Category Archives: Kansas state government

Under Goossen, Left’s favorite expert, Kansas was admonished by Securities and Exchange Commission

The State of Kansas was ordered to take remedial action to correct material omissions in the state’s financial statements prepared under the leadership of Duane Goossen.

During the administration of Governor Mark Parkinson, the State of Kansas issued eight series of bonds raising $273 million. Regarding these, the U.S. Securities and Exchange Commission has determined that the state failed to adequately inform investors of significant, material, negative information.

In a nutshell, according to the SEC: The Kansas Public Employee Retirement System (KPERS) was in terrible financial condition compared to other states, and Kansas did not adequately disclose that to potential bond buyers. That violated the Securities Act. In 2011 Kansas implemented reforms to the SEC’s satisfaction.

Duane Goossen biography
Duane Goossen biography
Of interest to current Kansas public affairs is that the head of the Kansas Department of Administration at the time the SEC found these violations was Duane Goossen. In its findings, the SEC specifically criticized the Department of Administration for its preparation of financial statements included in bond offerings — statements that were missing materially important, and negative, information.

Since his departure from Kansas government, Goossen has remained active in shaping Kansas policy, first as vice president for fiscal and health policy at Kansas Health Institute. 1 In 2015 Goossen joined Kansas Center for Economic Growth as Senior Fellow. 2 In announcing Goossen’s appointment, KCEG executive director Annie McKay noted his “wealth of expertise and knowledge.”

KCEG advocates for more taxes on Kansans, with the Goossen announcement mentioning “unprecedented and unaffordable tax cuts.” Goossen added he was excited to continue “contributing to the conversation across Kansas about the importance of budget and tax policy and the consequences of drastic tax cuts on everyday investments critical to Kansans.”

It’s ironic that Goossen mentioned “investments,” as we now know that under his leadership Kansas violated Sections 17(a)(2) and 17(a)(3) of the Securities Act, materially misleading bond investors while other states made full disclosure.

While critics of current Kansas government — including Goossen 3 — use KPERS underfunding as evidence of failure, this incident shows that KPERS has had funding problems for a long time, under leadership of both parties, and of both conservatives and moderates.

The SEC findings

According to a press release from the Securities and Exchange Commission, the State of Kansas “failed to disclose that the state’s pension system was significantly underfunded, and the unfunded pension liability created a repayment risk for investors in those bonds.” 4

The nature of the SEC’s inquiry involved “the disclosures surrounding eight bond offerings through which Kansas raised $273 million in 2009 and 2010.” 5

In its order, the SEC found: “The failure to disclose this material information in the Official Statements resulted from insufficient procedures and poor communications between KDFA and the Kansas Department of Administration (“KDA”), which provided information to KDFA for inclusion in the Official Statements, including preparing the State’s financial statements that were included as part of the Official Statements.6 (emphasis added)

The SEC also found that Kansas was an outlier among the states in failing to disclose negative information: “Kansas’s practice of not disclosing the underfunded status of KPERS became increasingly inconsistent with the practice of most states issuing municipal securities, which generally provided disclosure in their CAFRs or the body of their Official Statements regarding the financial health of their pension funds. By 2008, with the exception of Kansas, the overwhelming majority of the Official Statements for state-level bond issuances at a minimum disclosed the UAAL or funded ratios of the associated state-level pension plans, particularly if those plans were significantly underfunded.”

Prior to a new issue of bonds in November 2011, the SEC found that the State of Kansas instituted satisfactory policies and procedures regarding disclosure of material information.

  1. Kansas Health Institute. Budget director leaving for new post. Available at www.khi.org/news/article/budget-director-leaving-new-post.
  2. Kansas Center for Economic Growth. Duane Goossen joins Kansas Center for Economic Growth. Available at realprosperityks.com/media/press-releases/duane-goossen-joins-kansas-center-for-economic-growth/.
  3. Duane Goossen. The FY15 Budget Is Not Fixed Yet. Kansas Center for Economic Growth. Available at realprosperityks.com/duane-goossen-fy15-budget-fixed-yet/.
  4. SEC.gov. SEC Charges Kansas for Understating Municipal Bond Exposure to Unfunded Pension Liability. Sec.gov. Available at www.sec.gov/News/PressRelease/Detail/PressRelease/1370542629913.
  5. ibid.
  6. SEC. Administrative proceeding file no. 3-16009. Order instituting cease-and desist proceedings pursuant to section 8a of the Securities Act of 1933, making findings, and imposing a cease-and-desist Order. Available at www.sec.gov/litigation/admin/2014/33-9629.pdf.

Kansas Center for Economic Growth

Kansas Center for Economic Growth, often cited as an authority by Kansas news media and politicians, is not the independent and unbiased source it claims to be.

When supporters of more government spending and taxation in Kansas want to bolster their case, they often turn to Kansas Center for Economic Growth (KCEG). Portraying itself as a “nonprofit, nonpartisan organization,” KCEG says its mission is “to advance responsible policies by informing public discussion through credible, fact-based materials.” It says it conducts research and analysis to “promote balanced state policies.” 1

As it turns out, KCEG is not really the nonpartisan, independent think tank it pretends to be. Instead, as shown below, KCEG is a side project of Kansas Action for Children, Inc.. Both organizations are funded by and affiliated with well-known liberal organizations whose goals are always to expand the size and scope of government.

This is of interest to Kansans as groups that support low taxes, efficient government spending, and economic freedom are often maligned as being merely puppets of larger organizations that hide their purportedly nefarious goals. In particular, Kansas Policy Institute is often mentioned in this regard.

On its website KPI says it is “an independent think-tank that advocates for free market solutions and the protection of personal freedom for all Kansans.” 2 Also, KPI says it produces “objective research and creative ideas to promote a low-tax, pro-growth environment.”

Whenever KPI is mentioned, often condemnation of American Legislative Exchange Council follows, scorned for purportedly being a shadowy outfit that forces model legislation on unwitting legislators. But ALEC’s mission is quite clear and transparent. Its website says ALEC is “dedicated to the principles of limited government, free markets and federalism.” Economic freedom is also mentioned. ALEC says it provides a “toolkit for anyone who wants to increase the effectiveness and reduce the size, reach and cost of government.” 3

These mission statements plainly state the purposes of KPI and ALEC. Contrast them with the mission of Center on Budget and Policy Priorities, which is filled with material like this: “We pursue federal and state policies designed both to reduce poverty and inequality and to restore fiscal responsibility in equitable and effective ways.” 4 “Fiscal responsibility” can mean almost anything. To CBPP and its affiliates like KCEG, it means more taxes and more spending.

That dovetails cleanly with the preference of most Kansas newspapers. They — and most other news outlets — call for more spending and more taxation as the solution to all problems, state and local. They do so explicitly on their editorial pages, which is their right and privilege. In their news reporting, by using KCEG as an “objective” source, they rely on a source that isn’t being honest about its independence, its organizational status, and its ingrained policy preferences.

Who — or what — is Kansas Center for Economic Growth?

On its website, Kansas Center for Economic Growth (KCEG) says it is a “nonprofit, nonpartisan organization.” But no records exist for this entity at either the IRS or Kansas Secretary of State. Instead, KCEG uses Kansas Action for Children, Inc. (KAC) as its “fiscal agent” and funding source. KAC is a registered 501(c)(3) tax-exempt organization.

On its IRS form 990s, KAC lists a grant from AECF and SFAI, the purpose of which is supporting the type of work KCEG performs. AECF is Annie E. Casey Foundation, a non-profit with income of nearly $223 million and an endowment of $2.9 billion, according to most up-to-date IRS form 990 available. SFAI is State Priorities Partnership, originally founded as the State Fiscal Analysis Initiative (SFAI). It lists KCEG as a partner organization. 5 Both organizations promote solutions involving more government spending and taxation.

State Priorities Partnership, in turn, is coordinated by Center on Budget and Policy Priorities (CBPP). 6 CBPP promotes itself as pursuing “federal and state policies designed both to reduce poverty and inequality and to restore fiscal responsibility in equitable and effective ways.” 7 Its recommend policies nearly always call for more government spending and taxation.

In 2013 Bob Weeks was recognized by the Kansas Policy Institute with the John J. Ingalls Spirit of Freedom Award, given annually to a Kansan who uniquely supports the principles of individual liberty and economic freedom.


Notes

  1. Kansas Center for Economic Growth. About Us. Available at realprosperityks.com/about-us/.
  2. Kansas Policy Institute. About. Available at kansaspolicy.org/about/.
  3. American Legislative Exchange Council. About ALEC. Available at www.alec.org/about/.
  4. Center on Budget and Policy Priorities. Our Mission. Available at www.cbpp.org/about/mission-history.
  5. State Priorities Partnership. State Priorities Partners. Available at statepriorities.org/state-priorities-partners/.
  6. State Priorities Partnership. About. Available at statepriorities.org/about/.
  7. Center on Budget and Policy Priorities. Our Mission and History. Available at www.cbpp.org/about/mission-history.

Kansas state tax collections, compared

An interactive visualization of tax collections by state governments shows Kansas distinguished from some of its neighbors.

