Kansas spending is the problem

While Kansas Governor Sam Brownback has some good ideas in his State of the State address and tax reform plan, there are two important points that need to be made.

First, the governor has said that tax reform is designed to be revenue neutral. That goal means that if one person pays less, someone else has to pay more. It also means that the state’s thirst for spending is not quenched. It is continued spending that prevents us from dramatically reducing or eliminating income tax rates in Kansas.

Critics of lowering income tax rates point to the advantages that states with no income tax have. Texas is often mentioned, where it is said that the state’s oil wealth and the taxes it generates make it possible for Texas to have no income tax.

There are two rebuttals to this argument. First, Kansas may have much new activity in oil and gas in the very near future. With the severance tax and taxes from other economic activity — as many as 25,000 jobs and $5 billion in investment over five years — new revenue may be flowing to the state. Brownback has called for limiting the growth of state spending to two percent annually, with revenue growth above that dedicated towards reducing income tax rates.

The second rebuttal is that states with low or no income tax generally spend much less than Kansas. Using figures I compiled for 2010, Kansas state spending per person is $4,923, which ranks it 35th among the states. Only 15 states spend more than Kansas, on a per person basis.

Texas, with no income tax, spends $3,703 per person. Florida, another state with no income tax, spends $3,300 per person.

Kansas Democrats have called for restoring school spending, and increasing it in the future. They have other plans for state spending, too. That’s why it is important that Kansas implement something that 47 states have, but Kansas does not. Unfortunately, the governor didn’t mention it in his address. That missing ingredient in the Kansas state financial plan is a rainy day fund.

Rainy day funds operate in different ways in the states that have them, but generally there are strict rules about spending the money in the fund. A rainy day fund would have helped Kansas whether a downturn in revenue without resorting to a tax increase. That’s vitally important, as once tax increases are in place, they are very difficult to remove. We have such an example of this now in Kansas: The increase in the statewide sales tax, promoted to last just three years, is now recommended to be permanent, according to the governor’s plan.

(Shifting sands: Kansas Senator Carolyn McGinn, who voted for the sales tax increase, now wants it ended a year earlier than originally planned. That was a transparent response to her having to face a conservative challenger in her primary election this year. But now she finds herself opposing the governor on this issue.)

Kansas has a requirement for a 7.5 percent ending balance in the general fund. That requirement is often waived by the legislature, as it has been for several years in a row. Rainy day fund legislation is often implemented in states’ constitutions, which can’t easily be waived or ignored by spending-happy legislature. The strict requirements as to how and when the fund balances can be spent is much different from a simple ending balance. Kansas Democrats, for example, are calling for spending the year’s ending balance.


3 thoughts on “Kansas spending is the problem”

  1. The state needs to end the “pump ‘n dump,” budgeting that goes back decades in the state budgets. Gov. Brownback is to be commended if he can keep state spending growth to 2% or less annually.

    Since the state’s spending on Medicaid has been rapidly growing ever since that program was created almost half a century ago and the school spending lobby keeps litigating for more spending, the state’s budget has rapidly grown. If one looks at the Legislative Research Dept.’s annual “Fiscal Facts,” publication you can see that KS had its first all funds $1 billion dollar budget in 1974 and its first general fund $1 billion budget about seven years later if my memory is correct (where did I put that publication…oh well I’m sure someone will post if I’m off a year or so on these numbers).

    What is a “pump ‘n dump,” that I mentioned earlier? What some administrations would do in Topeka was add spending growth into the current year’s budget that runs from July 1 to June 30. So when the governor gave their state of the state speech, they could say something like, “my proposed budget for next year only has a 1% growth in state spending,” in the budget document.

    Wow, only 1% is great,….right? Well, if you pump up the spending in the current year and use that figure as the dividend in the division of next year’s proposed spending divided by the spending in the current year you can reach that apparently small percentage growth figure. You will dump the percentage down, but here’s how it can work with very simplified figures.

    In year 1, the approved budget is $1 billion. In year two the governor proposes a 1% increase or $10 million. However, if the govenor wants to do a “pump and dump,” the year 1 budget is “revised” to say, 1.050 billion in the middle of the budget year. If you do a 1% increase against 1.050 billion the growth is well above $10 million. The spending is “pumped,” up and the percentage increase is “dumped,” down, or easily called, “pump ‘n dump.” Over time, the exponential growth and power of compounding interest growth raises this spending quickly.

    Would the media catch this, or call the governor on it? Not if they are a good, mainstream KS “moderate,” (that is media speak for progressive or liberal). I’ve never seen it reported but I’ve seen this done on many an occasion. That’s why the all funds KS budget has grown 14 times since 1974 and the general fund has had similar percentage growth.

    Now there have been occasions when the budget has grown dramatically without engaging in this fiscal obfuscation. Look at the liberal and activist KS Supreme Court that issued their own budget edicts with their ludicrous but highly expensive Montory government school spending edicts. So state spending growth is a huge challenge with KPERS and other problems that Gov. Brownback and the legislature must address. I believe that Gov. Brownback’s proposal is an excellent start to trying to strengthen this state’s economy while keeping a lid on government growth.

  2. The Brownback administration will likely do lots of damage to the state of Kansas with its tax policy. Yes, the most regressive tax of all, the sales tax, will probably increase significantly. And then property taxes are likely to go up. Bob, I think you opposed and criticized the implementation of the one percent sales tax by Governor Mark Parkinson. And now you favor keeping it? Have you checked on the state of education, especially K-12, in Texas? I think that we do not want that. Is the problem for Kansas really the tax structure or is it that we do not have the kind of geographical and climate appeal that people seek? Where are the surveys of people to show that this is true? We need more than a “seat-of-your-pants” kind of interpretation. By the way, what kind of economist is Laffer? I think that he is a “laugh” (pun intended) among highly respected economists. A person told me several weeks ago that when he retires, he and his wife will be going to Austin, TX because they love the area and not because of taxes in Kansas. Let us keep things straight. Get the causes of something wrong, and the state will be in double trouble.

  3. Shortly after Gov. Finney was elected the federal government reimbursed the State of Kansas around $150 million dollars due to their error in Medicaid funding. The Legislature that year took the money and spent half and kept the other $75 million on a rainy day fund. The following year an amendment was offered by Rep. Helgerson (D-Wichita) to spent the rainy day fund in children’s program and the money was gone! If government in not a for profit entity, isn’t a rainy day fund a surplus of tax dollars over the government expenditures for services rendered that should be returned to the taxpayers?

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