Topeka – The seven-member Consensus Revenue Estimating (CRE) Working Group today issued its final recommendations to improve the CRE estimates that, per statute, are used as the base for developing the State’s budget. The working group was created in June in response to a request from Governor Sam Brownback to conduct a comprehensive review of the CRE process.
Sam Williams, Chair of the working group, was joined by Budget Director Shawn Sullivan and Revenue Secretary Nick Jordan in unveiling the findings and recommendations. The group met four times to study the process and analyze data related to CRE estimates, fiscal notes and state tax policy.
“The inability of the consensus revenue estimating group, of which I am a part, to develop accurate forecasts makes it very difficult to develop and maintain a stable budget,” said Budget Director Shawn Sullivan. “We built our budget for fiscal year 2016 and 2017 on estimates completed after tax legislation passed in 2015. The actuals for fiscal year 2016 were $464.7 million, or 7.5 percent less, than those estimates.”
The working group also researched whether major tax policy passed in 2012 and adjusted in the 2013 and 2015 legislative sessions created an environment in which some businesses changed their tax filing status, making accurate revenue estimates more difficult. After analyzing the data, the working group determined there is no evidence of a large number of C-Corporations changing their filing status to LLCs, S-Corporations or Sole Proprietorships. A review of data from 2007 through 2014 shows the decline in C-Corporations remained consistent with the range of decline prior to the tax policy. Data also showed that the growth in the number of pass-through entities in Kansas is consistent with growth prior to state tax policy changes.
Key recommendations from the group include:
- Utilizing more industry experts from various sectors including representatives from Kansas CPAs and bankers to provide a more diverse and forward-looking economic outlook.
- Investing in new economic and revenue modeling software and reports necessary to track tax collections and forecast tax receipts.
- Changing the composition of the CRE group by issuing an RFP for one economist experienced with macro-economic and revenue forecasting.
- Working with the Legislature to provide the CRE Group flexibility to push the April CRE to May 1 in order to provide the group with more information on state tax filing deadline collections.
“It is our intent to move forward with implementing these recommendations as quickly as we can,” Sullivan said. “The existing review process is more than 30 years old and does not take into account the dynamics of the current state, regional and national economies. We look forward to working with the Kansas Legislative Research Department, and with the Legislature when they return in January, for any recommendations that require their agreement.”
The members of the working group included: Chair, Sam Williams, retired managing partner/CFO of Sullivan, Higdon and Sink; ; Gary Allerheiligen, retired managing partner for Grant Thornton; Gerald Capps, senior vice president for state and local tax services and private equity team leader at Allen, Gibbs and Houlik (AGH); Gary Cloud, senior vice president and co-chief investment officer for FCI Advisors; DeAnn Hill, State of Kansas CFO and owner of a CPA firm; Kurt Knutson, founder and CEO of Freedom Bank, chairman of the Kansas State Banking Board; and Brad Palen, principal at KCOE ISOM.
A copy of the working group report may be found at: http://budget.ks.gov/files/FY2017/cre_workgroup_report.pdf