Per-capita tax collections, Kansas and nearby states. Click for larger.
Per-capita tax collections, Kansas and nearby states. Click for larger.
As shown in the nearby illustration, Kansas collects more taxes than some nearby states, on a per-person basis. This information should guide Kansas legislators and policymakers and Kansas prepares to balance its budget. Does Kansas want to further separate itself from its neighbors with even higher taxes?

The values are from the United States Census Bureau, and are for tax collections by the state only. Local governmental entities like cities, counties, townships, improvement districts, cemetery districts, library districts, drainage districts, watershed districts, and school districts are not included.

You may use this interactive visualziaton to prepare your own analysis and illustrations. Of particular interest is the “State Total” tab. Here you can select a number of states and compare their tax burdens. (Probably three or four states at a time is the practical limit.)

Data is as collected from the United States Census Bureau, Annual Survey of State Government Tax Collections, and not adjusted for inflation. Visualization created using Tableau Public. Click here to access the visualization.

Using the visualization. Click for larger.
Using the visualization. Click for larger.

In Wichita, revealing discussion of property rights

Reaction to the veto of a bill in Kansas reveals the instincts of many government officials, which is to grab more power whenever possible.

When plunder becomes a way of life for a group of men living together in society, they create for themselves in the course of time a legal system that authorizes it and a moral code that justifies it.
— Frederic Bastiat

Kansas Governor Sam Brownback’s veto of a bill that gives cities additional means to take blighted property has produced reaction from local officials in Wichita. The bill is Senate Bill 338.

As has been noted in numerous sources, cities in Kansas have many tools available to address blight. 1 What is the purported need for additional power?

In remarks from the bench, Wichita City Council Member Pete Meitzner (district 2, east Wichita) said there is no intent to be “aggressive in taking people’s property.” 2 But expanding the power of government — aggression, in other words — is what the bill does. Otherwise, why the need for the bill with its new methods and powers of taking property?

And once government is granted new powers, government nearly always finds ways to expand the power and put it to new uses. Even if we believe Meitzner — and we should not — he will not always be in office. Others will follow him who may not claim to be so wise and restrained in the use of government power.

In particular, government finds new ways to expand its powers through enabling concepts like blight. Did you know the entire suburban town of Andover is blighted? 3 Across the country, when governments find they can take property with novel and creative interpretations of blight, they do so. 4

It’s easy to sense the frustration of government officials like Wichita Mayor Jeff Longwell. In his remarks, he asked opponents of SB 338 “what they would do” when confronted with blight. That is a weak argument, but is often advanced nonetheless. Everyone has the right — the duty — to oppose bad legislation even if they do not have an alternate solution. Just because someone doesn’t have a solution, that doesn’t mean their criticism is not valid. This is especially true in this matter, as cities already have many tools to deal with blight.

Proponents of SB 338 also make unfounded accusations about the motivation of opponents of the law. Because someone opposes this law, it doesn’t mean they are in favor of more blight. Those who fight for freedom and liberty are used to this. Advocating for the right to do something doesn’t necessarily mean that one is in favor of actually doing it.

The nature of rights

Much of the discussion this issue concerns the rights of people who live near blighted property. People do have certain rights, but rights have limits. Regarding property, Roger Pilon writes: “Thus, uses that injure a neighbor through various forms of pollution (e.g., by particulate matter, noises, odors, vibrations, etc.) or through exposure to excessive risk count as classic common-law nuisances because they violate the neighbor’s rights. They can be prohibited, with no compensation owing to those who are thus restricted.” 5

Note that Pilon mentions “excessive risk” as something that injures a neighbor. Some of the activities the city wants to control are things like drug dealing, drug usage, and prostitution that may take place on blighted property. And, I suppose it is a risk to have gangs dealing drugs out of the house across the street, blighted or not. But these activities are illegal everywhere, and there are many laws the city can use to control these problems. There is no need for new laws.

It is important to draw a bright line as to where property rights end. Pilon: “By contrast, uses that ‘injure’ one’s neighbor through economic competition, say, or by blocking ‘his’ view (which runs over your property) or offending his aesthetic sensibilities are not nuisances because they violate no rights the neighbor can claim. Nor will it do to simply declare, through positive law, that such goods are ‘rights.'” 6

In today’s world, however, where new rights are seemingly created from thin air, people want to exercise their purported right to control how their neighbor’s property looks. But we have no such right, writes Pilon: “The principle, in fact, is just this: People may use their property in any way they wish, provided only that in the process they do not take what belongs free and clear to others. My neighbor’s view that runs over my property does not belong free and clear to him.” 7

Opposition in the Legislature

When the Kansas House of Representatives and Senate voted on this bill, several House members submitted explanations of their vote. In the Senate, David Haley filed a protest and message explaining his opposition to the bill. These statements follow.

Explanation of vote in the House of Representatives

MR. SPEAKER: I VOTE NO ON SB 338. KANSAS ALREADY HAS SUFFICIENT TOOLS IN PLACE TO ADDRESS BLIGHT. SB 338 circumvents our current eminent domain statutes by redefining “abandoned property” and by allowing our local governments to expeditiously confiscate, seize or destroy law abiding citizens’ private property without compensation, adequate notice, and a legal property title. This is an egregious overreach that deprives some citizens of their private property rights without sufficient due process and it will cause irreparable harm to our most vulnerable citizens that do not have the resources to protect their property.
— GAIL FINNEY, BRODERICK HENDERSON, RODERICK HOUSTON, BEN SCOTT, VALDENIA WINN, JOHN CARMICHAEL, KASHA KELLEY, BILL SUTTON, JERRY LUNN, CHARLES MACHEERS

Protest of Senator David Haley against Senate Bill 338

February 23, 2016

In Accordance with Article 2, Section 10 of the Constitution of Kansas, I, David Haley, a duly elected Senator representing the Fourth District of Kansas, herein PROTEST the action of this Legislature in the promulgation and passage of Senate Bill 338: An Act pertaining to Cities.

In my 23 years as a Kansas Legislator and as but one of only three attorneys in the Senate, this is the first PROTEST I have ever lodged on any measure of the thousands I have considered.

This Chamber now further denigrates real property rights to which every Kansan should be heir.

SB 338 which purports to grant authority to cities and nonprofit organizations to petition courts to possess vacant property for rehabilitation purposes will, simply, but legalize grand theft.

The Senate Commerce committee as is its charge (and not the Senate Local Government committee where, justifiably, similar language as SB 338 had over many years failed time and time again) recognizes and advances business and financial opportunities for our State.

First, the question of a city, redefining definitions of “abandonment” and “blight” as these terms apply to real property, land and or improvements, is the expertise of deliberations of a committee membership dedicated to the auspices of municipalities not the principles of profit.

The principles of real property ownership should always inure to the rights of the citizen not to a developer’s bottom line or even a desire to enhance appraised valuations for tax purposes.

Diabolical in its spawning, methodical and tenacious in its steady lurch forward, SB 338 adheres to two tiered definitions of “abandoned property;” both ingenuous and neither accurate. One definition of “abandoned property”: vacant for 365 days and having a “blighting influence” on surrounding properties; the other definition vacant for 90 days and 2 years tax delinquent.

There are numerous every day scenarios whereby a real property owner has in no way “abandoned” their property though that same property may be vacant for 90 to 365 days, be tax delinquent for 2 years or may have need of rehabilitation to conform to a local standard, real or perceived. But SB 338 alleges “abandonment” and triggers governmental intrusion, harassment and potentially leads to a taking of real property by the government for the benefit of an organization which profits from the taking and kick back higher taxes to the city.

“Commerce,” yes, but a shameful way to run a citizen responsive “Local Government.”

The specious argument in favor of this legislation portends neighborhood beautification, tax viability and repopulation of or demolition and rebuilding of older houses. By eradicating “blight,” the entire community, even the city, is greatly enhanced.

With that premise, I, David Haley, could not agree more.

Today, with no need for warping and putting into statute time-honored definitions of “blight” and “abandonment” or presupposes new postulates for passages of time periods to correlate to real property owners’ interests or genuine concern with their legally owned land(s), there are tools already available to every municipality to address blight. “Code enforcement” departments can post notice and bring to environmental and district court negligent property owners. Subsequent to insufficient response, steep fines and even jail time can be issued now. Today in current statute, a property with two or more years of delinquent property taxes may be sold by the Sheriff of each Kansas County in a “Delinquent Property Tax Sale” also known as a “Sheriff’s” sale or as property “sold on the Courthouse steps.” Again, these are current tools available to curb or cure blight and to put real property into fiscally responsive ownership.

The property rights of legal property owners should not be infringed upon by this Legislature.

Marginal or fragile property owners (traditionally average income or poor property owners attempting to hold on to inherited property or an entrepreneurial hope structure as often found in inner cities) will be set upon by keen-eyed, out of county based developers sheltered by an industrious “not-for-profit” which uses the city and district court as the leverage to harass and ultimately take the land, all in the name of “civic pride” or “community betterment.” Theft.

The late Kansas City, Missouri civil rights leader Bernard Powell (1947-1979) envisioned and warned of the transfer of inner city property back into the same hands of those who fled the same a half century or more ago to the sanctity of the suburbs. Bernard Powell predicted the day would come when government, and the tools they elect and hire, will work hand-in-hand with “robber barons” to turn those out; those who have despaired in neglected, under represented, often high crime, poorly educated neighborhoods, those who have weathered poverty, hard times, civic and civil harassment but yet held a real property interest, a “piece of the pie” … to force them out. Bernard Powell spoke of prosperity returning to the inner city and nothing being tendered to the people who had paid the price for the most sought after of land.

