We need to have a large ending balance for two reasons: First, the larger the ending balance, the lower the planned spending. Kansas government needs to spend less. While proponents of a small ending balance (which is the same as wanting to spend more) make their case with images of closed schools and abandoned senior citizens, the state is spending a lot of money that could be shifted to these programs.
Second, in recent years the legislature has left too small an ending balance, and the governor has had to make allotments, or spending adjustments. This has been the case because revenue incoming to the state was lower than expected. Legislators construct the budget based on forecasts from the state’s consensus revenue estimating group. These forecasts, of course, are subject to error and all sorts of uncertainty that can’t be forecast. The group has had a tendency to overestimate future revenue recently, as shown in the chart below.
If this trend of overestimating continues — and we don’t know if it will — a budget with a small ending balance will probably force spending cuts to be made mid-year. It would be better if we planned for them now.
The chart shows the percent error between the consensus revenue estimating group’s initial estimate of revenue for a year and the actual results. It seems that the group has a tendency to underestimate the magnitude of the swing of actual results, both good and bad. During the recession years of the early 2000s, the group was too high in its estimates (leading to a negative error percentage). Then during the following boom years the group underestimated. For the past two years the group forecast much more revenue than the state actually received, leading to some of its largest errors, in relative terms.