Kansas Department of Revenue State Revenue & Economic Review

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David Lang
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1 Kansas Department of Revenue tate Revenue & Economic Review This first section of the report is centered only on the tate General Fund tax receipts received through the Department of Revenue. This does not include total taxes received by the state, i.e. insurance premium taxes and reflects the majority of GF tax receipts. Comparing Estimates for fiscal year to date 2016 GF tax receipts with estimates and FYTD actual receipts comparing FYTD 2015 and FYTD All amounts are as of the end of ay The FY 2015 revenues at the end of the year were 0.3% off estimates. Total tax receipts for the fiscal year through ay were $5.1 billion, or $73.7 million less than estimates or 1.4%. Overall GF tax receipts comparing actual FYTD 2015 and FYTD 2016 receipts = $69 million or 1.4% above last year. April Consensus Revenue Estimating, including total tax receipts. The Group meets in April and ovember to make estimates/adjustments. The FY 2015 estimates at the end of the year were 0.3% off estimates. For FY 2016, the estimate was decreased by $93.9 million, or 1.5%, below the ovember estimate. The estimate for total taxes was decreased by $177.1 million, while the estimate for other revenues was increased by $83.2 million. The overall revised estimate of $6.072 billion represents a 2.4% increase above FY 2015 receipts. The revised estimate for FY 2017 of $6.151 billion was decreased by $134.7 million below the ovember estimate. The estimate for total taxes was decreased by $170.7 million, while the estimate for other revenues was increased by $36.0 million. The revised forecast for FY 2017 represents a 1.3% increase above the newly revised FY 2016 figure.

2 February - April Percentage Change 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% et Income W/H ales et Corporate -4.0% -6.0% -8.0% -10.0% -12.0% 26 tates Kansas February-April et Income W/H ales et Corporate 26 tates -2.0% 2.7% 3.9% 2.5% Kansas 8.7% 1.0% 7.3% -9.4%

3 % Kansas Department of Revenue Percent Change in Taxable ales from ame onth of Previous Year 10.0% 5.0% 0.0% -5.0% -10.0% It should be noted that since 1992 Kansas has experienced an average 3.2% increase annually in tax receipts. The FY 2016 and FY 2017 estimates project minimal to no growth. The Kansas Economy Latest Economic Conditions The Bureau of Economic Analysis has reported that the Kansas economy grew at an annual rate of -0.7% in the fourth quarter of Economic growth in the third quarter of 2015 was revised down to annual rate of -2.1% after being initially reported at a growth rate of 6.5%. For all of 2015, Kansas economic growth is 0.2% higher than 2014 levels. The Kansas Federal Reserve in their une Kansas Economic Databook reported the nominal personal income grew 1.9% in the fourth quarter of 2015 compared to the previous year, with workplace earnings up 0.9%. The Census Bureau has reported that the Kansas population increased to an annual rate of 0.3% in the second quarter of 2015, after increasing 0.3% in the first quarter of The ay unemployment rate was 3.7%, down from 3.8% in April.

4 The Kanas Economy Expected Economic Conditions for 2016 ource: oody s The Kansas economy is expected to increase at an annual rate of 2.7% in the second quarter of 2016, and is expected to end 2016 growing 1.7% above 2015 Real GDP levels. Kansas disposable income per capita is expected to increase at an annual rate of 1.7% in the second quarter of 2016, and is expected to end 2016 growing 1.4% above 2015 levels. The Kansas population is expected to increase at an annual rate of 0.6% in the second quarter of 2016, and is expected to end 2016 growing 0.6% above 2015 levels. Kansas total nonfarm and private jobs are expected to increase at an annual rate of 2.1% and 2.5%, respectively, in the second quarter of Total nonfarm and private jobs are expected to end 2016 growing 2.1% and 2.4%, respectively, above 2015 levels. The Kansas Economy Economic Headwinds Quotes from oody s forecasts sluggish revenue growth in Kansas Lawrence ournal World ay 20, 2016 oody s Investors ervice said this week that most states can expect their revenues to continue growing through the end of this year, but at a slower pace than last year. And it said Kansas revenue growth may be more sluggish than most. That won t immediately affect the state s bond rating, but the rating agency did say that in Kansas and a few other states in similar positions, a slower growth trend is an unwelcome but not insurmountable challenge that will make budgetary decisions more difficult. But Kansas, Connecticut and Rhode Island were categorized as laggards among non-energy states where, poor stock market performance in tax year 2015, a modestly more muted economic environment and cautious spending habits mean that tax receipts are poised for a pullback. Employment: The ay unemployment rate in Kansas was 3.7%. Employment obviously affects withholding tax receipts, which over this fiscal year have been good, with some blips in February as an example, when we saw a decline in withholding receipts. We contacted companies the larger reductions in payments and found three primary reason; 1) a large layoff by a telecommunications company of over 800 employees which was approximately 20% of the reduction in receipts; 2) no overtime this year; and 3) no bonuses this year. Exports: According to the Kansas City Federal Reserve une 2016 Kansas Databook, Kansas exports were 19.8% lower year-to-date through the fourth quarter of 2015 compared to the same period in The decline represents an approximate $555 million or half a billion dollar hit on the Kansas economy. This has a dynamic effect on our manufacturers and agriculture industries in particular. Oil: According to the Kansas City Federal Reserve une 2016 Kansas Databook, in February 2016 crude oil production was down 20% over last year, and rig counts are down below year-ago levels. The decline in Kansas common per barrel is evident when comparing per barrel prices each ay for the last three years ay 2014 = $91.57 a barrel; ay 2015 = $49.27 per barrel; and ay 2016 = $ (ource: Kansas Department of Revenue, Division of Property Evaluation)

