Now, if he can’t get lawmakers to come up with something on the revenue side, Gov. Mark Parkinson is going to need an even bigger axe: As much as $500 million may have to be whacked from the state’s spending plans in 2010. That figure looms ominously over education in general, but in particular on the Kansas City region’s vision for transforming itself into a life-sciences center through changes in higher education.

And that’s only half of a potential double-whammy for the region. To help stave off further cuts, legislators preparing for the 2010 session are already talking about bumping up the state’s 5.3 percent sales tax, already the second-highest among what Kansas considers its five border/peer states.

Looking ahead to January, state Sen. John Vratil of Leawood oozed understatement when he said, “It’s going to be a difficult session.”
Complicating the state’s position is a federal requirement under last winter’s stimulus funding package, a maintenance provision that prohibits recipient states from reducing education funding below the levels of 2006. With all the cutting that’s taken place since last fall, that’s exactly where Kansas is now. But even at that, K-12 and higher education combine to eat up 64 percent of the state’s general fund budget.

“That leaves only about one-third of the budget to make the cuts,” said Vratil, vice-chairman of the Senate Education Committee. “There is an out, in that the governor could request a waiver of that maintenance provision. But my own sources in D.C. say the U.S. Department of Education has never granted such a waiver, and if we violate our agreement with the federal government, we run the risk of having to refund or losing somewhere between $300 million to $600 million in federal aid. We can’t take that risk.

“The people of the state would never understand. If we lost $300 million, they’d want somebody’s head on a stick.”

A veteran of previous recession-era budget battles in Topeka, Vratil suggested parallels between the coming session and that of 2002. That session began, he said, with a strong anti-tax faction insisting that, recession or not, there would be no new taxes—period. It ended with a package of $250 million in new taxes and fees in what Vratil called one of the biggest tax increases in the state’s history.

With all 125 House members vulnerable in midterm elections next year, there’s likely to be little appetite in that chamber for increases in property taxes or income taxes. That leaves the third leg of the revenue stool, sales taxes, to bridge the budget ravine. Which already has business groups pushing back.

“A sales tax increase does hurt businesses in that increases the cost of their products, which often times means people buy less of it. And again, it’s a competitive issue with peer states,” said Kent Eckles, director of government relations for the Kansas Chamber of Commerce. “We already have higher gas, income, property, cigarette and tobacco taxes.

“We need to be careful when increasing cost of doing business” in the state, Eckles said.

And therein lies the riddle that Kansas policymakers must solve: The state needs a competitive business climate to generate revenues that feed higher education, which in turn produces the skilled work force that contributes to business growth. But the financial foundation is cracking beneath that interdependent relationship.

The state is already on board with commitments for major new initiatives in higher education and the life sciences in the emerging Johnson County research triangle of the KU Medical Center and the university’s Edwards campus, and the Olathe Innovation Center being constructed for Kansas State University.

All are key components of longstanding efforts to transform the regional economy. And although they are funded in part by Johnson County voters who imposed an additional sales tax on themselves, each will require additional state funding at some point.

Rep. Terrie Huntington, serving as chairwoman of the House Higher Education Committee, sees nearly intractable challenges looming. The best outcome she envisions for higher education, she said, would be a holding pattern in 2010, with desperate hopes for economic recovery after that.

She knows just how badly the state will need that economic bounce.

“I think it’s going to get worse before it gets better,” she said of the funding pinch. “In 2011, the federal stimulus money goes away. All of those dollars that have backfilled the holes in higher education, in K-12 education—that won’t be there.”

Gary Sherrer, the former lieutenant governor who now sits on the Board of Regents, overseeing state public universities, had a stark message for his fellow Kansans.

“I think it’s pretty obvious, when you make $100 million-plus in cuts to higher education, all those arguments about waste and inefficiency are done with. Without a doubt, we are now at the place where both quality and quantity are beginning to suffer.”

He sees a way out for the state, but cautions that it will require some fiscal fortitude in the coming legislative session.

“There is a direct relationship between investment in higher education and the strength of the Kansas economy,” Sherrer said. “And now, we have a clear public-policy choice: Do they have courage to provide revenues necessary to build the future of the state and build the economy of this state?”