He called it government assisting the turning of the “ghetto into a goldmine.” How prophetic.

Here I sit, practically alone in my opposition to this expansion of eminent domain targeted at poorer property owners ill equipped to “fight City Hall,” in this Kansas Senate and watch this unfold. Again, SB 338 came out of the Commerce committee as well it should.

Government has redefined terms before to shape shift often dastardly need to justify ill deeds.

I remember efforts to redefine “blight” for economic purposes in another eminent domain taking for use in building the Kansas Speedway and Legends in Wyandotte County. Succinctly, the new definition of “blight” was the ability for exponentially more taxes to be levied against the future use of the land than that which the owner who it was being taken from could be expected to pay in its current use. Remnants of that economically fascist philosophy resonate in SB 338. As more people flee the “golden ghettos” of suburbia, the inner city “ghettos” will be repopulated and turned into “goldmines” at the expense I fear, once again, of the poor and unsuspecting. Ironically, we celebrated and honored some of our Korean and Vietnam War heroes today in the Senate Chamber. Was the freedom to own real property without fear of unwarranted government intrusion something for which they fought?

I protest the passage of Senate Bill 338 as is my Constitutional right as a Kansas State Senator under Article Two, Section 10 of the Kansas Constitution for reasons, beliefs afore-listed as well as others not so and hereby vow to continue to assist unnecessarily embattled real property owners in my home District as we together will face the challenges that this bill, when signed into law, will undoubtedly bring.


Notes

  1. Todd, John. Power of Kansas cities to take property may be expanded. Voice For Liberty in Wichita. Available at wichitaliberty.org/kansas-government/power-kansas-cities-take-property-may-expanded/.
  2. Video. Wichita City Council speaks on blight. Available at wichitaliberty.org/wichita-government/wichita-city-council-speaks-blight/.
  3. Weeks, B. (2012). Andover, a Kansas city overtaken by blight. Voice For Liberty in Wichita. Available at wichitaliberty.org/economics/andover-a-kansas-city-overtaken-by-blight/.
  4. Nicole Gelinas, Eminent Domain as Central Planning. (2015). City Journal. Available at www.city-journal.org/html/eminent-domain-central-planning-13253.html.
  5. Pilon, Roger. Protecting Private Property Rights from Regulatory Takings. (1995). Cato Institute. Available at www.cato.org/publications/congressional-testimony/protecting-private-property-rights-regulatory-takings.
  6. ibid
  7. ibid

Rich States, Poor States, 2106 edition

In Rich States, Poor States, Kansas continues with middle-of-the-pack performance, and fell sharply in the forward-looking forecast.

In the 2016 edition of Rich States, Poor States, Utah continues its streak at the top of Economic Outlook Ranking, meaning that the state is poised for growth and prosperity. Kansas continues with middle-of-the-pack performance rankings, and fell sharply in the forward-looking forecast.

Rich States, Poor States is produced by American Legislative Exchange Council. The authors are economist Dr. Arthur B. Laffer, Stephen Moore, who is Distinguished Visiting Fellow, Project for Economic Growth at The Heritage Foundation, and Jonathan Williams, who is vice president for the Center for State Fiscal Reform at ALEC.

Rich States, Poor States computes two measures for each state. The first is the Economic Performance Ranking, described as “a backward-looking measure based on a state’s performance on three important variables: State Gross Domestic Product, Absolute Domestic Migration, and Non-Farm Payroll Employment — all of which are highly influenced by state policy.” The process looks at the past ten years.

Looking forward, there is the Economic Outlook Ranking, “a forecast based on a state’s current standing in 15 state policy variables. Each of these factors is influenced directly by state lawmakers through the legislative process. Generally speaking, states that spend less — especially on income transfer programs, and states that tax less — particularly on productive activities such as working or investing — experience higher growth rates than states that tax and spend more.”

For economic performance, Kansas is twenty-seventh. That’s up from twenty-eighth last year.

In this year’s compilation for economic outlook, Kansas ranks twenty-seventh, down from eighteenth last year and fifteenth the year before. In 2008, the first year for this measure, Kansas was twenty-ninth.

Kansas compared to other states

Kansas and nearby states Economic Outlook Ranking. Click for larger version.
Kansas and nearby states Economic Outlook Ranking. Click for larger version.
A nearby chart shows the Economic Outlook Ranking for Kansas and some nearby states, shown as a trend over time since 2008. The peak of Kansas in 2013 is evident, as is the decline since then.

Why Kansas fell

Rich States Poor States Kansas trends 2016 aloneKansas fell in the Economic Outlook Ranking from 2013 to 2016. To investigate why, I gathered data for Kansas from 2008 to 2016. The nearby table shows the results for 2016 and the rank among the states, with the trend since 2008 shown. A rank of one is the best ranking, so for the trend lines, an upward slope means a decline in ranking, meaning the state is performing worse.

There are several areas that may account for the difference.

The most notable change is in the measure “Recently Legislated Tax Changes (per $1,000 of personal income)” Kansas fell forth positions in rank. By this measure, Kansas added $2.67 in taxes per $1,000 of personal income, which ranked forty-seventh among the states. This is a large change in a negative direction, as Kansas had ranked seventh the year before.

In “Property Tax Burden (per $1,000 of personal income)” Kansas improved one position in the rankings, despite the tax burden rising.

In “Sales Tax Burden (per $1,000 of personal income)” Kansas fell one spot in rank. The burden is calculated proportional to personal income. The sales tax burden, as measured this way, fell slightly in Kansas, but the ranking fell in comparison to other states. (Although the Kansas sales tax rate rose in 2015, this report uses data from 2013, which is the most recent data available from the U.S. Census Bureau. It’s likely that the 2015 sales tax hike will increase this burden, but whether the ranking changes depends on actions in other states.)

Kansas improved six rank positions for “Debt Service as a Share of Tax Revenue.”

Kansas remains one of the states with the most public employees, with 672 full-time equivalent employees per 10,000 population. This ranks forty-eighth among the states.

Kansas has no tax and spending limits, which is a disadvantage compared to other states. These limitations could be in the form of an expenditure limit, laws requiring voter approval of tax increases, or supermajority requirements in the legislature to pass tax increases.

How valuable is the ranking?

Correlation of ALEC-Laffer state policy ranks and state economic performance
Correlation of ALEC-Laffer state policy ranks and state economic performance
After the 2012 rankings were computed, ALEC looked retrospectively at rankings compared to actual performance. The nearby chart shows the correlation of ALEC-Laffer state policy ranks and state economic performance. In its discussion, ALEC concluded:

There is a distinctly positive relationship between the Rich States, Poor States’ economic outlook rankings and current and subsequent state economic health.

The formal correlation is not perfect (i.e., it is not equal to 100 percent) because there are other factors that affect a state’s economic prospects. All economists would concede this obvious point. However, the ALEC-Laffer rankings alone have a 25 to 40 percent correlation with state performance rankings. This is a very high percentage for a single variable considering the multiplicity of idiosyncratic factors that affect growth in each state — resource endowments, access to transportation, ports and other marketplaces, etc.

Rich States, Poor States compilation for Kansas. Click for larger version.
Rich States, Poor States compilation for Kansas. Click for larger version.

Governor Brownback steps up for property rights

Today Kansas Governor Sam Brownback vetoed Senate Bill 338. As explained by John Todd, this bill unnecessarily and dangerously increased the power of cities over private property rights. Thank you to the governor for understanding the harm of this bill and acting appropriately. Most of all, thank you to John Todd for recognizing the bill’s danger, for his committee testimony, and for his tireless work in helping inform the governor and his staff about this bill.

Following, the governor’s veto message:

The right to private property serves as a central pillar of the American constitutional tradition. It has long been considered essential to our basic understanding of civil and political rights. Property rights serve as a foundation to our most basic personal liberties. One of government’s primary purposes is to protect the property rights of individuals.

The purpose of Senate Bill 338, to help create safer communities, is laudable. However, in this noble attempt, the statute as written takes a step too far. The broad definition of blighted or abandoned property would grant a nearly unrestrained power to municipalities to craft zoning laws and codes that could unjustly deprive citizens of their property rights. The process of granting private organizations the ability to petition the courts for temporary and then permanent ownership of the property of another is rife with potential problems.

Throughout the country, we have seen serious abuse where government has broadened the scope of eminent domain, especially when private development is involved. The use of eminent domain for private economic development should be limited in use, not expanded. Senate Bill 338 opens the door for serious abuse in Kansas. Governmental authority to take property from one private citizen and give it to another private citizen should be limited, but this bill would have the effect of expanding such authority without adequate safeguards.

Kansans from across the political spectrum contacted me to discuss their concerns that this bill will disparately impact low income and minority neighborhoods. The potential for abuse of this new statutory process cannot be ignored. Government should protect property rights and ensure that the less advantaged are not denied the liberty to which every citizen is entitled.

There is a need to address the ability of municipalities and local communities to effectively maintain neighborhoods for public safety. However, Senate Bill 338 does much more. Though I am vetoing this bill, I would welcome legislation that empowers local communities to respond to blight and abandoned property that does not open the door to abuse of the fundamental rights of free people.

