Resolving school district spending variances could yield hundreds of millions in savings
By Dave Trabert
School districts spent an average $12,960 per student during the 2014 school year but the range of spending across districts varied quite significantly. Total spending went from a low of $9,245 per-pupil (USD 218 Elkhart, with 1,137 students) to a high of $23,861 (USD 490 El Dorado, 1,872 students); El Dorado also hosted a Special Ed Co-Op and must record the cost of serving students in other districts per KSDE. USD 359 Argonia had the highest spending per-pupil among districts that did not host Special Ed Co-Ops, spending $22,847 with 162 students enrolled.
Instruction spending variances can be somewhat driven by the school funding formula and student body compositions (extra money is given to districts for special education, low income students and bi-lingual students) but districts have a great deal of latitude in resource allocation. Some districts, for example, divert money from Instruction as a result of other spending decisions. Variances in spending on Administration and other cost centers, however, are primarily driven by district operating decisions.
Many Kansas school districts have low enrollment, and while it would be expected that very small districts would spend more per-pupil because of economies of scale, some small districts are able to operate at lower prices per student than many larger districts. There are also wide variances even among districts of similar size.
A complete analysis of all operating cost centers (including Operations/Maintenance, Transportation, Food Service and Community Service can be found here.
To put these variances in perspective, KPI staff calculated the potential savings of getting each district spending above median within their enrollment category down to the median for each cost center. The total comes to a staggering $516 million. There may be some circumstances that preclude some of that savings being realized but there could also be additional savings realized among those districts spending below median.
To be clear, the purpose of this analysis is not to say that a specific dollar amount of savings could be had if districts operate more efficiently. However, variances of this magnitude certainly indicate that efficiency efforts driven by the Legislature could easily yield nine-figure savings.
In this excerpt from WichitaLiberty.TV: Sin taxes, and what the Kansas Legislature doesn’t want you to know. Originally broadcast February 8, 2015. View below, or click here to view at YouTube. For more on these issues, see:
The Kansas STAR bonds program provides a mechanism for spending by autopilot, without specific appropriation by the legislature.
Under the State of Kansas STAR bonds program, cities sell bonds and turn over the proceeds to a developer of a project. As bond payments become due, incremental sales tax revenue make the payments.
It’s only the increment in sales tax that is eligible to be diverted to bond payments. This increment is calculated by first determining a base level of sales for the district. Then, as new development comes online — or as sales rise at existing merchants — the increased sales tax over the base is diverted to pay the STAR bonds.
Often the STAR bonds district, before formation, is vacant land, and therefore has produced no sales tax revenue. Further, the district often has the same boundaries as the proposed development. Thus, advocates often argue that the bonds pay for themselves. Advocates often make the additional case that without the STAR bonds, there would be no development, and therefore no sales tax revenue. Diverting sales tax revenue back to the development really has no cost, they say, as nothing was going to happen but for the bonds.
This is not always the case, For a STAR bonds district in northeast Wichita, the time period used to determine the base level of sales tax was February 2011 through January 2012. A new Cabela’s store opened in March 2012, and it’s located in the boundaries of STAR bonds district, even though it is not part of the new development. Since Cabela’s sales during the period used to calculate the base period was $0, the store’s entire sales tax collections will be used to benefit the STAR bonds developer.
(There are a few minor exceptions, such as the special CID tax Cabela’s collects for its own benefit.)
Which begs the question: Why is the Cabela’s store included in the boundaries of the STAR bonds district?
With sales estimated at $35 million per year at this Cabela’s store, the state has been receiving around $2 million per year in sales tax from it. But after the STAR bonds are sold, that money won’t be flowing to the state. Instead, it will be used to pay off bonds that benefit the STAR bond project’s developer — the project across the street.
Taxation for public or private benefit? STAR bonds should be opposed as they turn over taxation to the private sector. We should look at taxation as a way for government to raise funds to pay for services that all people benefit from. An example is police and fire protection. Even people who are opposed to taxation rationalize paying taxes that way.
But STAR bonds turn tax policy over to the private sector for personal benefit. The money is collected under the pretense of government authority, but it is collected for the exclusive benefit of the owners of property in the STAR bonds district.
Citizens should be asking this: Why do we need taxation, if we excuse some from participating in the system?
Another question: In the words of the Kansas Department of Commerce, the STAR bonds program offers “municipalities the opportunity to issue bonds to finance the development of major commercial, entertainment and tourism areas and use the sales tax revenue generated by the development to pay off the bonds.” This description, while generally true, is not accurate. The northeast Wichita STAR bonds district includes much area beyond the borders of the proposed development, including a Super Target store, a new Cabela’s store, and much vacant ground that will probably be developed as retail. The increment in sales taxes from these stores — present and future — goes to the STAR bond developer. As we’ve seen, since the Cabela’s store did not exist during the time the base level of sales was determined, all of its sales count towards the increment.
STAR bonds versus capitalism In economic impact and effect, the STAR bonds program is a government spending program. Except: Like many spending programs implemented through the tax system, legislative appropriations are not required. No one has to vote to spend on a specific project. Can you imagine the legislature voting to grant $5 million per year to a proposed development in northeast Wichita? That doesn’t seem likely. Few members would want to withstand the scrutiny of having voted in favor of such blatant cronyism.
But under tax expenditure programs like STAR bonds, that’s exactly what happens — except for the legislative voting part, and the accountability that (sometimes) follows.
Government spending programs like STAR bonds are sold to legislators and city council members as jobs programs. Development and jobs, it is said, will not appear unless project developers receive incentives through these spending programs. Since no politician wants to be seen voting against jobs, many are susceptible to the seductive promise of jobs.
But often these same legislators are in favor of tax cuts to create jobs. This is the case in the Kansas House, where most Republican members voted to reducing the state’s income tax as a way of creating economic growth and jobs. On this issue, these members are correct.
But many of the same members voted in favor of tax expenditure programs like the STAR bonds program. These two positions cannot be reconciled. If government taxing and spending is bad, it is especially bad when part of tax expenditure programs like STAR bonds. And there’s plenty of evidence that government spending and taxation is a drag on the economy.
The word “capitalism” is used in two contradictory ways. Sometimes it’s used to mean the free market, or laissez faire. Other times it’s used to mean today’s government-guided economy. Logically, “capitalism” can’t be both things. Either markets are free or government controls them. We can’t have it both ways.
The truth is that we don’t have a free market — government regulation and management are pervasive — so it’s misleading to say that “capitalism” caused today’s problems. The free market is innocent.
But it’s fair to say that crony capitalism created the economic mess.
But wait, you may say: Isn’t business and free-market capitalism the same thing? Not at all. Here’s what Milton Friedman had to say: “There’s a widespread belief and common conception that somehow or other business and economics are the same, that those people who are in favor of a free market are also in favor of everything that big business does. And those of us who have defended a free market have, over a long period of time, become accustomed to being called apologists for big business. But nothing could be farther from the truth. There’s a real distinction between being in favor of free markets and being in favor of whatever business does.” (emphasis added.)
Friedman also knew very well of the discipline of free markets and how business will try to avoid it: “The great virtue of free enterprise is that it forces existing businesses to meet the test of the market continuously, to produce products that meet consumer demands at lowest cost, or else be driven from the market. It is a profit-and-loss system. Naturally, existing businesses generally prefer to keep out competitors in other ways. That is why the business community, despite its rhetoric, has so often been a major enemy of truly free enterprise.”
The danger of Kansas government having a friendly relationship with Kansas business is that the state will circumvent free markets and promote crony, or false, capitalism in Kansas. It’s something that we need to be on the watch for. The existence of the STAR bonds program lets us know that a majority of Kansas legislators — including many purported fiscal conservatives — prefer crony capitalism over free enterprise and genuine capitalism.
Government bureaucrats and politicians promote programs like STAR bonds as targeted investment in our economic future. They believe that they have the ability to select which companies are worthy of public investment, and which are not. It’s a form of centralized planning by the state that shapes the future direction of the Kansas economy.
As Hayek pointed out, knowledge that is important in the economy is dispersed. Consumers understand their own wants and business managers understand their technological opportunities and constraints to a greater degree than they can articulate and to a far greater degree than experts can understand and absorb.
When knowledge is dispersed but power is concentrated, I call this the knowledge-power discrepancy. Such discrepancies can arise in large firms, where CEOs can fail to appreciate the significance of what is known by some of their subordinates. … With government experts, the knowledge-power discrepancy is particularly acute.
Despite this knowledge problem, Kansas legislators are willing to give power to bureaucrats in the Department of Commerce and politicians on city councils who feel they have the necessary knowledge to direct the investment of public funds. One thing is for sure: the state and its bureaucrats and politicians have the power to make these investments. They just don’t have — they can’t have — the knowledge as to whether these are wise.
What to do The STAR bonds program is an “active investor” approach to economic development. Its government spending on business leads to taxes that others have to pay. That has a harmful effect on other business, both existing and those that wish to form.
Professor Art Hall of the Center for Applied Economics at the Kansas University School of Business is critical of this approach to economic development. In his paper Embracing Dynamism: The Next Phase in Kansas Economic Development Policy, Hall quotes Alan Peters and Peter Fisher: “The most fundamental problem is that many public officials appear to believe that they can influence the course of their state and local economies through incentives and subsidies to a degree far beyond anything supported by even the most optimistic evidence. We need to begin by lowering expectations about their ability to micro-manage economic growth and making the case for a more sensible view of the role of government — providing foundations for growth through sound fiscal practices, quality public infrastructure, and good education systems — and then letting the economy take care of itself.”
In the same paper, Hall writes this regarding “benchmarking” — the bidding wars for large employers that Kansas and many of its cities employ: “Kansas can break out of the benchmarking race by developing a strategy built on embracing dynamism. Such a strategy, far from losing opportunity, can distinguish itself by building unique capabilities that create a different mix of value that can enhance the probability of long-term economic success through enhanced opportunity. Embracing dynamism can change how Kansas plays the game.”
In making his argument, Hall cites research on the futility of chasing large employers as an economic development strategy: “Large-employer businesses have no measurable net economic effect on local economies when properly measured. To quote from the most comprehensive study: ‘The primary finding is that the location of a large firm has no measurable net economic effect on local economies when the entire dynamic of location effects is taken into account. Thus, the siting of large firms that are the target of aggressive recruitment efforts fails to create positive private sector gains and likely does not generate significant public revenue gains either.'”
There is also substantial research that is it young firms — distinguished from small business in general — that are the engine of economic growth for the future. We can’t detect which of the young firms will blossom into major success — or even small-scale successes. The only way to nurture them is through economic policies that all companies can benefit from. Reducing tax rates is an example of such a policy. Government spending on specific companies through programs like STAR bonds is an example of precisely the wrong policy.
We need to move away from economic development based on this active investor approach. We need to advocate for policies at all levels of government that lead to sustainable economic development. We need political leaders who have the wisdom to realize this, and the courage to act appropriately. Which is to say, to not act in most circumstances.
Industrial Revenue Bonds are a confusing economic development program. We see evidence that citizens are concerned that the city or county is in the business of lending money to companies, when that is not the case. You see this misunderstanding revealed in comments left to newspaper articles reporting the issuance of IRBs, where comment writers complain that the city shouldn’t be in the business of lending companies money.
