The Kansas 2010 budget is headed for a serious shortfall with two of the three most important revenue sources down significantly through September and the third poised to come up short in the coming months.

Personal income tax collections, even adjusting for prior year refunds that were carried over to this year, were 5.8% less than a year ago and corporate income tax collections were down 28.7%. Sales tax collections, essentially flat compared to expectations but down 2.8% from 2009 collections, will not meet expectations in coming months according to Jeremy Hill, director of the Center for Economic Development and Business Research at Wichita State University.

“A lot of people finance Christmas,” Hill said during a phone interview from his office Friday. Because credit is tight and consumers are saving rather than spending Hill expects to see consumer spending in the coming months, and thus sales tax revenues, decline compared to last year.

House Republicans urged deeper spending cuts during the 2009 legislative session, citing concerns over a long-term and worsening decline in revenue. September’s revenue report has strengthened their dire concerns and scorched the more-rosy budget hopes of Governor Mark Parkinson and Democrats in the Legislature.

Talk of the national recession bottoming out over the summer had been bolstered by a faint improvement in state tax collections over August projections, although August collections were 4.9% below last year. That small hope was squashed by September tax collections coming in 18.4% less than a year ago. September’s tax collection is especially important because personal income tax payments include quarterly payments from many small business owners, one of the largest drivers of the state economy.

Hill told Thursday’s annual Wichita Area Economic Outlook Conference the Wichita area would lose 3,550 jobs in 2010. That’s actually 4,550 private sector jobs lost after accounting for the addition of 1,000 government jobs, the largest sector increase. Most of those jobs will be in state and local government according to Hill.

National economic reports released Friday were also less than encouraging. Demand for manufactured goods fell 0.8 percent in August, the largest drop in five months. Most of the decline was because of a steep drop in demand for commercial aircraft according to the Commerce Department. The Labor Department reported another 263,000 jobs lost in September, pushing unemployment to 9.8 percent, the highest since 1983. Economists had expected about 180,000 jobs to be eliminated in September.

Kansas Department of Revenue figures show September tax receipts were $67 million below expectations and $105 million below the previous year. For the first three months of the fiscal year total tax revenues are $96 million below expectations and down $169 million from the first three months of FY 2009.

If the first three months of FY 2010 are an indication, Kansas would end the year more than $500 million short of general fund tax collections according to calculations by the Flint Hills Center for Public Policy.

“This is where we knew we were headed,” said Jason Watkins (R-Wichita), Vice-Chairman of the House Appropriations Committee, in a phone interview Friday.

The Kansas Constitution requires the state end the fiscal year with a balanced budget and state law grants the Governor power to make budget cuts during the year to keep it in balance.

When asked if the governor had any plans to address the problem, a representative from his press office sent this email response:

“I believe the governor’s statement on the September revenue numbers released earlier this week answers your question: ‘We knew there would be good months and bad months as we work our way out of this recession. August was up a little, September was down significantly. We can handle the September shortfall through a careful management of existing funds. It is too early to panic, and too soon to make rushed decisions. We will continue to monitor revenues closely over the coming weeks and months.’”

Watkins said the governor and Democrats don’t want to face reality and that further delays in trimming spending will only make the problem worse as fewer months remain to make up for the shortage.