Kansas support for higher education

How does Kansas state support for higher education compare to other states?

In the Wichita Eagle, Chapman Rackaway contributes a satirical look at Kansas Governor Sam Brownback and his handling of Kansas government. And, the governor deserves many of Rackaway’s jabs. But there is something that needs clarification, which is the contention that Kansas is a backwater state when it comes to higher education funding, at least compared to Washington state. (Chapman Rackaway: How about Brownback as K-State president?, April 8, 2016.)

Rackaway writes: “That Washington State could pay [departing Kansas State University president Kirk] Schulz so much more is unsurprising to anyone paying attention to states’ budget priorities.” He goes on to write that Kansas government has not prioritized higher education funding, and that Washington state recently committed to additional higher education support.

There are organizations that collect and present data on this topic. State Higher Education Executive Officers Association publishes a report titled State Higher Education Finance (SHEF) study 1 The figures used below are for the most recent year for which data is available.

According to this report, in fiscal year 2014, Kansas appropriated $5,648 per FTE. Washington’s figure is $5,700, or 0.9 percent more than Kansas. Over the past five years, Kansas appropriations per FTE fell by 15.8 percent. In Washington they fell by 20.6 percent. (Table 5)

For fiscal year 2013, higher education support per capita in Kansas was $342. In Washington, it was $197. The same table also reports higher education support per $1000 of personal income. In Kansas the figure is $7.70, and in Washington, $4.13. For Kansas, these two figures are 132 percent and 133 percent of the national average. (Table 10)

From these two data points — and these are not the only ways to compare — I think we can conclude that Kansas appropriates nearly as much as does Washington, on a per-student basis.

Further, Kansans are much more generous in supporting its public universities, when measured by per-capita contribution. (Calling Kansans generous with their taxes is a falsehood, as taxation has nothing to do with generosity, except the generosity of politicians with money that belongs to other people.)


Notes

  1. State Higher Education Executive Officers Association. State Higher Education Finance (SHEF) study. Available at www.sheeo.org/sites/default/files/project-files/SHEF%20FY%202014-20150410.pdf.

Opinion: GOP economics devastated Kansas

An op-ed on the Kansas economy needs context and correction.

An op-ed about the Kansas economy needs a few corrections before the people of Illinois get a wrong impression of Kansas. The article is Opinion: GOP economics devastated Kansas, published in the Alton (Illinois) Telegraph. The author is John J. Dunphy.

First, Dunphy refers to Sam Brownback as the “Tea Party” governor of Kansas. As far as I know, the tea party favors reducing not only taxation, but spending too. Given the choice, Brownback preferred raising taxes rather than cutting spending. Not very tea party-like.

Dunphy: “Moderate Republicans who voiced objections to such extremist politics were targeted by the Tea Party and voted out of office in 2012. With the legislature now dominated by True Believers, Brownback was able to pass the largest tax cut in Kansas history.” I’ll leave it to others to judge whether the legislators voted into office in 2012 classify as “True Believers.” (My opinion is that True Believers are scarce in the Kansas Legislature.) But I do know this: The tax cuts were passed during the 2012 legislative session, which ended months before the 2012 primary elections. There seems to be a timing issue here.

Dunphy: “With such drastically-reduced revenue, Kansas had to cut social services.” Except Kansas spending has continued to climb, although there have been a few cuts here and there.

Dunphy: “Rather than admit that slashing taxes created a disaster …” Tax cuts allow people to keep more of what is rightfully theirs. That is not a disaster. That is good.

Dunphy: “Trickle-down economics doesn’t work. Although most Republicans choose to ignore it, George H.W. Bush said as much while campaigning for the GOP presidential nomination in 1980.” Contrary to this assertion (made during a political campaign, and we know how much those are worth), the administration and policies of Ronald Reagan ushered in the The Great Moderation, a period of sustained economic growth.

Governor Brownback, please veto this harmful bill

Kansas Governor Sam Brownback should veto a bill that is harmful to property rights, writes John Todd. For more about this issue, see Power of Kansas cities to take property may be expanded.

Senate Bill 338 has been passed by the Legislature and is now on its way for Governor Sam Brownback to consider. The Governor should veto this bill. This bill gives cities, in conjunction with their preferred nonprofit organizations, the ability to take possession of unoccupied residential houses that the property taxes are currently paid in full. This bill will clearly place vulnerable senior citizens and less affluent property owners in the position of being victimized.

Cities in Kansas have all the powers they need to deal with property issues through current law. Over the past few years, the City of Wichita has bulldozed hundreds of houses for housing code violations. Enhancing the power of cities and their appointed nonprofit redevelopment organizations to take privately owned properties they do not own without compensation is wrong.

I urge Governor Brownback to veto this bill!

John Todd
Wichita

Sales tax revenue and the Kansas highway fund

The effect of a proposed bill to end transfer of Kansas sales tax revenue to the highway fund is distorted by promoters of taxation and spending.

The bill is SB 463. The bill’s fiscal note tells how this bill, if passed, would affect the highway fund: “Beginning in FY 2018, the percentage of state sales tax and compensating use tax distributed to the [State Highway Fund] would be eliminated.” The fiscal note goes on to estimate that the highway fund would receive $553.4 million less sales tax revenue than it would otherwise in fiscal year 2018. (This bill proposed changes to other funds, but here I consider only highways.)

In an email to supporters, Economic Lifelines wrote: “SB 463 would redirect 35% of T-WORKS funding beginning in July of 2017. Passage of this legislation would be a devastating blow to the future of the T-WORKS program.” (Economics Lifelines is a group that lobbies for more spending on highways. Its members are primarily local chambers of commerce, labor unions, construction equipment dealers, and construction material suppliers. In other words, those who benefit from more highway spending, without regard to whether it is needed and wise.)

Former Kansas budget director Duane Goossen was more emphatic, writing: “Watch out! A very dangerous financial bill just surfaced in the Senate Ways and Means Committee, but it was promoted with language that hid the ultimate purpose and effect. Senate Bill 463 permanently transfers more than $500 million annually from the highway fund to the general fund.”1

Goossen has it backwards, however. The proposed bill would transfer nothing from the highway fund to the general fund. It would, however, stop transfers from the general fund to the highway fund.

There’s a difference, and it’s important. The highway fund has no claim on sales tax revenue other than what the legislature decides to send it. That amount has changed over the years. Kansas law specifies how much sales tax revenue is transferred to the highway fund. Here are some recent rates of transfer and dates they became effective:2

July 1, 2010: 11.427%
July 1, 2011: 11.26%
July 1, 2012: 11.233%
July 1, 2013: 17.073%
July 1, 2015: 16.226%
July 1, 2016 and thereafter: 16.154%

(If SB 463 passes as it stands now, on July 1, 2017 the rate would become 0 percent.)

Transfers from Sales Tax to KDOT. Click for larger.
Transfers from Sales Tax to KDOT. Click for larger.
Nearby is a chart showing how many sales tax dollars were transferred to the highway fund. In 2006 the transfer was $98,914 million, and by 2015 it had grown to $511,586 million, an increase of 417 percent. Inflation rose by 18 percent over the same period.3

(It’s important to note that in some years money has been transferred from the highway fund back to the general fund. Worse, in some years KDOT has borrowed money for the highway fund, but it was transferred to the general fund.4)

You’d think that Goossen, a former state budget director, would understand the difference between stopping a flow of funds versus reversing the flow. He claims the latter, and it isn’t surprising to see this mistake. A few sentences in the article let us know Goossen’s ideology, which is that Kansans should be taxed more so that government can continue to spend: “This maneuver does not fix the problem caused by unaffordable income tax cuts, it just makes highways and children pay for it.” First, tax cuts are never unaffordable. It is government that is unaffordable. Tax cuts let people keep more of what is rightly theirs. That is, unless you believe that government has a legitimate claim to your income and assets, as Goossen does. Second, he complains that “recurring revenue does not begin to cover expenses.” That is true. But the proper remedy is to reform and cut spending. Goossen prefers raising taxes.

Economic Lifelines makes the same mistake. We can understand — but not condone — this organization’s motive. It exists for the sole purpose of drumming up support for spending that benefits its members. If its director, who wrote the email cited above, said that Kansas is spending enough or too much on highways, he undoubtedly would be fired.

But what is Duane Goossen’s motivation for twisting the meaning of a bill? That’s a mystery.

KDOT spending on major road programs. Click for larger version.
KDOT spending on major road programs. Click for larger version.
To top it off, spending on highways has increased — notwithstanding the transfers from the highway fund — when we look at actual spending on roads. KDOT’s Comprehensive Annual Financial Report shows spending in the categories “Preservation” and “Expansion and Enhancement” has grown rapidly over the past five years. Spending in the category “Maintenance” has been level, while spending on “Modernization” has declined. For these four categories — which represent the major share of KDOT spending on roads — spending in fiscal 2015 totaled $932,666 million, up from a low of $698,770 in fiscal 2010.

  1. Goossen: High Danger Alert: SB 463. Kansas Center for Economic Growth. Available at: http://realprosperityks.com/goossen-high-danger-alert-sb-463/.
  2. Kansas Statutes Annotated 79-3620.
  3. Bureau of Labor Statistics CPI Inflation Calculator. Available at http://www.bls.gov/data/inflation_calculator.htm.
  4. Voice for Liberty, Kansas transportation bonds economics worse than told. Available at http://wichitaliberty.org/kansas-government/kansas-transportation-bonds-economics-worse-than-told/.