IRBs are not a loan by government
A recent Wichita city council agenda packet regarding an IRB issue explains that the city is not lending the applicant money. In fact, no one is lending, in the net: “Spirit AeroSystems, Inc. intends to purchase the bonds itself, through direct placement, and the bonds will not be reoffered for sale to the public.” If a company wants to lend itself money, this is a private transaction that should be of no public interest or concern.
In 2010 when movie theater owner Bill Warren and partners sought IRBs, city documents held this: “American Luxury Cinemas, Inc. proposes to privately place the $16,000,000 taxable industrial revenue bond with Intrust Bank, with whom there is a long-standing banking relationship.” Again, if a bank wants to lend someone money, this a private transaction that should be of no public interest or concern.
The reason for IRBs
The reason why IRB transactions take place is simple: tax avoidance. That’s the real story of Industrial Revenue Bonds: Companies escape paying the property and sales taxes that you and I — as well as most business firms — must pay.
It’s not uncommon for the issuing company to buy the bonds, as in the case of Spirit. So why issue the bonds? The agenda packet has the answer: “The bond financed property will be eligible for sales tax exemption and property tax exemption for a term of ten years, subject to fulfillment of the conditions of the City’s public incentives policy.”
City documents didn’t give the amount of tax Spirit will avoid paying, so we’re left to surmise. Bonds could be issued up to $59.5 million. Taxable business property of that value would generate an annual tax bill of around $1.8 million per year, and Spirit would not pay that for up to ten years. For sales taxes, if all the purchased property was subject to sales tax, that one-time tax exemption would be $4.3 million. These are the upper bounds of the tax savings Spirit Aerosystems may receive. Its actual savings will probably be lower, but still substantial.
In the case of the Warren theater, the IRBs provided sales and property tax exemptions, although the property tax exemption was partially offset by a payment in lieu of taxes agreement.
IRBs are a confusing economic development program. It sounds like a loan from the city or state, but it’s not. The purpose is to convey tax avoidance.
Here’s language from the Wichita ordinance that was passed to implement the Spirit bonds: “The Bonds, together with the interest thereon, are not general obligations of the City, but are special obligations payable (except to the extent paid out of moneys attributable to the proceeds derived from the sale of the Bonds or to the income from the temporary investment thereof) solely from the lease payments under the Lease, and the Bond Fund and other moneys held by the Trustee, as provided in the Indenture. Neither the credit nor the taxing power of the State of Kansas or of any political subdivision of such State is pledged to the payment of the principal of the Bonds and premium, if any, and interest thereon or other costs incident thereto.”
So no governmental body has any obligation to pay the bondholders in case of default. But this language hints at another complicating factor of IRBs: The city actually owns the property purchased with the bond proceeds, and leases it to Spirit. Here’s the preamble of the ordinance: “An ordinance approving and authorizing the execution of a lease agreement between Spirit Aerosystems, Inc. and the City of Wichita, Kansas.”
Other language in the ordinance is “WHEREAS, the Company will acquire a leasehold interest in the Project from the City pursuant to said Lease Agreement.” There’s other language detailing the lease.
We create this “imaginary” lease agreement — and that’s what it is, as it doesn’t have the same purpose and economic meaning as most leases — for what purpose? Just so that certain companies can avoid paying taxes.
The actual economic transaction
IRBs are a confusing program that obfuscates the actual economic transaction. That’s not good public policy, whether or not you agree with the concept of selective tax abatements as economic development.
Similarly, a principle of good tax policy is that those in similar situations should face the same laws. IRBs are contrary to this.
Also, IRBs are generally available only to large companies. There is massive red tape to overcome, as well as fees, such as an annual fee of $2,500 to the city.
Often when IRBs are presented to city councils for approval, there is explanation of what the bond proceeds will be used for. This is curious. It is as though city council members are wise enough to ascertain whether the plans a company has are economically feasible and desirable, and that the council would not grant approval for the IRBS if not.
While we can understand that citizens — with their busy lives — may not be informed or concerned about the complex workings of IRBs, we should expect more from our elected (and paid) officials. But we find often they are not informed.
As an example, in 2004 the Wichita Eagle reported: “In July, the council approved industrial revenue bond financing and a $1.7 million property tax abatement for Genesis Health Clubs. Council members later said they didn’t realize they had also approved a sales-tax break.” (Kolb goal : Full facts in future city deals, September 26, 2004)
Here we see Wichita City Council members not aware of the basic mechanism of a major city program that is frequently used. This is in spite of an informative city web page devoted to IRBs which prominently states: “Generally, property and services acquired with the proceeds of IRBs are eligible for sales tax exemption.”
Community Improvement Districts are a relatively recent creation of the Kansas Legislature. In a CID, merchants may charge additional sales tax, up to an extra two cents per dollar.
There are two forms of CID. Both start with the drawing of the boundaries of a geographical district. In the original form, a city borrows money by selling bonds. The bond proceeds are given to the owners of the district. The bonds are repaid by the extra sales tax collected, known as the CID tax.
In the second form of CID, the extra sales tax is simply be given to the owners of property in district, after deduction of a small amount for expenses. This is known as a “pay-as-you-go” CID.
The “pay-as-you-go” CID holds less risk for cities, as the extra sales tax — the CID tax — is remitted to the property owner as it is collected. If sales run below projections, or of the project never materializes, the property owners receive less funds, or no funds. With CID bonds, the city must pay back the bonds even if the CID tax does not raise enough funds to make the bond payments.
Of note is that CID proceeds benefit the owners of the property, not the merchants. Kansas law requires that 55 percent of the property owners in the proposed CID agree to its formation. The City of Wichita uses a more restrictive policy, requiring all owners to consent.
Issues regarding CID
Perhaps the most important public policy issue regarding CIDs is this: If merchants feel they need to collect additional revenue from their customers, why don’t they simply raise their prices? But the premise of this question is not accurate, as it is not the merchants who receive CID funds. The more accurate question is why don’t landlords raise their rents? That puts them at a competitive disadvantage with property owners that are not within CIDs. Better for us, they rationalize, that unwitting customers pay higher sales taxes for our benefit.
Consumer protection Customers of merchants in CIDS ought to know in advance that an extra CID tax is charged. Some have recommended warning signage that protects customers from unknowingly shopping in stores, restaurants, and hotels that will be adding extra sales tax to purchases. Developers who want to benefit from CID money say that merchants object to signage, fearing it will drive away customers.
State law is silent on this. The City of Wichita requires a sign indicating that CID financing made the project possible, with no hint that customers will pay additional tax. The city also maintains a website showing CIDs. This form of notification is so weak as to be meaningless.
One of the follies in government economic development policy is the categorization of costs into eligible and non-eligible costs. The proceeds from programs like CIDs and tax increment financing may be used only for costs in the “eligible” category. I suggest that we stop arbitrarily distinguishing between “eligible costs” and other costs. When city bureaucrats and politicians use a term like “eligible costs” it makes this process seem benign. It makes it seem as though we’re not really supplying corporate welfare and subsidy.
As long as the developer has to spend money on what we call “eligible costs,” the fact that the city subsidy is restricted to these costs has no economic meaning. Suppose I gave you $10 with the stipulation that you could spend it only on next Monday. Would you deny that I had enriched you by $10? Of course not. As long as you were planning to spend $10 next Monday, or could shift your spending from some other day to Monday, this restriction has no economic meaning.
Notification and withdrawal
If a merchant moves into an existing CID, how might they know beforehand that they will have to charge the extra sales tax? It’s a simple matter to learn the property taxes a piece of property must pay. But if a retail store moves into a vacant storefront in a CID, how would this store know that it will have to charge the extra CID sales tax? This is an important matter, as the extra tax could place the store at a competitive disadvantage, and the prospective retailer needs to know of the district’s existence and its terms.
Then, if a business tires of being in a CID — perhaps because it realizes it has put itself at a competitive disadvantage — how can the district be dissolved?
The nature of taxation
CIDs allow property owners to establish their own private taxing district for their exclusive benefit. This goes against the grain of the way taxes are usually thought of. Generally, we use taxation as a way to pay for services that everyone benefits from, and from which we can’t exclude people. An example would be police protection. Everyone benefits from being safe, and we can’t exclude people from participating in — benefiting from — police protection.
But CIDs allow taxes to be collected for the benefit of one specific entity. This goes against the principle of broad-based taxation to pay for an array of services for everyone. But in this case, the people who benefit from the CID are quite easy to identify: the property owners in the district.
As Kansas struggles to balance the budget for this year and the next, the state needs to prepare for future budgets by resolving the problem of spending.
Why is controlling spending important? The slow rate of growth of the Kansas economy has been a problem for years. This interactive visualization lets you compare gross domestic product growth of Kansas with other states. Kansas has reduced income taxes, but Kansas has not reduced spending to match. There is pressure to balance future budgets with tax increases instead of spending cuts. Because of the lagging performance of the Kansas economy, it’s important to reduce the footprint of state government to make room for the private sector economy to grow.
Kansas can balance its budget by improving the operations of, and reducing the cost of, state government. In 2011 the Kansas Legislature lost three opportunities to do just this. Three bills, each with this goal, were passed by the House of Representatives, but each failed to pass through the Senate, or had its contents stripped and replaced with different legislation.
Each of these bills represents a lost opportunity for state government services to be streamlined, delivered more efficiently, or measured and managed. These goals, while always important, are now essential for the success of Kansas government and the state’s economy. There is no reason why these bills, or similar measures, could not be revived. The improvements these bills would foster will not balance next year’s budget. But they will set the stage for controlling the growth of Kansas government spending. This will leave more money in the private sector, which will help Kansas grow.
Kansas Streamlining Government Act
HB 2120, according to its supplemental note, “would establish the Kansas Streamlining Government Act, which would have the purpose of improving the performance, efficiency, and operations of state government by reviewing certain state agencies, programs, boards, and commissions.” Fee-funded agencies — examples include Kansas dental board and Kansas real estate commission — would be exempt from this bill.
In more detail, the text of the bill explains: “The purposes of the Kansas streamlining government act are to improve the performance, streamline the operations, improve the effectiveness and efficiency, and reduce the operating costs of the executive branch of state government by reviewing state programs, policies, processes, original positions, staffing levels, agencies, boards and commissions, identifying those that should be eliminated, combined, reorganized, downsized or otherwise altered, and recommending proposed executive reorganization orders, executive orders, legislation, rules and regulations, or other actions to accomplish such changes and achieve such results.”
In testimony in support of this legislation, Dave Trabert, President of Kansas Policy Institute offered testimony that echoed findings of the public choice school of economics and politics: “Some people may view a particular expenditure as unnecessary to the fulfillment of a program’s or an agency’s primary mission while others may see it as essential. Absent an independent review, we are expecting government employees to put their own self-interests aside and make completely unbiased decisions on how best to spend taxpayer funds. It’s not that government employees are intentionally wasteful; it’s that they are human beings and setting self-interests aside is challenge we all face.”
Another bill that did not advance was HB 2194, which in its original form would have created the Kansas Advisory Council on Privatization and Public-Private Partnerships.
According to the supplemental note for the bill, “The purpose of the Council would be to ensure that certain state agencies, including the Board of Regents and postsecondary educational institutions, would: 1) focus on the core mission and provide goods and services efficiently and effectively; 2) develop a process to analyze opportunities to improve efficiency, cost-effectiveness and provide quality services, operations, functions, and activities; and 3) evaluate for feasibility, cost-effectiveness, and efficiency opportunities that could be outsourced. Excluded from the state agencies covered by the bill would be any entity not receiving State General Fund or federal funds appropriation.”
