Each year various adjustments push state spending above the approved budget, but in 2010 that extra spending took a big jump that will require even more spending in the future.

Kansas spent $1.455 billion more than budgeted in 2010. The latest estimate says the state will spend $1.063 billion more than the $13.7 billion budgeted for 2011, a 7.8 percent increase. Much of the additional spending is money from previous years and increases in federal funding.

State agencies have broad authorization to seek and spend the federal dollars even though they often come with strings attached. Of most concern to some legislators are federal “maintenance of effort” (MOE) requirements that lock the state into spending the same or more for certain functions in subsequent years.

MOE applies to about 15 types of services covered by federal American Recovery and Reinvestment Act (ARRA) dollars, including Medicaid, K-12 education, road construction, and unemployment benefits and deepens state budget woes according to the non-profit State Budget Solutions.

A battle over MOE for special education was cited as a major reason for delays in balancing the 2011 budget. In order to meet federal MOE requirements that promise future funding the state must spend about $26 million more for special education than Gov. Sam Brownback planned.

Adjustments, mostly increased spending, made since the previous legislative session are found in Schedule 8 of the annual Governor’s Budget Report published by the Division of the Budget in mid January, just before the new session begins.

Revised expenditures reflected in the Governor’s recommendations include reappropriation of expenditures from FY 2010 to FY 2011. These reappropriations represent funds approved to be spent prior to FY 2011 under authority granted in legislation. Other changes that have occurred include actions taken by the State Finance Council, actions accomplished through Executive Directive authority of the Governor, internal transfers between a central office and its institutions or between institutions, and recommendations by the Governor to reflect updated information on caseloads or institutional populations, changes in expenditure patterns, new or revised policy directives, or changes in federal grants.

“Legislators, enticed by the promise of federal money, spent more money instead of adjusting budgets to declining revenue,” wrote Bob Williams, president of State Budget Solutions and a former Washington State legislator.

“We are constantly held hostage by the federal government because we continually take their money,” said freshman Rep. Charlotte O’Hara (R, Overland Park) at a recent rally in Topeka. “Those dollars come with strings attached, many, many, many strings attached.”

O’Hara said she is frustrated with her fellow legislators for choosing to trade away state budget freedom to take more federal dollars rather than getting state spending under control.

“That was one of the things that absolutely shocked me when I first came here. In committee meeting after committee meeting I kept hearing about, ‘Well, it’s federal money. It doesn’t cost us a thing. It’s federal money, it’s free money.’ I would raise my hand and say, ‘Where do you think this money comes from? It comes from our pockets.”

“We have sold our soul to the federal government and we now are treated as a subdivision of the federal government,” O’Hara said.”

A January 2010 report by the Mercatus Center warned against reliance on federal dollars.

The state aid component of the ARRA is billed as temporary, but incentives at both the state and national levels will likely make these temporary increases in federal subsidies permanent. Federal grants are likely to induce further public spending, and supporting these additional programs after federal funding is scheduled to expire will require higher taxes, state debt, or ongoing federal aid. This will in turn increase states’ reliance on federal coffers to pay for new programs—money that will inevitably come with strings attached that further bind states’ hands. In 2009, some states identified this likely outcome but were prohibited by Congress from using stimulus money to pay down debt or invest in non-approved projects.

The report quotes George Mason law professor Ilya Somin, who in 2002 called for judicial restrictions on federal subsidies to state governments. “Federal subsidization of state governments undermines three of the most important advantages of a federal system of government relative to a unitary one—responsiveness to diverse local preferences, horizontal competition between states, and vertical competition between states and the federal government.

Senate Minority Leader Anthony Hensley (D, Topeka) favors less federal control over the state’s tax rates. Last week Hensley called for decoupling major parts of Kansas individual and business tax codes from federal tax rules on which many state calculations are based. Such a change would effectively increase taxes for businesses and individual Kansas taxpayers.

Hensley said his proposal would give Kansas more control over its own fiscal fortunes. A mid-April recalculation of projected tax revenue streams on which state budgets are based showed that those revenues would have produced a modest surplus in the state’s expected 2012 budget if federal tax changes weren’t reducing previously projected revenues by about $53 million for the year.

Uncoupling Kansas taxes would help balance the state’s budgets without cutting school aid and other programs as deeply as many House members are proposing now, Hensley said.

The growth in spending beyond the budget raises several important questions for Kansas.

• Should the legislature review the current practice of giving blanket authorization for taking federal money without checking for federal strings and without specific legislative approval?
• If so, how can requests to take federal money be handled when the legislature is not in session?
• Should agencies have some restrictions on accumulating and spending carryover cash from previous years?
• Can the state provide more transparency so taxpayers more easily can see how much money the state is taking and spending?

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