Kansas and Colorado, compared

News that a Wichita-based company is moving to Colorado sparked a round of Kansas-bashing, most not based on facts.

When a Kansas company announced moving its headquarters to Denver, comments left to a newspaper article made several statements that deserve closer examination.1

One reader wrote “Yup another example that the tax relief for businesses is working in Kansas.” Another wrote “The biggest takeaway here is that then didn’t bother to mention the benefits of lower taxes meaning the tax policy Kansas touts really has no bearing on company decisions.” Another wrote “Just low taxes is not a magnet for business or people wanting to move here.” Let’s look at a few statistics regarding Kansas and Colorado business taxation.

In the 2016 State Business Tax Climate Index from the Tax Foundation, Colorado ranked 18 overall, while Kansas ranked 22.2 According to this measure, Colorado has a better tax environment for business, even after Kansas tax reform.

Data from the U.S. Census Bureau for 2014 shows that Colorado collects $2,195 in taxes from each of its citizens. Kansas collects $2,526.3 That’s after the Kansas tax cuts took effect. Kansas would have to cut taxes much more before it reaches the low level of taxation in Colorado.

The takeaway: Even after Kansas tax reform, Colorado has lower taxes.

Another commenter stated “People want to live and businesses want to be located … where education is important and supported.” The writer didn’t elaborate, but generally when people say “support” education, they mean “spend” a lot on public schools. Another commenter wrote “Public schools are treated as an afterthought by our Governor and Legislature.” So let’s look at spending.

Colorado and Kansas schools, according to NEA. Click for larger.
Colorado and Kansas schools, according to NEA. Click for larger.
Regarding school spending, the National Education Association collects statistics from a variety of sources and uses some of its own transformations.4 A collection of statistics from that source is nearby. Note that Colorado teacher salaries are higher, while revenue per pupil is lower. Colorado spends more per student when considering current expenditures. Colorado has a higher student-teacher ratio than Kansas.

Colorado and Kansas NAEP scores by ethnicity. Click for larger.
Colorado and Kansas NAEP scores by ethnicity. Click for larger.
The U.S. Census Bureau has different figures on spending. In a table titled “Per Pupil Amounts for Current Spending of Public Elementary-Secondary School Systems by State: Fiscal Year 2013” we see Colorado spending $8,647, and Kansas $9,828.5 This tabulation has Kansas spending 13.7 percent more than Colorado.

Looking at scores on the National Assessment of Educational Progress (NAEP) — a test that is the same in all states — we see that when considering all students, Kansas and Colorado scores are very close, when measuring the percent of students scoring proficient or better. White students in Colorado, however, generally score higher than in Kansas.

Colorado and Kansas NAEP scores by free/reduced lunch eligibility. Click for larger.
Colorado and Kansas NAEP scores by free/reduced lunch eligibility. Click for larger.
For NAEP scores by eligibility for free or reduced lunches, we see that Kansas and Colorado are similar, except that Colorado has made progress with eligible students in math, catching up with Kansas. (Eligible students are students from low-income households.)

For what it’s worth, in Colorado 10.4 percent of students who attend public schools attend public charter schools. In Kansas the figure is 0.6 percent, due to Kansas law being specifically designed to limit charter school formation and survival.6

A writer expressed this in his comment: “Colorado also presents a more stable political environment as well.” While this is something that probably can’t be quantified, a recent New York Times article disagrees, quoting a former governor:7

“Colorado is subjected to extremes,” said Roy Romer, a former governor. “It’s not just blue and red. It’s also urban and rural. We have a history to this.”

Of note, Colorado has initiative and referendum. Citizens may, by petition, propose new laws and veto laws the legislature passed.8 Kansas does not have initiative and referendum at the state level. This is one way that Kansas has a more stable political environment than Colorado: Citizens have less political power in Kansas. For example, the law that made marijuana legal in Colorado was passed through citizen initiative. I think it’s safe to say that it will be a long time — if ever — before Kansas has medical marijuana, much less full legalization.

Further, Colorado has TABOR, or Taxpayer Bill of Rights. This is a measure designed to limit the growth of taxation and spending. Whether one likes the idea or not, it has had a tumultuous history in Colorado, according to a Colorado progressive public policy institute.9 And if you thought Kansas was the only state that — purportedly — underfunds education, welcome to Colorado. The same report holds: “As 2016 approached, the [Colorado] General Fund remained nearly $900 million short of what it needed to fully fund K-12 education and well below what it needed to restore postsecondary education and other programs to historic levels.” This is in line with the amount Kansas school spending advocates say Kansas needs to spend, adjusted for population.

Colorado also has term limits on its state legislature and elected members of the state executive department (governor, lieutenant governor, secretary of state, attorney general, and treasurer.)10 Kansas has term limits on its governor, but on no other offices. This argues in favor of Colorado having a more dynamic and less stable government.


Notes

  1. Carrie Rengers. Viega to move corporate headquarters and 113 jobs to Denver. Wichita Eagle, March 18, 2016. Available at: http://www.kansas.com/news/business/biz-columns-blogs/carrie-rengers/article66851717.html.
  2. 2016 State Business Tax Climate Index. (2016). Tax Foundation. Available at: http://taxfoundation.org/article/2016-state-business-tax-climate-index.
  3. State Government Tax Collections – Business & Industry. US Census Bureau. Available at: http://www.census.gov/govs/statetax/.
  4. Rankings of the States 2014 and Estimates of School Statistics 2015, National Education Association Research, March 2015. Available at http://www.nea.org/assets/docs/NEA_Rankings_And_Estimates-2015-03-11a.pdf.
  5. U.S. Census Bureau. (2016). Public Elementary–Secondary Education Finance Data. Census.gov. Available at: https://www.census.gov/govs/school/.
  6. National Center for Education Statistics. Public elementary and secondary charter schools and enrollment, by state: Selected years, 1999-2000 through 2012-13. Available at http://nces.ed.gov/programs/digest/d14/tables/dt14_216.90.asp.
  7. Healy, J. (2014). Tracing the Line in Colorado, a State Split Left and Right. Nytimes.com. Available at: http://www.nytimes.com/2014/10/24/us/politics/in-colorado-ever-in-transition-a-fight-for-power.html.
  8. Laws governing the initiative process in Colorado – Ballotpedia. (2016). Ballotpedia.org. Available at: https://ballotpedia.org/Laws_governing_the_initiative_process_in_Colorado.
  9. Bell Policy Center. The road to 2016: More than three decades of constitutional amendments, legislative acts and economic ups and downs. Available at http://www.bellpolicy.org/research/road-2016.
  10. Term Limits in Colorado, Colorado.gov. Available at https://www.colorado.gov/pacific/sites/default/files/Term%20Limits%20in%20Colorado.pdf.

Math quiz on Kansas spending

The average Kansan is misinformed regarding Kansas school spending, and Kansas news media are to blame, writes Paul Waggoner of Hutchinson.

Math Quiz on Kansas Spending

By Paul Waggoner

Math questions, one would think, are very straight-forward and easy to answer. At least easy to guess the right answer in a simple multiple choice test. Such is not the case however with the average Kansan who follows state issues relying on the headlines in the Kansas press.

The reality of how poor a job the Kansas press is doing with numbers is found in a December 2015 SurveyUSA study of 500 plus registered voters in Kansas. This scientific study of voters’ knowledge of educational spending in Kansas was virtually ignored by the Kansas media. Most likely because its implications don’t fit the media narrative on education in this Year 5 of the Age of Brownback. Even worse, the poll was commissioned by a conservative think tank, the Kansas Policy Institute.

As to voter (mis) understanding this 15 question poll hit the jackpot. All the questions were multiple choice with only 4 options given.

Question #6 asked how much state funding do you think Kansas school districts receive per pupil? The correct answer is well over $7,000 per student. 39% of Kansas voters thought it was under $4,000, another 22% thought between $4,000 and $5,000. Only 7% of voters guessed properly.

The follow-up, Question #7, was how much total (federal/state/local) funding do you think Kansas school districts receive per pupil? The correct answer in 2015 was over $13,000 per pupil. Only 5% of registered Kansas voters got that one right. 40% thought the total was under $7,000, and 21% said $7,000 to $10,000 which were the two most inaccurate options!

At this point I was even wondering how the accepted wisdom is so far removed from the truth. So I went to ksde.org, the website of the Kansas State Department of Education, to verify the precise figures. At that website every school district in the state is listed.

What our local school districts spend is very close to the state averages. The Hutchinson USD 308 budget was over $60,000,000 in 2014 with 4,836 full-time students or $12,449 spent per pupil. 5 years earlier the USD 308 budget was $57 million, 5 years before that it was about $41 million.

The comparable figures for USD 313 Buhler are $12,360 per pupil in 2014 with a $26,300,000 budget that 5 years earlier was $22,200,00 and 5 years before that was $18,000,000. For USD 313 that meant students were educated for just $9,000 per pupil as recently as 2005.

Kansas school districts total spending is $2.0 billion higher now than just 10 years ago ($6 billion versus $4 billion). That is an incontrovertible fact. Which leads to two immediate questions: How can the Supreme court keep claiming the spending is constitutionally inadequate? And what exactly do taxpayers have to show for the extra $2,000,000,000 every year?