This bill passed by a vote of 68 to 51 in the House of Representatives. It did not advance in the Senate, falling victim to a “gut-and-go” maneuver where its contents were replaced with legislation on an entirely different topic.
Opposing this bill was Kansas Organization of State Employees (KOSE), a union for executive branch state employees. It advised its “brothers and sisters” that the bill “… establishes a partisan commission of big-business interests to privatize state services putting a wolf in charge of the hen house. To be clear, this bill allows for future privatization of nearly all services provided by state workers. Make no mistake, this proposal is a privatization scheme that will begin the process of outsourcing our work to private contractors. Under a privatization scheme for any state agency or service, the employees involved will lose their rights under our MOA and will be forced to adhere to the whims of a private contractor who typically provides less pay and poor benefits. Most workers affected by privatization schemes are not guaranteed to keep their jobs once an agency or service is outsourced.”
Note the use of “outsourcing our work.” This underscores the sense of entitlement of many government workers: It is not work done for the benefit of Kansans; to them it is our work.
Another bill that didn’t pass the entire legislature was HB 2158, which would have created performance measures for state agencies and reported that information to the public. The supplemental note says that the bill “as amended, would institute a new process for modifying current performance measures and establishing new standardized performance measures to be used by all state agencies in support of the annual budget requests. State agencies would be required to consult with representatives of the Director of the Budget and the Legislative Research Department to modify each agency’s current performance measures, to standardize such performance measures, and to utilize best practices in all state agencies.” Results of the performance measures would be posted on a public website.
This bill passed the House of Representatives by a nearly unanimous vote of 119 to 2. In the Senate, this bill was stripped of its content using the “gut-and-go” procedure and did not proceed intact to a vote.
Opposition to these bills from Democrats often included remarks on the irony of those who were recently elected on the promise of shrinking government now proposing to enlarge government through the creation of these commissions and councils. These bills, however, proposed to spend modest amounts increasing the manageability of government, not the actual range and scope of government itself. As it turns out, many in the legislature — this includes Senate Republicans who initiated or went along with the legislative maneuvers that killed these bills — are happy with the operations of state government remaining in the shadows.
These proposals to scale back the services that government provides — or to have existing services be delivered by the private sector — mean that there will be fewer government employees, and fewer members of government worker unions. This is another fertile area of gathering support for killing these bills.
State workers and their supporters also argue that fewer state workers mean fewer people paying state and other taxes. Forgotten by them is the fact that the taxes taken to pay these workers means less economic activity and fewer jobs in the private sector.
As to not wanting performance measures: Supporters of the status quo say that people outside of government don’t understand how to make the decisions that government workers make. In one sense, this may be true. In the private sector, profitability is the benchmark of success. Government has no comparable measure when it decides to, say, spend some $300 million to renovate the Kansas Capitol. But once it decides to do so, the benchmark and measurement of profitability in executing the service can be utilized by private sector operators. Of course, private contractors will be subject to the discipline of the profit and loss system, something again missing from government.
While many believe that judges should not “legislate from the bench,” that is, make law themselves, the reality is that lawmaking is a judicial function. In a democracy, lawmakers should be elected under the principle of “one person, one vote.” But Kansas, which uses the Missouri Plan for judicial selection to its two highest courts, violates this principle.
At issue is whether judges are simply arbitrators of the law, or do they actually participate in the lawmaking process. Ware explains: “This realist view that statutory interpretation often involves ‘substantial judicial discretion’ and therefore constitutes ‘judicial lawmaking, not lawfinding,’ had by the 1950s, ‘become deeply rooted.'”
A “‘balanced realism,’ to use Brian Tamanaha’s appealing label, recognizes both that judges’ policy preferences have little or no influence on many judicial decisions and that judges’ policy preferences have a significant influence on other judicial decisions. Empirical studies tend to support this balanced view.” In other words, there is some role for ideology in making judicial decisions. Politics, therefore, is involved. Ware quotes Charles Gardner Geyh: “In a post-realist age, the ideological orientation of judicial aspirants matters.” And the higher the court, the more this matters.
Since judges function as lawmakers, they ought to be selected by a democratic process. In the Kansas version of the Missouri Plan, a nominating commission dominated by lawyers selects three candidates to fill an opening on the Kansas Court of Appeals or Kansas Supreme Court. The governor then selects one of the three, and the process is over. A new judge is selected. This process gives members of the state’s bar tremendous power in selecting judges.
Ware presents eleven examples of judges on the two highest Kansas courts engaging in lawmaking. In one, a workers’ compensation case, the employee would lose his appeal if the “clear” precedent was followed. Justice Carol A. Beier wrote the opinion. Ware explains:
But this is not, in fact, what Justice Beier and her colleagues on the Kansas Supreme Court did. Rather they did what Kansas Judges Greene and Russell say never happens. Justice Beier and her colleagues engaged in lawmaking. They changed the legal rule from one contrary to their ideologies to one consistent with their ideologies.
Justice Beier’s opinion doing this started by criticizing the old rule, while acknowledging that it was, in fact, the rule prior to her opinion by which the Supreme Court made new law. Here again is the above quote from Coleman, but now with the formerly omitted words restored and italicized: “The rule is clear, if a bit decrepit and unpopular: An injury from horseplay does not arise out of employment and is not compensable unless the employer was aware of the activity or it had become a habit at the workplace.”
Who decided that this rule is “decrepit and unpopular” and so should be changed? Was it the Kansas Legislature? No, it was the Kansas Supreme Court. It was judges, not legislators, who decided that this legal rule was bad policy. It was judges, not legislators, who changed the law to bring it in line with what the lawmaking judges thought was good policy.
Beier wrote in her opinion: “We are clearly convinced here that our old rule should be abandoned. Although appropriate for the time in which it arose, we are persuaded by the overwhelming weight of contrary authority in our sister states and current legal commentary.”
The result: New Kansas law, made by people selected through an undemocratic process.
In conclusion, Ware writes:
Non-lawyers who believe in the principle that lawmakers should be selected democratically need to know that judicial selection is lawmaker selection to be troubled by the Missouri Plan’s violation of this principle. 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.
Prospects for Kansas
In Kansas, the process for selecting judges to the Kansas Court of Appeals is governed by statute, and can be changed by the legislature and governor. Last year the House of Representatives passed a bill to reform the process, but it was blocked by Senate Judiciary Chair Tim Owens. He said “I think this is the first time I did not hear a bill because I thought it was so bad. This is a terrible, terrible bill that’s hated by the courts; it’s an attempt to take over control of the courts.”
Owens, who ranked as the least friendly senator to economic freedom in the 2012 edition of the Kansas Economic Freedom Index, lost his bid for re-election in the August primary election. Many of the other moderate Republicans who voted against reform also lost their primary election contest.
Owens, it should be noted, is an attorney, and is therefore a member of the privileged class that has outsize power in selecting judges.
Sometimes legislators are simply uninformed or misinformed on judicial selection. An example is Jean Schodorf, who lost a re-election bid in August. In an interview, she was quoted as saying “We thwarted changes to judicial selection that would have allowed the governor to have the final say in all judicial selections.”
The bill that the senate voted on, and the one that Owens killed the year before, called for Court of Appeals judges to be appointed by the governor, with the consent of the senate. It’s actually the senate that has the final say.
Newspaper editorial writers across Kansas are mostly opposed to judicial selection reform. An example is Rhonda Holman of the Wichita Eagle, who in 2010 wrote: “Some critics may have a beef with past court decisions, perhaps even a legitimate one — which is no surprise, given that judicial decisions pick winners and losers. But they also may be motivated by politics — which is a problem, given that the judiciary is supposed to be fair, impartial and independent. In the absence of a strong case for change, Kansas should stick with what works.”
With the change in composition of the Kansas Senate, the climate is more favorable for reform for the way judges are selected for the Kansas Court of Appeals. The law governing how judges for the Kansas Supreme Court are selected is in the Kansas Constitution, and would require an amendment to alter the process. Such an amendment requires a two-thirds vote in both chambers of the Kansas Legislature, and then a simple majority vote of the people.
By the way: For those who criticize the support for judicial selection reform as pure power politics, since Kansas has a conservative governor, remember this: When Professor Ware sounded the need for reform and convinced me of the need, our governor was the liberal Kathleen Sebelius. There was also a liberal senate at that time, one which would undoubtedly have rubberstamped any nominee Sebelius might have sent for confirmation.
Originalism, Balanced Legal Realism and Judicial Selection: A Case Study
By Stephen J. Ware
Abstract: The “balanced realist” view that judging inevitably involves lawmaking is widely accepted, even among originalists, such as Justice Scalia, Randy Barnett and Steven Calabresi. Yet many lawyers are still reluctant to acknowledge publicly the inevitability of judicial lawmaking. This reluctance is especially common in debates over the Missouri Plan, a method of judicial selection that divides the power to appoint judges between the governor and the bar.
The Missouri Plan is one of three widely-used methods of selecting state court judges. The other two are: (1) direct election of judges by the citizenry, and (2) appointment of judges by democratically elected officials, typically the governor and legislature, with little or no role for the bar. Each of these two methods of judicial selection respects a democratic society’s basic equality among citizens — the principle of one-person, one-vote. In contrast, the Missouri Plan violates this principle by making a lawyer’s vote worth more than another citizen’s vote.
This Article provides a case study of the clash between the inevitability of judicial lawmaking and the reluctance of lawyers to acknowledge this inevitability while defending their disproportionate power under the Missouri Plan. The Article documents efforts by lawyers in one state, Kansas, to defend their version of the Missouri Plan by attempting to conceal from the public the fact that Kansas judges, like judges in the other 49 states, inevitably make law. The case study then shows examples of Kansas judges making law. The Article concludes that honesty requires lawyers participating in the debate over judicial selection in the United States to forthrightly acknowledge that judges make law. Lawyers who seek to defend the power advantage the Missouri Plan gives them over other citizens can honestly acknowledge that this is a power advantage in the selection of lawmakers and then explain why they believe a departure from the principle of one-person, one-vote is justified in the selection of these particular lawmakers.
The complete paper may be downloaded at no charge here.
Moving spring elections to fall of even-numbered years would produce more votes on local offices like city council and school board.
Before each election, observers such as newspaper editorialists and others urge citizens to get registered and to vote. After the election — especially spring elections in Kansas — the same parties lament the usually low voter turnout.
There is a pattern that could be used if we want more voters in city and school elections. That pattern is that in Sedgwick County, on average, people vote in fall elections at nearly 2.5 times the rate of voting in spring elections.
I’ve gathered statistics for elections in Sedgwick County, and these numbers show that voter turnout in spring elections is much lower than in fall elections. (For these statistics I count the August primary as part of the fall election cycle.) Since 2000, turnout for fall elections, both primary and general, has been 44 percent. Over the same period, spring elections turnout has been 18 percent. There were two special elections during this period, one in spring, and one in the fall cycle. I did not include them in these statistics.
Remarkably, a special Wichita citywide election in February 2012 with just one question on the ballot had voter turnout of 13.7 percent. One year earlier, in April 2011, the spring general election had four of six city council districts contested and a citywide mayoral election. Turnout was 12.8 percent, less than for a single-question election.
