1 billion.

The State Finance Council, comprised of the governor and legislative leaders, typically issue certificates of indebtedness for hundreds of millions of dollars to cover for inconsistencies in the flow of tax revenue to the state treasury. The certificates are an IOU the state writes to itself and must be repaid on an annual basis.

Gov. Laura Kelly, a Democrat seeking reelection, said the state closed out the 2022 fiscal year without making use of that borrowing mechanism. It was the first time since 1999 that Kansas lawmakers hadn’t done so, she said.

“When I first came into office, Kansas had no savings, and in fact, was going into debt every year,” said Kelly, who was elected in 2018. “My administration worked to put Kansas on a consistent path of fiscal stability and economic growth.”

As recently as 2020, amid the COVID-19 pandemic, the State Finance Council authorized borrowing $900 million from various state funds to cover expenses. In 2016, the State Finance Council approved an identical $900 million certificate of indebtedness when Republican Sam Brownback was governor.

Meanwhile, Kelly said, the 2022 Legislature and governor collaborated on authorization of deposits into the rainy-day fund that grew to $969 million by July 1. The governor signed budget bills that earmarked deposits of $500 million and $250 million into that savings reservoir. Tax revenue to the state continued to exceeded projections, resulting in an end-of-year deposit of $219 million.

The state’s rainy-day account was established in 2017, and the previous high balance was $81.9 million.

Kelly said the state government built strong cash reserves and avoided operational borrowing at the same time it maneuvered to reduce state taxes, invested in higher education and law enforcement, and fully financed public K-12 education.

Attorney General Derek Schmidt, a Republican and frontrunner for the GOP nomination for governor, said Kansas’ treasury was the beneficiary of an outpouring of federal aid. That funding was approved by Congress and Presidents Donald Trump and Joe Biden in response to COVID-19 and to spur economic growth.

“As I have said repeatedly, Kansas — like most other states — is riding a national wave of revenue caused by Joe Biden’s inflation, and that’s nothing to brag about,” Schmidt said.

He said Kansas’ financial condition was influenced by approval in the GOP-led Legislature of investments in the rainy-day fund and the deposit of $1.1 billion in the state’s public employee pension system. He was among politicians who advocated for those allocations of surplus revenue.

“These prudent measures will help stabilize state services for years to come and help make possible my plan to let Kansans retire tax free,” Schmidt said.

Schmidt also said Kansas lagged behind pre-pandemic economic growth projections.

“We need to grow our state, and as governor, I will continue to work closely with the Legislative to ensure a strong fiscal foundation to weather the inevitable storm that will come when the federal largesse wanes,” Schmidt said.