The reality of those numbers are nowhere in the publics’ consciousness currently. For instance, SurveyUSA question #8 was “over the last 5 years how much do you think total per pupil funding has changed?” The correct answer is that it is actually up 9.92%. But fully 47% of Kansas voters confidently said it had dropped over 5%! Another 15% were sure it had dropped but thought the percentage was smaller. Only 7% of voters knew that school spending was up “over 5%’.

The budget trajectory has changed and is on a much flatter curve than ever before. Taxpayers are mostly rejoicing, tax spenders (and their allies) are howling mad.

My revised school spending narrative is frankly the story of the entire Kansas budget (as can be easily accessed at budget.ks.gov “Governors Budget Report FY 2017”).

The state general fund budget first hit $1 billion in 1980 and grew consistently under Governors Carlin/Hayden/Finney at about a 6.5% annual rate.

Under Graves and Sebelius that accelerated growth rate continued until the 2008-09 recession when the state budget dropped dramatically for 1 year under Governor Parkinson. This made a cumulative annual growth average of around 3% for those three administrations.

Under Governor Brownback the general fund budget is still going up, but at a 5 year annual growth rate of 1.8%.

On February 20th one Hutchinson News columnist’s headline blasted the “Deliberate financial starving of the state of Kansas.” I see this as more of a diet, and I say it is about time.

The numbers on the state budget spending (and taxation) are readily available online. The execution of the plan for this new governmental trajectory leave something to be desired, but that is the topic for another day.

Paul Waggoner is a Hutchinson resident and business owner. He can be reached with comments or questions at [email protected]

Kansas Supreme Court judicial selection

Kansas progressives and Democrats oppose a judicial selection system that is used by U.S. Presidents, both Democrats and Republicans.

What is the substantive difference between these two systems?

A) A state’s chief executive appoints a person to be a judge on the state’s highest court. Then the state’s senate confirms or rejects.

B) A nation’s chief executive appoints a person to be a judge on the nation’s highest court. Then the nation’s senate confirms or rejects.

Perhaps there is a difference that I’m not smart enough to see. I’m open to persuasion. Until then, I agree with KU Law Professor Stephen Ware and his 2007 analysis of the way Kansas selects Supreme Court judges as compared to the other states.1 That analysis concludes that “Kansas is the only state in the union that gives the members of its bar majority control over the selection of state supreme court justices.”

Ware has made other powerful arguments in favor of discarding the system Kansas uses: “In supreme court selection, the bar has more power in Kansas than in any other state. This extraordinary bar power gives Kansas the most elitist and least democratic supreme court selection system in the country. While members of the Kansas bar make several arguments in defense of the extraordinary powers they exercise under this system, these arguments rest on a one-sided view of the role of a judge.”2

Judges, Ware says, make law, and that is a political matter: “Non-lawyers who do not know that judges inevitably make law may believe that the role of a judge consists only of its professional/technical side and, therefore, believe that judges should be selected entirely on their professional competence and ethics and that assessments of these factors are best left to lawyers. In short, a lawyer who omits lawmaking from a published statement about the judicial role is furthering a misimpression that helps empower lawyers at the expense of non-lawyers, in violation of basic democratic equality, the principle of one-person, one-vote.”3

Kansas exhibits a pattern of selecting governors from alternate political parties.
Kansas exhibits a pattern of selecting governors from alternate political parties.
For Kansas progressives and Democrats to oppose Kansas adopting the same system that has enabled Barack Obama to appoint two liberal justices to the U.S. Supreme Court, with perhaps more to come — don’t they realize that Kansas will (likely) have a Democratic governor someday? As Clay Barker noted, for the last 50 years, no Kansas governor has been followed by a successor of the same party (except for Mark Parkinson filling the remainder of a term after Kathleen Sebelius resigned). If that pattern holds — and there’s no guarantee that it will — the next Kansas governor will be a Democrat, just three years from now.

Superficially, it doesn’t seem to make sense for Kansas Democrats to oppose the governor making judicial selections while supporting the President of the United States having the same power. It does make sense, however, when we realize that Kansas Democrats are comfortable with the state’s bar selecting the judicial nominees that the governor may consider. (Which gives truly useful and enjoyable bars a bad name.) Lawyers, especially lawyers that take an active role in politics, tend to be Democrats, and progressive Democrats at that. If the Kansas bar was dominated by constitutional conservatives, would Kansas Democrats feel the same?

I’m not claiming that the motives of conservative Kansas Republicans are pure. Will they change their stance on the desirability of the governor appointing Supreme Court judges if there is a Democratic governor? I don’t know, but I have a suspicion.

Defenders of the current Kansas system claim that the system is based on merit, not politics. To which we must note that this year the Kansas Supreme Court was reversed by the United States Supreme Court. It wasn’t even close, with justices voting eight to zero that the Kansas court was wrong in its application of the law. (The other Supreme Court justice said “I do not believe these cases should ever have been reviewed by the Supreme Court.)

  1. Ware, Stephen J., Selection to the Kansas Supreme Court. Fed-soc.org. Available at: http://www.fed-soc.org/publications/detail/selection-to-the-kansas-supreme-court.
  2. Ware, Stephen J., The Bar’s Extraordinarily Powerful Role in Selecting the Kansas Supreme Court (September 25, 2009). Kansas Journal of Law & Pubic Policy, Vol. 18, No. 3, p. 392, 2009. Available at SSRN: http://ssrn.com/abstract=1478660.
  3. Ware, Stephen J., Originalism, Balanced Legal Realism and Judicial Selection: A Case Study (August 3, 2012). Available at SSRN: http://ssrn.com/abstract=2129265.

Power of Kansas cities to take property may be expanded

A bill working its way through the Kansas Legislature will give cities additional means to seize property.

The bill is SB 338, titled “Rehabilitation of abandoned property by cities.” This bill has passed the Senate by a vote of 32 to eight. It has had a hearing in the House of Representatives.

Wichitan John Todd is opposed to this bill and provided oral and written testimony this week to a House committee. In his testimony, Todd made these points, among others:

  • Senate Bill 338 appears to provide local governmental units with additional tools that they don’t need to “take” properties in a manner that circumvents the eminent domain statutes that private property rights advocates fought so hard to achieve in 2006.
  • The total lack of compensation to the property owner for the deprivation or taking of his or her property is missing in the bill.
  • Allowing a city or their third party take possession of vacant property they do not own and have not obtained legal title to is wrong.
  • Please take a look at a comparison between a free-market private sector solution as contrasted to a government mandated program to achieving affordable housing and the impact highly subsidized government housing solutions are having on adjacent home owners.

Instead of being a problem, houses like these can present economic opportunity, says John Todd.
Instead of being a problem, houses like these can present economic opportunity, says John Todd.
In closing his testimony, Todd remarked: “In summary, cities in Kansas clearly have all the powers they need to deal with property issues through current law. By enhancing the power of cities and their appointed non-profit community redevelopment organizations to ‘take’ privately owned properties without compensation in an involuntary manner violates the individual private property rights that are essential for the rule of law and liberty to prevail.”

Click here to view Todd’s written testimony and visual exhibits.

Empty lots in northeast Wichita. Click for larger version.
Empty lots in northeast Wichita. Click for larger version.
Separately, Todd supplied a map of a portion of northeast Wichita. He remarked:

I am told that there are over 100 vacant lots in this neighborhood represented by green color. It also shows “Poor” and “Very Poor to Unsound” properties in tan and yellow. SB 338 was touted to provide a tool to deal with blight. The point of this map is to demonstrate how the City of Wichita has been using existing law to deal with blighted properties, and how this law has facilitated the destruction of huge numbers of houses. Many had economic value, but there was no compensation to the property owners. My conclusion was that given the existing law, coupled with tax foreclosure sales, there was no need to give cities additional tools.

What we have under existing law is actually a regulatory taking of private property with no compensation to property owners. Passage of SB 338 would expand those tools to allow cities or their chosen non-profit entities to seize vacant properties they do not have legal title to. The result for a property owner is a “regulatory taking,” ordered by the Kansas Courts with no compensation, allowing the city or the non-profit time to seek title through a mandated court order and judicial deed. Both are methods of forced government transfer and are wrong.

In Kansas, doctors may “learn” just by doing their jobs

A proposed bill in Kansas should make us question the rationale of continuing medical education requirements for physicians.

The bill is HB 2615, titled “Charitable healthcare providers; continuing education credits for gratuitous care of eligible patients.”

The bill’s supplemental note explains the bill “… would allow charitable healthcare providers and dentists to fulfill one hour of continuing education credit for performance of two hours of gratuitous service to medically indigent persons.”

In an op-ed published in the Wichita Eagle Representative Dan Hawkins explained “we believe that this system has the potential of generating more than $18 million in free care for the neediest Kansans.” (Rep. Dan Hawkins: Plan increases access to health care, reduces cost, March 7, 2016)

Contrary to Hawkins, the care won’t be free. It may not cost the state anything, but it will have a cost to the doctors who supply the “free” care.