The problem of low voter participation in off-cycle elections is not limited to Sedgwick County or Kansas. In her paper “Election Timing and the Electoral Influence of Interest Groups,” Sarah F. Anzia writes “A well developed literature has shown that the timing of elections matters a great deal for voter turnout. … When cities and school districts hold elections at times other than state and national elections, voter turnout is far lower than when those elections are held at the same time as presidential or gubernatorial elections.”
In the paper, Anzia explains that when voter participation is low, it opens the door for special interest groups to dominate the election: “When an election is separated from other elections that attract higher turnout, many eligible voters abstain, but interest group members that have a large stake in the election outcome turn out at high rates regardless of the increase in the cost of voting. Moreover, interest groups’ efforts to strategically mobilize supportive voters have a greater impact on election outcomes when overall turnout is low. Consequently, the electoral influence of interest groups is greater in off-cycle elections than in on-cycle elections. As a result, the policy made by officials elected in off-cycle elections should be more favorable to dominant interest groups than policy made by officials elected in on-cycle elections.” (Election Timing and the Electoral Influence of Interest Groups, Sarah F. Anzia, Stanford University, Journal of Politics, April 2011, Vol. 73 Issue 2, p 412-427, version online here.)
Citizens who want to be informed of the happenings of the Kansas Legislature have these resources available.
The Legislature’s site at kslegislature.org has rosters of members, lists of committees, lists of bills, journals (the daily record of proceedings in each chamber), calendars (the plan for the day, along with topics for upcoming committee meetings).
A useful feature is the “Current Happenings” link for both the House and Senate. This has a link to the bills that have seen movement in some way each day. The page for each bill is generally useful, too, with the steps in the bill’s history, along with links to the bill text, fiscal and supplemental notes, and other material. Fiscal notes — prepared by the Division of Budget — estimate the financial impact of a bill, while the supplemental notes — prepared by Kansas Legislative Research Department — contain background and explanatory information. When attempting to understand legislation, the fiscal and supplemental notes are very useful.
Audio and video
Both the House and Senate broadcast audio of their proceedings. But you must listen live, as the broadcasts are not made available to the public in any other way. It would be exceedingly simple to make these past broadcasts available to the public, as explained here. But the legislature does not retain audio recordings of sessions.
The Kansas Legislature does not make available video of its proceedings.
Kansas Legislative Research Department (KLRD) has many documents that are useful in understanding state government and the legislature. This agency’s home page is www.kslegresearch.org/klrd.html. Of particular interest:
Kansas Legislative Briefing Book. This book’s audience is legislators, but anyone can benefit. The book has a chapter for major areas of state policy and legislation, giving history, background, and explanations of law. In some years the entire collection of material has been made available as a single pdf file, but not so this year. Contact information for the legislative analysts is made available in each chapter. The most recent version can be found on the Reports and Publications page. The version for 2015 is available here.
Kansas Fiscal Facts. This book, in 118 pages, provides “basic budgetary facts” to those without budgetary experience. It provides an overview of the budget, and then more information for each of the six branches of Kansas state government. There is a glossary and contact information for the fiscal analysts responsible for different areas of the budget. This document is updated each year. The most recent version can be found on the Reports and Publications page.
Legislative Procedure in Kansas. This book of 236 pages holds the rules and explanations of how the Kansas Legislature works. It was last revised in November 2006, but the subject that is the content of this book changes slowly over the years. The direct link is Legislative Procedure in Kansas, November 2006.
How a Bill Becomes Law. This is a one-page diagram of the legislative steps involved in passing laws. The direct link is How a Bill Becomes Law.
Summary of Legislation. This document is created each year, and is invaluable in remembering what laws were passed each year. From its introduction: “This publication includes summaries of the legislation enacted by the 2014 Legislature. Not summarized are bills of a limited, local, technical, clarifying, or repealing nature, and bills that were vetoed (sustained).” 189 pages for 2014. The most recent version can be found on the Reports and Publications page.
Legislative Highlights. This is a more compact version of the Summary of Legislation, providing the essentials of the legislative session in 12 pages for 2014. The most recent version can be found on the Reports and Publications page.
Kansas Tax Facts. This book provides information on state and local taxes in Kansas. The most recent version can be found on the Revenue and Tax page.
Kansas Register. From the Kansas Secretary of State: “The Kansas Register is the official state newspaper. This publication provides a wide range of information such as proposed and adopted administrative regulations, new state laws, bond sales and redemptions, notice of open meetings, state contracts offered for bid, attorney general opinions, and many other public notices.” The Register is published each week, and may be found at Kansas Register.
Despite having a website with the capability, only about one-third of standing committees in the Kansas Legislature are providing written testimony online.
On the Kansas Legislature website, each committee has its own page. On these committee pages there are links for “Committee Agenda,” “Committee Minutes,” and “Testimony.” But in most cases there is no data behind these links.
In particular, the written testimony and informational presentations provided to committees would be of interest and value to citizens. Most committees — perhaps all — require conferees to supply a pdf or Microsoft Word version of their testimony in advance of the hearing. These electronic documents could be placed online before the committee hearing. Then, anyone with a computer, tablet, or smartphone could have these documents available to them.
Having committee testimony online would be extremely useful for those who attend hearings. Often there is only a limited number of printed copies of testimony available, so not everyone gets a copy.
This would not be difficult to accomplish. It would cost very little, perhaps nothing.
Plus, citizens could access these documents. Of note, many organizations that regularly testify before the legislature make their testimony available on their own websites. Examples include Kansas Association of School Boards and Kansas Policy Institute.
Publishing testimony online would be an easy matter to accomplish and would be a great help to those following the legislature. It would cost very little or nothing.
Following is a list of all standing committees of the legislature and whether they have any testimony online for the 2015 session. A notation of “Yes” does not imply that all testimony is available online. It means that I found some testimony. Some committees are not listed as they do not meet for the purpose of receiving testimony. (Calendar and Printing in the House is an example.)
Of the 40 standing committees that I examined, 26 do not provide any testimony online.
Last week the Kansas House of Representatives took votes on several amendments to its rules regarding transparency and understandability of the legislative process. Of the three most important amendments, two passed. The amendment that failed, however, was much more important than the other two.
The important amendment — the record all votes amendment — failed 51 to 67. This would have required that every non-trivial vote be recorded. Currently many important votes are by voice only, and no recording is made of who voted which way.
The limiting hours amendment passed 69 to 49. This would prevent the late-night sessions, where procrastination by the legislature has resulted in important business being conducted in the early morning hours.
The bundling amendment passed 82 to 35. This would prevent many unrelated bills being presented together for a single vote.
I’ve prepared a list of legislators and their votes on these amendments. I’ve also assigned weights to these votes, as one — the recording all votes amendment — is much more important than the others. So each member has a computed score, with higher numbers meaning the legislator is more concerned about operating transparently as opposed to the current ways. 42 Members voted in favor of transparency on all three amendments. But 34 voted against all three. The latter group includes the Speaker of the House, the Speaker Pro Tem, and the Majority Leader.
Looking forward: Will the Kansas Senate consider any of these reforms?
Currently, the proceedings of the Kansas Senate and House of Representatives are not available on video. The audio is broadcast on the internet, but it’s live only. No archiving. You must listen live, or figure out some way to record it on your own. It’s possible, but beyond what most people are willing to do. Given the unpredictable schedule of the legislature, you can’t simply set a timer to start at a certain time each day.
Video of the proceedings would be great. Even better is archived video, where a person doesn’t have to watch live. But these options are expensive. The expenditure would be worthwhile, but there doesn’t seem to be much desire to spend on this.
But for eight dollars per month the legislature could make its audio proceedings available to listen to at any time.
For eight dollars per month at least one podcast hosting company offers an unlimited plan. Unlimited storage, and unlimited bandwidth. That’s just what is needed. Since the audio of the proceedings is broadcast on the internet, it must pass through a computer somewhere. That computer could also be recording the audio. Once recorded, the process of uploading the audio to the podcast host is a trivial procedure. If not being recorded, any number of open source (free) applications like Audacity can do the recording.
But neither Kansas legislative chamber records their proceedings, according to the Secretary of the Senate and the Chief Clerk of the House.
This is so simple. It is almost without cost. It would have great benefit.
Interns can do this.
But the Kansas Legislature doesn’t do this.
This is how much your legislative leaders want you to know.
The Kansas House of Representatives, led by its Speaker, decides to retain the ability to cast votes in secret.
On the Joseph Ashby Show Kansas House of Representatives Speaker Ray Merrick appeared to discuss several issues, one being an issue regarding legislative procedure in Kansas. In particular, there is a movement to have all votes by members recorded, including those in committee. Ashby asked “Can we record all those committee votes and have that available online?”
In a response that held a chuckle by Merrick — you can tell he isn’t comfortable with this topic — the Speaker said that his chairs run their committees, and they have the ability to record the votes in their committees, if they desire. But he said there are a lot of “gotchas.”
The speaker also said that every vote on the House floor is recorded. He clarified that as “final action” votes that are all recorded. It’s good that he made that clarification, as there are many voice votes on the floor of the House that are not recorded, and no one knows who voted each way. Most are inconsequential, but many are not.
The move to have all votes recorded is popularly known as the “Rubin Rule,” promoted by Representative John Rubin.
What is troubling is the admission by Merrick that if all votes are recorded there could be “gotchas.” As Speaker of the House, he is the one person who can lead reform of the legislative process. And it needs reform.
The gotchas referred to are votes that may be taken for reasons other than genuine legislative intent. There may be votes that are for show only. There may be votes that are simply preening for advertisements, either positive or negative ads. Legislators may vote in a way other than what they really believe. None of this is good.
The gotcha votes are a symptom of a larger problem. When legislative proceedings are complicated, when votes don’t really mean what they seem to mean, when citizens can’t easily understand the proceedings, we lose confidence in government. The understanding of legislative process remains in the hands of politicians, staff, and lobbyists, plus a few journalists who try to explain it.
We see the “omnibus” bills, which cover many topics. A vote for or against such a bill means very little, because there may some things legislators agree with, and some they don’t. But the entire package is forced upon them. Maneuvers like this allow Kansas Governor Sam Brownback, on the campaign trail, to say that his opponent Paul Davis voted against increasing school funding. This is true, but only because the bill contained other subjects. Everyone knows that Paul Davis wanted more school spending. But he couldn’t — at least he didn’t — vote in favor of that because the spending legislation was mixed with other legislation that he didn’t support.
We are left with the realization that we don’t conduct politics in a straightforward manner, where what politicians do and say actually reflects their values, and that anyone can see these values. Today the tradition continues. The Kansas House of Representatives failed to pass an amendment offered by Rubin to require recorded votes on all but trivial matters. As a result, it will be easy to know how your representative voted on the state fish of Kansas, but on important matters like school choice, you may never know.
On roll call, the vote was: Yeas 51; Nays 67; Present but not voting: 0; Absent or not voting: 7. Those with leadership positions are in boldface.
Those who criticize lower Kansas tax rates tax rates as an experiment that may not work should be aware that we know with certainty what hasn’t worked in Kansas.
There are a number of ways to measure the performance of an economy. Often the growth of jobs is used. That’s fine. Here I present an alternative: the gross domestic product for a state. As with job growth, it is not the only measure of a state’s economy. GDP is a comprehensive measure, encompassing changes in population, employment, and productivity. The nearby static illustration from an interactive visualization shows Kansas (highlighted in blue) compared to some neighboring states.