5 Agriculture: oody s Analytics February 2016 reported that weakness in agriculture will weigh on the rural economy over the next several quarters. Kansas is an important agricultural state, ranking seventh for total agricultural production. According to the Federal Reserve s Beige Book report, farm incomes weakened further in last year s fourth quarter because of persistently low crop prices and sharp declines in cattle prices. Kansas Department of Agriculture economists estimate that for every 1% decrease (increase) in agricultural prices there is a corresponding $7,794,029 decrease (increase) in state sales tax receipts. The Kansas Farm anagement Assn. reports that over the past five years accrual net farm income averaged $120,000. In 2015 the accrual net income dropped dramatically and was $4,568. Aerospace: oody s Analytics February 2016 states, Kansas large aerospace industry had made little headway in recent quarters, but growth is set to resume later in Consumption/ales Tax Receipts: Certainly the economy and all the aforementioned economic headwinds effect spending by Kansans. Attached is a colored coded county-by-county map of Kansas reflecting state sales tax collections from uly 2015 to February In uly 2015 the state sales tax rate increased, so the color coding accounts for the rate change. Any county with over 6% growth is shaded in blue and those with a decline of more than 6% are shaded in yellow. ote the significant declines in collections in counties most affected by the oil and agriculture industries. There is also a national caution in consumption. ost mentioned reasons include increased savings, debt reduction, increased health care costs and increased on-line purchasing. Plains Region: In the Federal Reserve Bank of Kansas City 10 th District, payroll employment grew 0.9% in the first quarter or 2016 compared to previous year. anufacturing activity declined in arch and is expected to contract over the next 3-6 months. The Federal Reserve Board of Governors Beige Book reports that persistently low crop prices and sharp declines in cattle prices will lower farm incomes and reduce capital and household spending of farmers in the Fed 10 th District. U..: U.. broader economy expanded at a 0.8% annual rate in the first quarter of 2016, after increasing 1.4% in the fourth quarter of American service providers expanded in ay but at the slowest pace in two years as firms curtailed orders. oody s Investors ervice reports that in 2016, tax revenues are slowing for most states, growing at an annual rate under 4%. U.. gained 38,000 jobs in ay 2016, below an expectation of 155,000 nonfarm jobs, and the slowest gain since The U.. unemployment rate fell to 4.7%, yet the decline was owed to 458,000 people leaving the labor force, suggesting a sign that jobs are harder to find. The labor-force participation rate fell to 62.6%, falling for the 2 nd month in a row in the U.. arch and April jobs were revised down by 22,000 and 37,000 respectively.

6 mall Business Tax Policy Update et first time small business tax filings in combined 2013 and 2014 = 18,340. First time filers means their social security number, name or name of the business have not previously appeared on a Kansas tax return. ew income to Kansas from first time filers = over $1 billion. Overall breakdown of small business tax filers (including existing and new): $25,000 or less in net income = 81% $25,000 to $75,000 in net income = 12% $75,000 or more in net income = 7% Total number of W-2 s issued by Kansas small businesses: 2012 = 536, = 579, = 605,943

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