Perhaps more importantly, this bill should make us question the purpose of continuing medical education requirements for physicians and dentists. In Kansas, physicians must participate in 50 hours of continuing medical education annually. This education requirement is satisfied by participating in “activity designed to maintain, develop, or increase the knowledge, skills, and professional performance of persons licensed to practice a branch of the healing arts.”

But HB 2615 will let physicians satisfy 20 hours of this requirement by providing 40 hours of health care to needy people. Having doctors perform routine medical care — doing their daily job, in other words — doesn’t seem likely to advance the “knowledge, skills, and professional performance” of doctors, which is the stated goal of the regulation.

We have, therefore, a regulation that seems reasonable — ensuring that doctors are up-to-date in professional knowledge — instead being used by the state to “encourage” doctors to provide free labor.

Episodes like this should be a lesson in the powers and abuses of the regulatory state.

The Kansas regulations

According to the Kansas Board of Healing Arts, physicians must participate in continuing medical education each year, earning “50 hours with a minimum of 20 hours of Category I and a maximum of 30 hours of Category II.”

In more detail, the regulations state the continuing education is “activity designed to maintain, develop, or increase the knowledge, skills, and professional performance of persons licensed to practice a branch of the healing arts.” 1 Category I continuing education is “presented by a person qualified by practical or academic experience” and may consist of lectures, panel discussions, workshops, seminars, symposiums, and other formal learning opportunities. 2 The requirements are 20 hours of this education annually.

Category II continuing education comprises activities that are less formal, such as “clinical consultations with other healing arts practitioners that contribute to a practitioner’s education, participation in activities to review the quality of patient care, instructing healing arts and other health care practitioners, patient-centered discussions with other health care practitioners, participating in journal clubs, using searchable electronic databases in connection with patient care activities. and
using self-instructional materials.” 3 The requirements are 30 hours of this education annually.

Of note, HB 2615 doesn’t seem to specify into which category will fall the hours of continuing medical education earned by providing service to needy patients.


Notes

  1. K.A.R. 100-15. (2016). Ksbha.org. Available at: http://www.ksbha.org/regulations/article15.shtml#kar100154.
  2. ibid.
  3. ibid.

Kansas should adopt food sales tax amendment

A proposed constitutional amendment would reduce, then eliminate, the sales tax on food in Kansas.

A severe and harsh problem in Kansas is our high sales tax on food. Only 14 states apply sales tax to food purchased at grocery stores for home consumption. Of those states that tax food, Kansas has either the highest rate, or the second-highest rate, depending on a few factors. Now, a resolution introduced in the Kansas Senate would reduce the food sales tax rate in two steps, and then eliminate the tax.

The measure is SCR 1612, titled “Constitutional amendment providing for phase out and complete exemption from sales and use taxation of food and food ingredients.”

The essence of the resolution is that on July 1, 2017, the sales tax on food would fall to four percent. On July 1, 2018 it would fall to two percent. On July 1, 2019 the rate would become zero.

This is a proposed amendment to the Kansas Constitution. To advance it requires passage in both the House and Senate with a two-thirds margin. If that happens, the amendment would appear on a statewide election ballot. If a majority of Kansas voters approve, the constitution then has a new amendment. The governor has no role in the processing of amending the constitution except for expressing approval or opposition and lobbying legislators and voters.

The resolution is sponsored by 12 senators. It requires 27 senators to pass with the required two-thirds margin.

Estimates that reducing the food sales tax rate from the present 6.5 percent to four percent might reduce revenue from $120 million to $150 million.

Kansas sales tax effects by income quintile, three scenarios. Click for larger version.
Kansas sales tax effects by income quintile, three scenarios. Click for larger version.
This is something the state needs to do. The sales tax on food is harmful to low-income families. See Kansas sales tax has disproportionate harmful effects and Wichita sales tax hike would hit low income families hardest. Supporters of a national sales tax, the FairTax, recognize this and compensate for the regressive nature of sales tax by incorporating a “prebate,” a monthly payment to offset the high sales tax on food and other necessities.

It’s true that in Kansas there is the possibility of receiving a food sales tax credit of $125. But this is something that must be applied for when filing an income tax return. Also, the credit is nonrefundable, meaning that applicants must have income tax liability of at least $125 to receive the full credit. Low-income households generally don’t have an income tax liability, meaning the tax credit is not available to them.

When proposing tax cuts, the question usually asked is “how do we pay for the tax cut.” That’s the wrong question. Tax cuts do not have a cost. It’s government that has a cost. Tax cuts simply let people keep more of what is rightfully theirs in the first place. So the proper question is “how will the state trim spending so people keep more of their money, especially low-income families.”

But if the legislature wanted to compensate for the lost revenue of cutting sales taxes on food, here’s something to consider.

The Kansas Department of Transportation receives part of the sales tax revenue. Prior to 2013, 11.2 percent of sales tax revenue was transferred to KDOT. Since then, the figure is 17.1 percent. If we simply changed the allocation back to the pre-2013 level, that would mean an additional 180 million dollars for the state general fund, according to estimates from Kansas Policy Institute. That’s enough to pay for the first round of food sales tax cuts in the proposed amendment.

Kansas highway spending

An op-ed by an advocate for more highway spending in Kansas needs context and correction.

An op-ed in the Wichita Eagle by Bob Totten, executive vice president of the Kansas Contractors Association, makes the case for more spending on Kansas roads and highways. (Bob Totten: State’s road and bridge work is underfunded, February 25, 2016)

Besides lamenting the purportedly poor condition of Kansas roads and bridges, Totten mentions — frequently — the diversion of money from the highway fund to the general fund. While opinions may differ on the wisdom of KDOT borrowing money by selling long-term bonds and transferring those funds to the state’s general fund, that activity is separate from spending money on roads. (The borrowing and transferring is not wise, for both Republican and Democratic administrations. See Kansas transportation bonds economics worse than told.)

KDOT spending on major road programs. Click for larger version.
KDOT spending on major road programs. Click for larger version.
When we look at actual spending on roads, we see something different from what is portrayed in this op-ed. KDOT’s Comprehensive Annual Financial Report shows spending in the categories “Preservation” and “Expansion and Enhancement” has grown rapidly over the past five years. Spending in the category “Maintenance” has been level, while spending on “Modernization” has declined. For these four categories — which represent the major share of KDOT spending on roads — spending in fiscal 2015 totaled $932,666 million, up from a low of $698,770 in fiscal 2010.

In light of this rising spending on roads, we have to wonder what is the point of Mr. Totten’s op-ed. That is self-evident. The purpose of the Kansas Contractors Association is to have the state spend as much as possible on projects that benefit its clients, which include contractors, construction companies, and material suppliers. It matters not whether the spending is needed, wise, or the proverbial “bridge to nowhere” — the goal of Mr. Totten is more spending by Kansas taxpayers to benefit his association’s members.

KDOT spending. Click for larger version.
KDOT spending. Click for larger version.

Steve Rose and Jim Denning on the Kansas economy

Kansas City Star editorialist Steve Rose visits with Kansas State Senator Jim Denning.

It’s helpful for Kansans to have commentary and factual injection accompany a Steve Rose editorial in the Kansas City Star. In this case let’s look at a column based on his interview with Kansas State Senator Jim Denning.

Steve Rose: “The numbers can be sliced and diced to make a positive or negative picture, but it is undeniable that Kansas government itself is virtually bankrupt, and Brownback’s tax policies are responsible.”

A government can balance a budget by taxing more or spending less. We see the clear preference of Rose here: There is not enough taxation. We now have an efficiency study that shows some ways to save money. The question is why didn’t the legislature commission this study in 2012, the year in which it cut taxes?

“[State Sen. Jim Denning of Overland Park] Denning said: ‘The governor rolled the dice on the most aggressive tax cut policy in history, and things just did not turn out the way he expected.'”

It’s a shame to see Republicans — or anyone, for that matter — referring to tax cuts as “rolling the dice.” Cutting taxes simply means that people are allowed to keep more of what is rightfully theirs in the first place — which is a good thing. There is legitimate concern that the 2012 tax cuts were distributed in an unfair or unwise way. The way to fix that is to cut taxes for those who didn’t receive the purportedly unfair cuts.

Unemployment with and without stimulus through 2014-01As far as the results of the tax cuts, the governor should not have bragged as he did. The ability of government to manage the economy is limited, especially at the state level. Consider the Obama stimulus. The nation’s unemployment rate was always above the rate the administration predicted if there were no stimulus. See Brownback and Obama stimulus plans.

Kansas Spending, Per Capita, Adjusted for CPI 2016-01Further, what is the role of taxation in Kansas? Is it taxation or government spending that is purportedly good for the Kansas economy? Is it to support spending? If so, the tax cuts have not have an effect on spending. While some programs have been trimmed, overall state spending continues on a largely upward trend (for all funds spending) or remains mostly flat (for general fund spending). See Spending and taxing in Kansas.

Denning: “If we would have closed the [LLC] loophole, we would have brought in an additional $200 million, and the governor would have been a hero.”

Kansas General Fund spending, showing large deficits of revenue compared to spending in 2014 and 2015.
Kansas General Fund spending, showing large deficits of revenue compared to spending in 2014 and 2015.
The LLC loophole Denning refers to is the zero income tax on pass-through business income. Eliminating it and recapturing the $200 million would not have balanced the Kansas budget. In fiscal years 2014 and 2015 the state spent $340 million and $308 million more than it took in as revenue. Spending restraint is necessary.