The top chart shows the change in GDP from the previous year. Kansas, highlighted in dark blue, is often near the bottom of a selection of neighboring states. The bottom chart shows growth in GDP since 1997. Again, Kansas is near the bottom of neighboring states.
Neither of these trends is recent. The Kansas economy has been underperforming for many years. We need no experiment to tell us this. It is in our data, and is part of the legacy of decades of moderate Kansas leadership.
The visualization holds data from the U.S. Bureau of Economic Analysis. You may click on a state’s name to highlight it. You may choose different industry sectors, such as government or private industry.
He said, according to the printed remarks “Take for example the single mother who works full time and lives within her means, but still struggles to provide for her family.”
That’s someone we can empathize with. And, someone who is a key Democratic Party constituent. Here’s the burden she faced under Brownback’s tax plan, according to Hensley:
“She paid $4,000 more in income taxes due to the Governor’s plan,”
When I heard him say that on television, I thought surely he had misread or misspoke. $4,000 in state income taxes is a lot of taxes. You have to have a pretty good income to have to pay $4,000 in Kansas state income taxes, much less to pay $4,000 more, as Hensely said. But $4,000 is in the prepared remarks as made available by the Kansas Democratic Party. You’d have to think that someone proofread and checked the senator’s arithmetic, wouldn’t you?
Here’s the arithmetic. According to the Kansas income tax tables for 2013, in order to owe $4,000 in tax, a person filing as single or head of household would have to have “Kansas taxable income” of $87,451. That number is after subtracting $2,250 for each exemption. Let’s say there are three exemptions, allowing for the mother and two children. That means that the person’s “Federal adjusted gross income” would be $94,201. When computing this figure, there are some “above the line” deductions from total income on the federal form 1040, but the most common deductions are after this.
So we can be quite sure that Hensley’s “single mother who works full time and lives within her means, but still struggles,” and who owes $4,000 in Kansas income tax, earns at least $94,201. In all likelihood she earned much more than that, because Hensley said she paid “$4,000 more” this year. If this fictional person saw her Kansas income tax bill rise to $6,000 from $2,000 — that’s an increase of $4,000 that Hensely used — her income would need to be $128,265. That’s before we increase it even more to account for deductions.
Of note, a justice on the Kansas Supreme Court earns $135,905. The U.S. Census Bureau has a statistic named “Median household income, 2009-2013.” For Kansas, the value is $51,332.
I’m not an income tax expert. I could be off by a little. But I’m pretty sure Anthony Hensley and the Kansas Democrats are way wrong on this.
There are several issues involved with straight-party voting. Kansas shouldn’t adopt this practice. But on the other hand, why not?
Kansas Secretary of StateKris Kobach is proposing to add an option for straight party ticket voting in Kansas elections. If enacted, voters would be able to take one action — one pull of the lever, so to speak — and cast a vote for all candidates of a party for all offices.
I see a few issues.
1. What if a party does not field a candidate for an office? A notable and prominent example is the recent election in which the Kansas Democratic Party did not field a candidate for a major office, that of United States Senator. What if a person pulls the “Straight Democratic Party” lever (or checks the box)? Who will get their vote for senator? Will the voting machine present an exception to the voter and ask them to make a selection for senator? Conceivably this could be done with voting machines, which are, after all, computers. But what about those who vote using paper ballots, like all the advance voters who vote by mail?
Other parties such as the Libertarian Party may also contribute to this problem, as the party may not have candidates for all offices.
2. The ballot items for judges on the Court of Appeals and Supreme Court are of the form “Shall justice so-and-so be retained? Yes or No.” If a voter votes a straight party ballot for the sake of time and convenience — so important to the Secretary of State — will the voter take the time to vote on these judicial retention matters? Or does anyone really know anything about these judges?
3. Initiatives are not associated with a party. An example is the recent Wichita sales tax question, where voters selected either yes or no. This matter was way down the ballot, below the judicial retention elections.
4. Like initiatives, referenda are not associated with a party.
5. Questions regarding the adoption of constitutional amendments are not associated with a party. They appear near the end of ballots.
6. Undervoting, that is, not casting a vote for any candidate for an office, is a perfectly acceptable choice. There have been many times where I thought that none of the candidates for an office were worthy of my vote. Therefore, I voted for no one. A related consideration: I don’t think Kansas needs an insurance commissioner. Therefore, I voted for none of the candidates.
The Wichita Eagle quoted Kobach: “I think it will improve participation in races down the ballot and it’s a matter of voter convenience too.”
But given the above considerations, do you think one-touch straight-ticket voting will improve participation in down-ballot issues? Move votes may be cast, but are they informed votes? No? Well, this isn’t the first time reason conflicts with what Kris Kobach wants to do.
On the other hand, if voters are informed of the considerations listed above and still want the option to cast a straight-party ballot with one touch, well, why not?
Should a Kansas state insurance program be expanded to cover entirely predictable events?
A bill introduced in the Kansas Senate would allow school bus drivers working for private bus companies to collect unemployment insurance during the summer months when school is not in session. Currently these employees are specifically excluded from eligibility for unemployment insurance benefits.
Is it a good idea to extend unemployment insurance benefits to seasonal workers like these bus drivers? Part of the answer depends on what we want the meaning of the word “insurance” to be. Usually, insurance refers to something that mitigates harm from unforeseen circumstances, like a fire, tornado, or automobile accident. These are unpredictable events, although their probabilities can be forecast with accuracy considering a large population. But for jobs and employment, most job losses are unanticipated. Companies don’t wish for a loss of business that leads to layoffs.
But it is certain that school bus drivers will not have a job driving a school bus in the summer. So should this predictable event be covered by insurance? It would be like having routine auto maintenance and a set of new tires every four years paid for by auto insurance. It’s not necessarily a bad idea, but it transforms insurance — something that protects against accidents — into something that pays for the routine and predictable.
The Unemployment Insurance Employer Handbook, published by the Kansas Department of Labor, explains how the rates that employers are charged for unemployment insurance premiums are determined. The rate is based on loss experience: “Experience rating helps ensure an equitable distribution of costs of the unemployment compensation program among employers. It is a procedure for varying employer rates and allocating costs of the Unemployment Insurance program in relation to the employer’s actual and potential risk with unemployment.” This is congruous with how many forms of insurance are priced. For example, drivers with bad driving records pay higher rates than those with good records, as their likelihood of future claims is greater, based on past experience.
So if the bill passes and bus drivers become eligible for unemployment benefits, we would expect the bus companies to have fairly high unemployment insurance rates. After all, they have many employees that would apply for and receive benefits on a regular basis. This higher insurance cost would be paid for by a private bus company. So is there an issue of public policy here?
First, I don’t know if the higher unemployment insurance rates the bus companies would pay would be sufficient to cover the cost of the unemployment insurance benefits the drivers receive. If not, then someone else — taxpayers — have to pay.
Second, who will really pay the bus companies’ higher unemployment insurance premiums? It’s likely the bus companies will try to pass along these higher costs to their customers. Those are primarily public schools, which, of course, are funded by taxpayers.
So yes, there is an issue of public policy. Costs will rise, and it appears that taxpayers will bear all, or nearly all, of the increase. There is the further consideration that an insurance program is converted into another entitlement program, again at taxpayer cost.
A possible solution is this: Schools may offer teachers an option to receive their pay during school months only, or spread across the entire twelve months of the year. Bus companies could do the same.
The bill provides for a number of uses of the money: First for buildings, then for broadband, computing capabilities for human genome data, research on plant genomes, research on aircraft and composite manufacturing, and if there’s anything left over, “other research priorities.”
What does this bill mean to property owners? For homeowners, the calculations are these. (Remember, this bill does not affect the property taxes levied by your city, county, school district, fire district, cemetery district, etc.)
For a home valued at $150,000, the tax currently going to universities is:
($150,000 – $20,000 homestead exemption) times .115 assessment ratio times 1 mill divided by 1000 = $14.95 tax per year.
If the bill passes, the calculation is
($150,000 – $20,000 homestead exemption) times .115 assessment ratio times 4 mills divided by 1000 = $59.80 tax per year.
The tax is now 300 percent higher, or a four-fold increase.
A Kansas economic development incentive program is pitched as being self-funded, but is probably a drain on the state treasure nonetheless.
An economic development incentive program in Kansas is PEAK, or Promoting Employment Across Kansas. This program allows companies to retain 95 percent of the payroll withholding tax of employees.
PEAK incentive payments can be a substantial sum. Tables available at the Kansas Department of Revenue indicate that for a single person with no exemptions who earns $40,000 annually, the withholding would be $27 per week (for weekly payroll), or $1,404 annually. For a married person with two children earning the same salary, withholding would be $676 annually. Under PEAK, the company retains 95 percent of these values.
Legislators and public officials like programs like PEAK partly because they can promote these programs as self-financing. That is, the state isn’t subsidizing a company. Instead, the company is paying its own way with its own taxes. The state is not sending money to the company, it’s just holding on to 95 percent of its employees’ withholding taxes instead of sending the funds to the state. Something like that.
But here’s a consideration. The amount of money withheld from a worker’s paycheck is not the same as the amount of tax the worker actually owes the state. Withholding is only an approximation, and one that is biased in favor of the state. Many Kansas workers receive an income tax refund from the state. This is in recognition that the sum of the withholding taxes paid by a worker is larger than the actual tax liability. Therefore, the state is returning money that the state was not entitled to.
Now, what about workers who are employed at a company that is in the PEAK program and who receive a state income tax refund? Their withholding taxes — 95 percent, anyway — have already been given back to their employer.
So: What is the source of the money used to pay these refunds? How much money is paid in refunds to employees working at PEAK-participating companies?
We should note that the funds don’t come from the PEAK company’s employees, as the employees receive credit for all their withholding taxes, even though 95 percent never contributed to the state treasury.
Inquiry to the Department of Revenue revealed that there are no statistics on actual income tax liability of PEAK employees vs. the amount of withholding tax credited to that employee that was retained or refunded to the PEAK employer. The Department of Commerce referred inquiries to the Department of Revenue.
If we wanted to know how much money was paid in refunds to PEAK-company employees, I believe we would need to examine the account of each affected employee. I’m sure it’s not possible to come up with an answer by making assumptions, because the circumstances of each taxpayer vary widely.
Whatever the amount, it represents state tax revenue being used to fund an economic development incentive program that is pitched as being self-funded.
A bill to raise the minimum wage in Kansas will harm the most vulnerable workers, and make it more difficult for low-skill workers to get started in the labor market.
Legislation introduced by Representative Jim Ward of Wichita would raise the minimum wage in Kansas by one dollar per hour each year until it reaches $10.25 per hour in 2018. The bill is HB 2012, captioned “enacting the Kansas working families pay raise act.”
The caption of the bill, referencing “working families,” hints at the problem, as seen by progressives. The minimum wage does not generate enough income to raise a family. While the bill calls for raising the minimum wage, it makes no reference of whether workers are raising a family, or working part-time for pin money while in high school.
But aside from that, there is the important question to consider: Will raising the minimum wage help or harm low-wage earners? And are the policy goals — taken in their entirety — of the groups pressing for a higher minimum wage in the best interest of workers? The answer to these questions is that higher minimum wages harm low-wage workers and low-skilled people who would like to work.
The great appeal of a higher minimum wage mandated by an act of the legislature is that it seems like a wonderfully magical way to increase the wellbeing of low-wage workers. Those who were earning less than the new lawful wage and who keep their jobs after the increase are happy. They are grateful to the lawmakers, labor leaders, newspaper editorialists, and others who pleaded for the higher minimum wage. News stories will report their good fortune.
That’s the visible effect of raising the minimum wage. But to understand the entire issue, we must look for the unseen effects.
The not-so-visible effect of the higher wage law is that demand for labor will be reduced. Those workers whose productivity, as measured by the give and take of supply and demand, lies below the new lawful wage rate are in danger of losing their jobs. The minimum wage law says if you hire someone you must pay them a certain amount. The law can’t compel you to hire someone, nor can it compel employers to keep workers on the payroll.
The difficulty is that people with lose their jobs in dribs and drabs. A few workers here; a few there. They may not know who is to blame. Newspaper and television reporters will not seek these people, as they are largely invisible, especially so in the case of the people who are not hired because of the higher wage law.
In the real world, business owners have many things they can do when labor becomes more expensive. Some things employers do to compensate for higher labor costs include these:
Reduce non-wage benefits such as health insurance.
Eliminate overtime hours that many employees rely on.
Substitute machines for labor. We might see more self-service checkout lanes at supermarkets, more automated ordering systems at fast food restaurants, and more use of automated telephone response systems, for example.
Use illegal labor. Examples include paying employees under the table, or requiring work off-the-clock.
Some employers may be more willing to bear the risks of using undocumented workers who can’t complain that they aren’t being paid the minimum wage.
Some employers may decide that the risks and hassles of being in business aren’t worth it anymore, and will close shop. Others simply can’t afford the higher wages and close. The Wall Street Journalreported on a nonprofit restaurant that couldn’t survive under Michigan’s higher minimum wage, reporting “These unintended consequences of a minimum wage hike aren’t unique to small towns in south-central Michigan. Tragically, they repeat themselves in locales small and large each time legislators heed the populist call to ‘raise the wage.'”
If we are truly concerned about the plight of low-wage workers we can face some harsh realities and deal with them openly. The simple fact is that some people are not able to produce output that our economy values very much. They are not very productive. Passing a law that requires employers to pay them more doesn’t change the fact that their productivity is low. But there are ways to increase productivity.
One way to increase workers’ productivity is through education. Unfortunately, there is ample evidence that our public education system is failing badly.
Capital — another way to increase wages — may be a dirty word to some. But as the economist Walter E. Williams says, ask yourself this question: who earns the higher wage: a man digging a ditch with a shovel, or a man digging a ditch using a power backhoe? The difference between the two is that the man with the backhoe is more productive. That productivity is provided by capital — the savings that someone accumulated (instead of spending on immediate consumption or taxes) and invested in a piece of equipment that increased the output of workers and our economy.
Education and capital accumulation are the two best ways to increase the productivity and the wages of workers. Ironically, the people who are most vocal about raising wages through legislative fiat are also usually opposed to meaningful education reform and school choice, insisting on more resources being poured into the present system. They also usually support higher taxes on both individuals and business, which makes it harder to accumulate capital. These organizations should examine the effects of the policies they promote, as they are not in alignment with their stated goals.
If it were possible to increase the prosperity of everyone by simply passing a law, we should do it. But that’s not the way the world works regarding minimum wage laws.
Who is harmed?
Walter Williams explains who is most harmed by minimum wage laws, and also the politics:
How about the politics of the minimum wage? In the political arena, one dumps on people who can’t dump back on him. Minimum wages have their greatest unemployment impact on the least skilled worker. After all, who’s going to pay a worker an hourly wage of $10 if that worker is so unfortunate as to have skills that enable him to produce only $5 worth of value per hour? Who are these workers? For the most part, they are low-skilled teens or young adults, most of whom are poorly educated blacks and Latinos. The unemployment statistics in our urban areas confirm this prediction, with teen unemployment rates as high as 50 percent.
The politics of the minimum wage are simple. No congressman or president owes his office to the poorly educated black and Latino youth vote. Moreover, the victims of the minimum wage do not know why they suffer high unemployment, and neither do most of their “benefactors.” Minimum wage beneficiaries are highly organized, and they do have the necessary political clout to get Congress to price their low-skilled competition out of the market so they can demand higher wages. (Politics and Minimum Wage)
The role of labor unions
Labor unions favor higher minimum wages laws. Why? Here’s what one union said in making its argument: “However, not only is $9/hour a step in the right direction, it is also good for union members, who stand to seek even greater wage increases in their contracts, if they make more than the current minimum wage of $7.25.” ( United Food and Commercial Workers International Union (UFCW).)
We also need to examine the motivations of business firms that support a higher minimum wage. Sometimes they see a way gain a competitive advantage.
In 2005 Walmart came out in favor of raising the national minimum wage. Providing an example of how regulation is pitched as needed for the common good, Walmart’s CEO said that he was concerned for the plight of working families, and that he thought the current minimum wage of $5.15 per hour was too low. (“Working families.” That’s in the caption of the proposed Kansas law. It’s no coincidence.) If Walmart — a company progressives love to hate as much as any other — can be in favor of increased regulation of the workplace, can regulation be a good thing? Had Walmart discovered the joys of big government?
The answer is yes. Walmart discovered a way of using government regulation as a competitive weapon. This is often the motivation for business support of regulation. In the case of Walmart, it was already paying its employees well over the current minimum wage. At the time, some sources thought that the minimum wage could be raised as much as 50 percent and not cause Walmart any additional cost — its employees already made that much.
But its competitors didn’t pay wages that high. If the minimum wage rose very much, these competitors to Walmart would be forced to increase their wages. Their costs would rise. Their ability to compete with Walmart would be harmed.
In short, Walmart supported government regulation in the form of a higher minimum wage as a way to impose higher costs on its competitors. It found a way to compete outside the marketplace. And it did it while appearing noble.
A bill in Kansas proposes to toughen penalties for hate crimes, thereby judging people on their thoughts and beliefs rather on their actions.
When a person commits a crime against another, the crime itself ought to be enough to earn the criminal a trip to prison. What the criminal was thinking, or even saying, at the moment ought not to be relevant in determining the severity of punishment or whether a crime was committed. That’s because in America we have the right to free speech, even hateful speech. We do not have, of course, the right to harm others, but speech shouldn’t count in reckoning harm.
Kansas has hate crime laws that allow the motivation of the criminal to be considered as an aggravating factor in determining sentences. But proposed legislation, Senate Bill 1, seeks to mandatorily double sentences if hateful motives are suspected. The relevant part of the bill follows:
(w) If the trier of fact makes a finding that an offender’s crime was motivated entirely or in part by the race, color, religion, ethnicity, national origin or sexual orientation of the victim or the crime was motivated by the offender’s belief or perception, entirely or in part, of the race, color, religion, ethnicity, national origin or sexual orientation of the victim, whether or not the offender’s belief or perception was correct, the sentence for such offender shall be as follows:
(1) If the underlying crime of conviction carries a presumptive term of imprisonment, the sentence shall be double the maximum duration of the presumptive imprisonment term;
If this bill becomes law, courts and juries will be asked to look into the heart of criminals, and if persuaded that even a sliver of motivation was due to something mentioned in the law, the criminal could face a sentence of double length.
We ought not to punish people for their thoughts and opinions. Punish them for actual criminal violence. That should be enough.
Even though hate crime laws seem to be of noble intent, the serve to perpetuate unequal protection before the law, and make bigotry an institution. In 1992 Jacob Sullum explained in Reason Magazine:
But the promise of a liberal democracy is that members of minority groups will be protected from aggression, just like everyone else. If someone wrongs a Jew, or a black, he will be punished just as severely as if he had wronged a Christian or a white-and his motivation, whether bigotry, greed, or simple viciousness, won’t matter in either case. You correct unequal protection by making it equal, not by reversing it.
By punishing opinions, hate-crime laws institutionalize the very bigotry they seek to prevent: They treat some individuals as second-class citizens simply because of the ideas they hold. And they treat some targets, such as Catholic churches, as more important than others, such as abortion clinics (leading, of course, to the charge that vandalizing an abortion clinic is a hate crime against women). Like affirmative action, hate-crime laws enforce a double standard in the name of treating individuals equally.
The performance of Kansas in entrepreneurial activity is not high, compared to other states.
The Ewing Marion Kauffman Foundation prepares the Kauffman Index of Entrepreneurial Activity. According to the Foundation, “The Kauffman Index of Entrepreneurial Activity is a leading indicator of new business creation in the United States. Capturing new business owners in their first month of significant business activity, this measure provides the earliest documentation of new business development across the country.”
As shown by the data, Kansas ranks low in entrepreneurial activity. This is true when Kansas is compared to the nation, and also when compared to a group of nearby states.
I’ve prepared two visualizations that present this data. One holds data for all states. Click here to open it in a new window.
A second visualization presents the data for Kansas and some nearby states. Click here to open it in a new window.
Dave Trabert, President of the Kansas Policy Institute, spoke at the December 12, 2014 Wichita Pachyderm Club meeting. His program was titled “Debunking False Claims about Kansas Budget and Economy and Kansas Policy Institute Budget Plan for Kansas — How to balance the state budget without service reductions or tax increases.”
View video below, or click here to view at YouTube.
When Kansas cities grant economic development incentives, they may also unilaterally take action that affects overlapping jurisdictions such as counties, school districts, and the state itself. The legislature should end this.
When Kansas cities create tax increment financing (TIF) districts, the overlapping county and school district(s) have an opportunity to veto its creation. These other jurisdictions do not formally have to give their consent to its formation; if they do nothing, it is assumed they concur.
But for some other forms of incentives, such as tax increment financing district redevelopment plans, property tax abatements, and sales tax abatements, overlapping jurisdictions have no ability to object. There seems to be no rational basis for not giving these jurisdictions a chance to object to the erosion of their tax base.
This is especially important for school districts, as they are often the largest tax consumer. As an example, when the City of Wichita offered tax abatements to a company in June, 47 percent of the abated taxes would have gone to the Wichita school district. But the school district did not participate in this decision. State law gave it no voice.
Supporters of economic development incentives may say that the school district benefits from the incentives. Even though the district gives up some tax revenue now, it will get more in the future. This is the basis for the benefit-cost ratios the city uses to justify incentives. For itself, the City of Wichita requires a benefit-cost ratio of 1.3 to one or better, although there are many loopholes the city can use to grant incentives when this threshold is not met. For the June project, city documents reported these benefit-cost ratios for two overlapping jurisdictions:
Sedgwick County 1.18 to one
USD 259 1.00 to one
In this case, the city forced a benefit-cost ratio on the county that the city would not accept for itself, unless it uses a loophole. For the school district, the net benefit is zero.
The legislature should look at ways to make sure that overlapping jurisdictions are not harmed when economic development incentives are granted by cities. The best way would be to require formal approval of the incentives by counties and school districts.
In June the City of Wichita granted tax abatements for a new warehouse. City documents gave the benefit-cost ratios for the city and overlapping jurisdictions:
City of Wichita General Fund 1.30 to one
Sedgwick County 1.18 to one
USD 259 1.00 to one
State of Kansas 12.11 to one
It is not known whether these ratios include the sales tax forgiveness.