Denning: “The Legislature has controlled spending to the lowest levels on record. … Our constituents wanted us to reduce spending, and we did.”

It’s hard to justify Denning’s claim with facts. See again Spending and taxing in Kansas.

Kansas transportation bonds economics worse than told

The economic details of a semi-secret sale of bonds by the State of Kansas are worse than what’s been reported.

The late realization last year that the Kansas Department of Transportation had issued $400 million in long-term bonds — largely under the radar — has been met with appropriate levels of indignation by some editorial writers. An example is Dr. Edward Flentje who wrote:

Right-wing Republican lawmakers have operated under the radar to suspend all statutory limits on highway debt, and that unprecedented authority was recently used to issue record-breaking levels of long-term debt to pay for their reckless income tax cuts this year and next.

Six lines buried deep in a 700-page appropriation bill last spring gave the Kansas Department of Transportation unlimited authority to issue debt, and in early December, without public disclosure, the agency used that authority to issue $400 million in highway bonds. (H. Edward Flentje: Debt limits suspended to pay for tax cuts, Wichita Eagle, December 18, 2015)

A few notes: The Secretary of Transportation has, in the past, been given broad — but maybe not “unlimited” — authority to issue bonds and borrow money. The series 2012C bonds were issued with this statement: “The 2010 Act Amendments authorized the Secretary to issue highway revenue bonds so long as the Secretary certifies that, as of the date of issuance of any such bonds, the maximum annual debt service on all Outstanding Bonds and on such bonds proposed to be issued will not exceed 18% of Revenues projected for the then-current or any future Fiscal Year.”

In 2010 Kansas had a Democrat for a governor, which should caution us to not make this issue too political. As far as borrowing from the “Bank of KDOT,” it’s been done before, as explained in 2015 by KDOT. 1 And, payments on these loans have been deferred or not made.

Instead of politicizing the issue, let’s concentrate on the facts and merits. And when looking at the Series 2015B bonds, there is plenty to criticize.

KDOT outstanding bonds, showing interest-only issues. Click for larger version. Does not include Series 2015B bonds.
KDOT outstanding bonds, showing interest-only issues. Click for larger version. Does not include Series 2015B bonds.
First, the state will not pay any principal on these bonds until 2026. Until then the state will pay only the interest on the $400 million, which is $20 million per year. Then, starting in 2026, the state will make 11 annual payments of various amounts towards the principal. In all, KDOT’s schedule shows the state will pay $282,494,750 in interest on a loan of $400 million.

I don’t think that most Kansans would appreciate the state borrowing so much money for such a long time without making any effort at retiring the principal. But before we politicize: The KDOT Series 2010A bonds ($325 million, dated September 1, 2010) don’t require principal payments until 2032. (These bonds are “Buy America Bonds,” a program of the 2009 American Recovery and Reinvestment Act, and the federal government will pay 35 percent of the interest.) The plan, as outlined in KDOT’s official statement, is that starting in 2032 the state will make five annual payments of between $61 million and $69 million, totaling $325 million, and then the bonds will be retired. 2

There’s even more to criticize about the 2015B bonds. The actual proceeds the state will receive from the bonds (after costs of issuance and the underwriters’ discount) is $488,242,912. How, you may be asking, can the state issue $400 million in bonds but receive $488 million when it sells them? The answer is an “original issue premium” of about $89 million.

To explain: Bonds similar to these ought to yield in the range of 2.00 percent to maybe 2.75 percent. But, KDOT is paying 5.00 percent interest. Therefore, bond buyers are willing to pay more than the face value (the $400 million) for these bonds, because they will be earning higher-than-market interest. 3 In fact, these bonds were sold at premiums ranging from 119 percent to 126 percent. Meaning that for every $1.00 worth of bonds bought (representing money the state must repay), the state actually received from $1.19 to $1.26. 4

That sounds like a good deal for the state, but in exchange for the premiums, the state pays much higher interest. There are several different ways of looking at this, but the upshot is that the state is receiving additional money now in exchange for paying a higher interest rate for many years. About $89 million in extra interest, which increases the actual cost of these bonds beyond what we thought.

(Again, before we politicize, the state under a Democratic governor has done the same.)

The allure of borrowing large sums and spending now is not limited to transportation bonds. The state is currently using the recent $1 billion in proceeds from KPERS bonds as a rationale to skip KPERS contributions this year, and also suspend a rule that most proceeds from the same of surplus property goes to KPERS. See This is why we must eliminate defined-benefit public pensions.


Notes:

  1. FY 2002 Loan to State General Fund. The 2002 Legislature borrowed $94.6 million from the State Highway Fund for the State General Fund and directed that the funds were to be repaid to the State Highway Fund by June 30, 2003. The 2003 Legislature deferred the repayment of the $94.6 million loan into four equal annual installments beginning prior to June 30, 2007. In addition, the 2003 Legislature directed that the State Highway Fund transfer to the State General Fund $30.6 million for activities of the State Highway Patrol and the 2003 Legislature directed that this transfer also be repaid in four equal annual installments beginning prior to June 30, 2007. The first repayment installment was made in June 2007 and the second in June 2008. The 2009 Legislature delayed the June 2009 repayment to June 2011 and the 2010 Legislature eliminated the language authorizing the June 2011 repayment. At this time, there is no authorization for the final two repayments. The Department’s projections included in this Official Statement do not include receiving the final two repayments.
  2. EMMA (Electronic Municipal Market Access), $325,000,000 State of Kansas Department of Transportation Taxable Highway Revenue Bonds, Series 2010A at emma.msrb.org/EA407275-EA318568-EA714328.pdf.
  3. A bond will trade at a premium when it offers a coupon rate that is higher than prevailing interest rates. Investopedia at www.investopedia.com/terms/p/premiumbond.asp.
  4. EMMA (Electronic Municipal Market Access), $400,000,000 State of Kansas Department of Transportation Highway Revenue Bonds Series 2015B at emma.msrb.org/IssueView/IssueDetails.aspx?id=EP369775.

This is why we must eliminate defined-benefit public pensions

Actions considered by the Kansas Legislature demonstrate — again — that governments are not capable of managing defined-benefit pension plans.

The Kansas Legislature is considering a bill that will allow Governor Sam Brownback to defer making payments to KPERS, the state’s defined-benefit pension system for public employees. The deferred payments would be made up in future years, although there is really no mechanism to enforce this.

Also, the bill considers eliminating the requirement that when the state sells surplus property, that 80 percent must be used to reduce the unfunded actuarial pension liability of KPERS. There is also a moratorium on employer contribution to KPERS Death and Disability fund, which is much smaller than the retirement fund.

KPERS funded ratio through 2014That unfunded liability is a big problem. It refers to the difference between what KPERS expects to pay compared to the revenue it expects to receive. In recent years the Kansas pension fund has been among the worst in the country, based on the funded ratio. The nearby charts shows the trend of this funded ratio through 2014, the latest date for KPERS valuation reports.

Last year the state issued $1 billion in bonds to address a portion of the unfunded liability. While this helps KPERS, it simply means that the state owes another billion dollars on a different balance sheet. But it’s the same taxpayers that will eventually pay.

Barry Poulson, Ph.D., Emeritus Professor at the University of Colorado — Boulder has written on the danger of borrowing to shore up state pension funds. As explained below, there is the “lack of nexus between the investment of the bond proceeds and payments for unfunded liabilities in the plan.” This means that the borrowed funds may be used for current spending rather than for correcting the KPERS unfunded liability.

He further explains: “If legislators see that additional funds are available to pay off unfunded liabilities in the pension plan they may choose to allocate less general fund money to meet these pension obligations.”

This is what is happening in Kansas. The borrowing of a billion dollars has let legislators and the governor feel — incorrectly — that there is breathing room, and that the state can slack off making the contributions it should be making this year. This is highly irresponsible and reckless.

Following, from Dr. Paulson:

A major flaw in the proposed issuance of pension obligation bonds is the lack of nexus between the investment of the bond proceeds and payments for unfunded liabilities in the plan. The experience in other states is that sometimes bond proceeds are earmarked for other state expenditures. The most egregious example of this problem is the state of Illinois which issued $10 billion in pension obligation bonds and then used the proceeds to meet current expenditures rather than to pay off unfunded liabilities in the pension plan.

Even if the state of Kansas would not commit this form of fraud on the taxpayers the fungible nature of state funding makes it impossible to guarantee the nexus between bond proceeds and the payment for unfunded liabilities in the pension plan. If legislators see that additional funds are available to pay off unfunded liabilities in the pension plan they may choose to allocate less general fund money to meet these pension obligations. The state has not allocated the annual required contribution (ARC) to KPERS for several decades and is not projected to do so for the foreseeable future. Legislators continue to promise pension benefits without allocating the funds required to meet these obligations. We should expect this moral hazard to be even greater with the issuance of pension obligation bonds.

Even if the proceeds of pension obligation bonds could be set aside in a lock box and earmarked to pay off unfunded liabilities in the pension plan the state must still address the accumulation of unfunded liabilities in the defined benefit plan. Without fundamental structural change, including shifting public employees to some form of defined contribution pension plan, these unfunded liabilities will continue to accumulate. Legislators should not be diverted from this difficult task by non-reforms, such as the issuance of pension obligation bonds.