While the City of Wichita insists that projects show a benefit-cost ratio of 1.3 to one or better (although there are many exceptions), it doesn’t apply that standard for overlapping jurisdictions. Here, Sedgwick County experiences a benefit-cost ratio of 1.18 to one, and the Wichita school district (USD 259) 1.00 to one. These two governmental bodies have no input on the decision the city is making on their behalf. The school district’s share of the forgiven taxes is 47.4 percent.
USD 259 $143,038
The listing of USD 259, the Wichita public school district, is likely an oversight by the city, as the Spirit properties lie in the Derby school district. This is evident when the benefit-cost ratios are listed:
City of Wichita 1.98 to one
General Fund 1.78 to one
Debt Service 2.34 to one
Sedgwick County 1.54 to one
U.S.D. 260 1.00 to one (Derby school district)
State of Kansas 28.23 to one
Note that the ratio for the Derby school district is 1.00 to one, far below what the city requires for projects it considers for participation. That is, unless it uses a loophole.
A survey of Kansas voters finds that Kansas believe government is not operating efficiently. The also believe government should pursue efficiency savings, focus on core functions, and spend unnecessary cash reserves before cutting services or raising taxes.
This month Kansas Policy Institute produced a survey asking registered voters in Kansas questions on the topic of school spending. The final four questions asked voters’ opinion of government efficiency and how government should respond to budgetary issues.
Question 9 asked this: “How much do you agree or disagree with this statement: Kansas state government operates pretty efficiently and makes effective use of my tax dollars.” As you can see in the nearby table and chart, 31 percent of voters agreed with this statement. 65 percent disagreed, including 39 percent who said they strongly disagree with the statement. That was the most common response.
This result is similar with a survey of Wichita voters conducted by SurveyUSA for KPI in April. The first question in that survey asked “In the past few years, have Wichita city officials used taxpayer money efficiently? Or inefficiently?” Overall, 58 percent believed city spending was inefficient, compared to 28 percent believing spending was efficient.
In question 10, the current survey of Kansas voters asked “How much do you agree or disagree with this statement: Kansas state government could run 5% to 10% more efficiently than it does now.” 74 percent of respondents agreed to some extent, with 42 percent indicating they strongly agree. Only six percent strongly disagreed.
Question 11 asked voters how Kansas state government should react to an unbalanced budget: “How much do you agree or disagree with this statement: I believe the Kansas state government should pursue efficiency savings, focus on core functions, and spend unnecessary cash reserves before raising taxes and/or cutting government functions.” 68 percent agreed with this statement, with 40 percent strongly agreeing. 24 percent disagreed.
Question 12 asked voters how to fix Kansas state budget problems: “What would be the single best way to fix state budget problems? Increasing the income tax? Increasing the sales tax? Cutting spending, even if it means reduced services? Or reducing spending by providing services more efficiently?”
Reducing spending by being more efficient received a majority — 54 percent — of responses. 26 percent of voters responded that taxes should be increased, with income tax hikes more popular than sales tax.
(Note: Based on feedback from readers, I’ve made a change in the way the change in tax collections is reported. Instead of showing 179 percent, I now show 79 percent. This expresses the value as a percentage change rather than a change in index value from 100. The meaning of the data is the same, but now it is expressed in a manner that is easier to understand and consistent with other figures in this visualization.)
Here is an interactive visualization that holds property tax data for Kansas counties from 1997 to 2013.
There are several charts, including line charts of trends and maps of data and changes in data. On the line charts, click on any single county or more to highlight. (Use Ctrl+click to add counties.)
Click here to open the visualization in a new window.
Here’s a map I created of the vote percentage Kansas Secretary of State Kris Kobach received by precinct. To use an interactive version of this map, click here. On the interactive map you may zoom and scroll, and you may click on a precinct for more information about the votes for that precinct.
Here’s a map I created of the vote percentage Governor Sam Brownback received by precinct. To use an interactive version of this map, click here. On the interactive map you may zoom and scroll, and you may click on a precinct for more information about the votes for that precinct.
By Eileen Umbehr, wife of Libertarian Candidate for Kansas Governor Keen Umbehr
November 1, 2014
As this campaign draws to a close, my heart is heavy. Not so much because Keen was treated as a second-class candidate who didn’t deserve a seat at the table with his Democrat and Republican opponents, but because of the way I’ve seen God used as a selling point in politics.
For example, Keen is solidly pro-life. He believes in freedom as long as you do not cause harm to another human being, and a baby is a human being. But because he also acknowledges the reality that unless and until Roe v. Wade is overturned women maintain their right to choose, he is not considered pro-life enough.
The issue of same-sex marriage has also been deeply divisive and been used to garner votes. How a candidate may feel about two members of the same sex uniting in marriage is separate from his or her duty as a government official to ensure that all laws apply equally to all citizens. Could the government decide not to issue gay people a license to teach, cut hair, practice law, or engage in business?
What each of us believe and the tenets we choose to follow in our private lives is a personal matter. While Keen and I are both Christians who try to live according to the principles set forth in the Bible, where we differ from many of our fellow Christians is that we don’t believe it is our right — or the government’s right — to impose any particular religious belief on anyone. Even God doesn’t do that. If He did, wouldn’t He simply force everyone to believe that Jesus died on the cross for their sins so they would all go to Heaven?
Keen is a strict constitutionalist. He believes in the First Amendment right of free speech even when it means that the Phelps’ family can spew messages of hate, causing immeasurable harm to families burying their loved ones. And he believes in the Sixth Amendment right to counsel even when the accused may be guilty of a heinous crime.
When it comes to the Fourteenth Amendment, there are many who feel it should not apply to gays wanting to marry because homosexuality is classified as a sin in the Bible. But isn’t fornication and sex before marriage also classified as a sin in the Bible? And yet no one is suggesting that folks who have engaged in these acts should be denied a marriage license.
Someone posted the following statement about Keen on a liberty-based Facebook page: “Don’t be deceived, this guy is pumping for same sex marriage.” Keen posted the following reply: “I am not ‘pumping’ for same sex marriage, I am ‘pumping’ for adhering to the Constitution which requires equal protection under the law. As long as the State of Kansas is in the business of issuing licenses — whether they be drivers’ licenses, marriage licenses or business licenses — they cannot discriminate against individuals on the basis of religion, gender, or race. How each individual chooses to live their lives is their business, not the government’s.”
In conclusion, if we really want to protect religious freedom in our country, then we should elect candidates who will defend the rights of all citizens to practice whichever religion they choose. That is true religious liberty.
But then, a candidate like that wouldn’t be considered Christian enough.
Kansas has nearly the highest statewide sales tax rate for groceries. Cities and counties often add even more tax on food.
Only 14 states apply sales tax to food purchased at grocery stores for home consumption. This is generally in recognition that sales taxes are highly regressive. My research shows that the lowest income class of families experience a cost nearly four times the magnitude as do the highest income families, as a percentage of after-tax income. See Wichita sales tax hike would hit low income families hardest.
When we look at statewide sales tax rates applied to food, we see that Mississippi has the highest sales tax rate for food at 7.00 percent. Kansas is next at 6.15 percent, then Idaho at 6.00 percent.
Cities and counties often have additional sales taxes. Sedgwick County adds one percent for a total sales tax rate of 7.15 percent. If the proposed Wichita sales tax succeeds, the sales tax in Wichita, including on groceries, will be 8.15 percent.
It could be that some cities in other states have combined sales tax rates higher than what Wichita currently has, and what Wichita will have if the proposed sales tax passes. As an example, Oklahoma has a statewide sales tax of 4.5 percent that applies to groceries. With city and county taxes added, the rate in Oklahoma City is 8.375 percent. If the proposed sales tax passes, Wichita would be right behind at 8.15 percent.
Of note, those in Kansas have the possibility of receiving a food sales tax credit of $125. But this is something that must be applied for, and qualifying conditions must be met. Also, the credit is nonrefundable, meaning that applicants must have income tax liability of at least $125 to receive the full credit.
The following table shows the sales tax rate for states that apply sales tax to food. All other states have either no sales tax, or no sales tax on groceries. View below, or click here to open in a new window.
To help Kansans understand the options for future Kansas budgets, Kansas Policy Institute has produced a calculator that lets voters experiment with scenarios of their own making. Click here to view the calculator.
Goossen claims we made an $802 million math error and tries to fool unsuspecting readers by saying we didn’t account for all of what is purported to be a $1.3 billion shortfall. We didn’t account for it because there is no $1.3 billion shortfall!
As we explained in How Budget Deficits are Fabricated in Kansas, Kansas Legislative Research Department (KLRD) counts budget changes multiple times in arriving at what they call a $1.3 billion shortfall. Once money is cut from the base budget … it’s gone. It doesn’t have to be cut again every year into the future.
According to KLRD, the spending adjustments needed to maintain a zero ending balance total $482.3 million over five years.
In order to get to $1.3 billion, one must count the FY 2016 change FOUR times … the FY 2017 change is counted THREE times … the FY 2018 change is counted TWICE … and only the FY 2019 change is counted once.
Goossen also mischaracterizes several proposed uses of excess cash reserves as “cuts” to transportation and education. As clearly explained in our Budget Plan, we are proposing that a KDOT surplus of $150 million be returned to the General Fund and that sales tax transfers to KDOT be reduced so that future surpluses are not created. We suggest that school districts and universities be required to use a portion of excess cash reserves, allowing education funding to reduced one time while excess funds are spent down.
He also falsely claims we are recommending a $100 million cut to the Kansas Bioscience Authority, when our plan merely suggests funding KBA at the same amount it received in 2014. The budget savings comes about by removing a statutory set-aside of $25 million per year that isn’t planned to be spent.
These are just some of the outlandish claims made by Goossen, which probably explains why he ignores invitations to have a civil public discussion of the facts. He has nothing to gain and everything to lose.
Our budget plan shows multiple options to balance the budget without service reductions or tax increases…healthy ending balances…increased funding for education and Medicaid…and record-setting spending overall. But media won’t even look at the plan and others are spreading false claims about it.
Kansans are being inundated with the false choice of tax increases or service reductions … all for political gain.
A recent spurt of growth of personal income in Kansas is welcome, considering the history of Kansas in this regard.
Kansas personal income grew in the quarter ending in June, with the Wichita Business Journal reporting “Kansas ranked 14th among states for second-quarter personal income growth.” The article also noted “According to data released Tuesday by the Bureau of Economic Analysis, personal income grew by 1.7 percent in the second quarter of 2014, faster than the national growth rate of 1.5 percent.”
Strong growth in personal income is good. But strong growth is not the norm for Kansas. The nearby chart shows cumulative growth of personal income in the states since 1990, with Kansas highlighted. Total growth for Kansas is 190 percent. For the entire county, it is 198 percent. For Plains states, 196 percent.
This is relevant to the decision Kansans will make in November when deciding their vote for governor. Progressive voices urge a return to the policies of Kathleen Sebelius and her successor (2003-2011), and Bill Graves (1995-2003). Sebelius, a Democrat, and Graves, a Republican, are seen by Progressives as paragons of “moderate,” “common-sense” leadership that is now — they say — missing.
An interactive visualization of personal income data is available for use here. You may select different time periods and any grouping of states. One of more states may be highlighted. There are similar charts in the visualization that show change in personal income year-over-year, and change from previous quarter.
Those who call for a return to the economic policies of past Kansas gubernatorial administrations may not be aware of the performance of the Kansas economy during those times.
There are a variety of ways to measure the economic performance of states and countries. Job growth is one. Output, or gross domestic product, is another.
The nearby chart contains two views of GDP for Kansas and nearby states. Kansas is the dark line. The charts shows GDP for private industries only. (By using the interactive visualization, you can show other industries, time periods, and states.)
The top chart shows the percentage change in GDP from the previous year. The bottom chart shows the cumulative growth in GDP since 1997. Both charts illustrate that the performance of the Kansas economy is nothing to crow about, and it’s been that way for a long time.
You may use the visualization yourself. Click here to open it in a new window. There are other visualizations of data, including jobs creation by states, available here.
A policy brief from a Kansas think tank illustrates that balancing the Kansas budget while maintaining services and lower tax rates is not only possible, but realistic.
The State of Kansas has implemented tax reform that reduces the tax burden for Kansans. A remaining challenge that has not yet been tackled is spending reform, that is, aligning Kansas state government spending with a smaller stream of tax revenue. Critics of tax reform say the Kansas budget is a mess or a train wreck, pointing to projections of large deficits before long. Tax increases or service cuts will be required to balance the budget, contend critics.
In a policy brief released today, Kansas Policy Institute presented a plan for bringing the budget in balance while retaining low tax rates (and future reductions) and accommodating projected future spending needs for Medicare and schools.
KPI’s analysis and proposed budgets are based on revenue and expenditure data from Kansas Legislative Research Department as of August. Because of some uncertainty of future revenue estimates, KPI used three different levels of starting revenue going to create three different scenarios. KPI then applied the same growth rate that KLRD uses.
Even with the changes proposed by KPI, spending will still increase in most cases. Baked into KPI’s tables are projections by KLRD of increases of $299 million for Medicaid caseloads and $215 million for additional K-12 school spending.
The changes that KPI recommends are primarily structural in nature. For example, one recommendation is to reform KPERS, the state employee retirement system, so that newly hired employees are covered by a defined contribution program. Another is reducing sales tax transfers to Kansas Department of Transportation to the level used in fiscal year 2013.
Another change is to improve accounting systems. The report illustrates one instance where inadequate payroll systems mean that the state can’t claim some payments that it is due:
States are entitled to be reimbursed by the federal government for the pension costs of school employees engaged in the delivery of federally-funded services, such as Special Education and Food Service. Kansas, however, foregoes federal reimbursement because many school districts’ payroll systems lack the ability to properly capture the necessary information. (Estimates are not permitted; the information must flow through payroll systems.)
KPI president Dave Trabert said: “We do have to have some structural changes that should have occurred in 2012 when tax reform was first implemented. We can do that now by making more effective use of existing resources.” Except in a few instances, the budget plan advanced by KPI doesn’t depend on government eliminating waste or becoming more efficient. While these goals are important, Trabert said, they take time to accomplish.
One of the most-often repeated themes heard during the Kansas Governor debate at the Kansas State Fair is that Kansas is a rural state, and that agriculture is vital to our state’s economy. It’s not just gubernatorial candidates that say this. It seems to be common knowledge.
There may be several ways to measure the “ruralness” of a state. One way is the percent of the state’s people that live in rural areas. The U.S. Census Bureau has these statistics. In the chart made from these statistics, Kansas is right in the middle of the states. 25.80 percent of Kansans live in rural areas.
As for the importance of agriculture to the Kansas economy, figures from the Bureau of Economic Analysis (part of the U.S. Department of Commerce) tell us that in 2013 agriculture contributed $6,914 million to the Kansas GDP. Total GDP in Kansas that year was $144,062 million, meaning that agriculture accounted for 4.8 percent of total Kansas economic production. That is a pretty high number; only six states have a higher percentage of GDP from agriculture.
Do these numbers mean anything? It’s common for Kansas politicians to emphasize — and perhaps exaggerate — whatever connections they may have to a family farm. It’s part of a nostalgic and romanticized view of Kansas, the Kansas of Home on the Range. We are the “Wheat State” and “Breadbasket of the World,” and “One Kansas farmer feeds 128 people (plus you).”
So while Kansas is in the middle in the ranking of percent of population living in rural areas, agriculture is a larger component of state income than all but a few states. Still, agriculture is less than five percent of Kansas income. Policymakers should keep this in mind, although politicians may not.
Kansas has a problem with sales tax exemptions, but the potential revenue boost from reform is not as great as commonly mentioned, unless Kansas wants to place its manufacturers at severe disadvantage.
While the Wichita Eagle editorial board is correct to argue for eliminating sales tax exemptions, the amount of potential revenue is far less than presented, if we want to keep Kansas manufacturers competitive. Here’s what the Eagle editorial held:
As a result, the number of sales-tax exemptions keeps growing — from 30 in 1985 to more than 100 today. And with each added exemption, the state is losing out on more revenue — $5.9 billion this fiscal year, according to the Kansas Department of Revenue. That’s money the state could be using to cover its budget shortfalls, increase funding to public schools or further reduce its income-tax rates.” (Reduce state sales tax exemptions, August 27, 2014)
First, it’s good that the editorial board mentioned — as one possibility — the right thing to do if sales tax exemptions are eliminated, which is to reduce other taxes. Second, the state is not “losing out on more revenue” by granting sales tax exemptions. The state is simply letting people conduct certain transactions without being taxed, thereby letting them keep more of their own money. It’s true that the exemptions are granted in a way that is not equitable and does not promote economic growth, but that’s another issue.
The big problem with the editorial is the amount of money mentioned as up for grabs, which is $5.9 billion. That is a lot of money. It’s almost as much as Kansas annual general fund spending. It’s worthwhile to look in detail at the nature of Kansas sales tax exemptions to understand their nature.
In 2010 Kansas Legislative Division of Post Audit looked at the topic of sales tax exemptions and issued a report titled Kansas Tax Revenues, Part II: Reviewing Sales Tax Exemptions. The data in this report is from 2009, so it’s a few years out of date. But the principles and relative amounts remain the same. At the time of this report, advocates of eliminating sales tax exemptions in Kansas pointed, as they do now, to the great amount of revenue that could be raised if Kansas eliminated these exemptions, estimated at some $4.2 billion per year for 2009. Analysis of the nature of the exemptions and the amounts of money involved, however, leads us to realize that the additional tax revenue that could be raised is much less than spending advocates claim, unless Kansas was to adopt a severely uncompetitive, and in some cases, unproductive tax policy.
Tax exemption policy is an important economic policy matter. In its background discussion, the Post Audit report noted “the U.S. Supreme Court’s opinion that tax exemptions and tax deductibility are a form of subsidy that is administered through the tax system. A tax exemption has much the same effect as a cash grant to the organization of the amount of tax it would have to pay on its income.”
Sometimes these sales tax exemptions are issued to specific organizations. Others are issued to organizations that fall within certain categories. In this case, the exemption is like an entitlement, granted to any organization that falls within the scope of definition of the exemption. Some exemptions are for categories of business transactions that shouldn’t be taxed.
It’s this last category that is important to recognize, because of the large amount of economic activity that falls within its scope. An example is exemption 79-3606 (m), described as “Ingredient/Component parts: Of items manufactured or produced for sale at retail.” The audit report estimates that for 2009, this exemption cost the state $2,248.1 million in lost sales tax revenue.
But this exemption isn’t really an “exemption,” at least if the sales tax is a retail sales tax designed to be levied as the final tax on consumption. That’s because these goods aren’t being sold at retail. They’re sold to manufacturers who use them as inputs to products that, when finished, will be sold at retail. Most states don’t tax this type of sales. If Kansas decided to tax these transactions, it would place our state’s manufacturers at a severe disadvantage compared to almost all other states.
There are two other exemptions that fall in this category of inputs to to production processes, totaling an estimated $461 million in lost revenue.
Another big-dollar exemption is “items already taxed” such as motor fuel. This is an estimated $232.5 loss in revenue.
Two other categories of exemptions are purchases made by government, or purchases made by contractors on behalf of government. Together these account for an estimated $449.9 million in lost sales tax revenue. If these two exemptions were eliminated, government would be taxing itself and no net revenue is gained.
All told, these six exemptions account for $3,391.5 million of the total $4,234.2 million in exemptions for 2009. That’s about 80 percent.
So $4.2 billion has shrunk to $842.7 million. That’s still a lot of money, but not near as much as spending advocates would like to have Kansans believe is lying in wait just for the taking.
In this episode of Voice for Liberty Radio: Nick Jordan is Secretary of Revenue for the State of Kansas. He spoke to the Wichita Pachyderm Club on the topic “An Analysis of Governor Brownback’s Tax Policy” on August 22, 2014. In the shownotes for this episode you can find the link to the handout he distributed.
Here’s Kansas Secretary of Revenue Nick Jordan at the Wichita Pachyderm Club on August 22, 2014.
The Securities and Exchange Commission found that Kansas mislead bond investors. It ordered the state to implement reforms, which it has.
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.”
This refers to a series of eight debt, or bond, issues in 2009 and 2010. Collectively they were worth $273 million. The SEC press release explains:
According to the SEC’s order against Kansas, the series of bond offerings were issued through the Kansas Development Finance Authority (KDFA) on behalf of the state and its agencies. According to one study at the time, the Kansas Public Employees Retirement System (KPERS) was the second-most underfunded statewide public pension system in the nation. In the offering documents for the bonds, however, Kansas did not disclose the existence of the significant unfunded liability in KPERS. Nor did the documents describe the effect of such an unfunded liability on the risk of non-appropriation of debt service payments by the Kansas state legislature. The SEC’s investigation found that the failure to disclose this material information resulted from insufficient procedures and poor communications between the KDFA and the Kansas Department of Administration, which provided the KDFA with the information to include in the offering materials.
“Kansas failed to adequately disclose its multi-billion-dollar pension liability in bond offering documents, leaving investors with an incomplete picture of the state’s finances and its ability to repay the bonds amid competing strains on the state budget,” said LeeAnn Ghazil Gaunt, chief of the SEC Enforcement Division’s Municipal Securities and Public Pensions Unit. “In determining the settlement, the Commission considered Kansas’s significant remedial actions to mitigate these issues as well as the cooperation of state officials with SEC staff during the investigation.”
In other words, Kansas had a grossly underfunded state pension system, and did not adequately disclose that to potential purchasers of new state debt. The full text of the order gives more detail as to how Kansas was an outlier among the states, not only in the magnitude of its problem, but in its lack of disclosure:
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.
Here’s what this means to public policy:
First, the Kansas Public Employee Retirement System (KPERS) was in terrible financial condition, compared to other states.
Second, Kansas did not adequately disclose that to potential investors, according to the SEC.
Third, reforms have been implement to the satisfaction of the SEC.
Fourth, the SEC was quite critical of the Kansas Department of Administration, or KDA.
Fifth, the head of KDA at the time was Duane Goossen. On his blog his biography contains: “[Goossen] was appointed by Sebelius in 2004 to concurrently serve as Secretary of the Kansas Department of Administration, the agency that manages state facilities, accounting, information services and employee programs.”
Although retired from state government, Goossen maintained a role in public affairs as former Vice President for Fiscal and Health Policy at Kansas Health Institute, and now authors a blog concerning issues related to the Kansas budget.