Tag Archives: Government spending

WichitaLiberty.TV: Kansas Policy Institute President Dave Trabert

In this episode of WichitaLiberty.TV: Dave Trabert of Kansas Policy Institute explains the block grants for Kansas school funding. Also: What did the school efficiency commission learn? View below, or click here to view at YouTube. Episode 79, broadcast March 22, 2015.

Kansas school funding block grants, new formula benefits students

Estimates from the Kansas Department of Education show that school funding would set new records under the block grant proposal, writes Dave Trabert of Kansas Policy Institute.

Block grants, new formula benefits students

By Dave Trabert, Kansas Policy Institute

The debate over whether to replace the current school funding formula with a temporary block grant exposed one of the greatest challenges facing public education in Kansas. Most school administrators and the special interest groups that lined up in opposition of the proposal focused almost exclusively on their institutional desire for more money and only mentioned students in the context of how they would suffer if the institutions’ demands are not met.

Every Legislative Post Audit study on schools has found them to be inefficient operators, but no administrators opposing the block grants said they would choose to operate efficiently if they wanted more money for instruction under the block grants. School administrators testifying before the K-12 Commission on Efficiency acknowledged that more money could go to classrooms if they outsourced certain functions, but no one opposing the block grants offered up those solutions. No one said that block grants would force them to cut back on their multiple layers of administration or use much of their $857 million in cash reserves. The message was pretty clear; give institutions what they want or the students will suffer.

Opponents also didn’t let facts get in their way. One superintendent said the current formula is “… tied to what it costs to educate kids” but that is a demonstrably false statement. The current formula is based on a cost study that has been proven to be deliberately skewed to produce inflated numbers. Legislative Post Audit gave legislators some estimates years ago but stressed that those estimates were only based on a specific set of variables and said “different decisions or assumptions can result in very different cost estimates.” Even the State Supreme Court said cost studies are “… more akin to estimates that the certainties …” suggested by the district court.

Administrators spoke of how much they would be “cut” under the block grants but that is largely government-speak for not getting as much of an increase as they want. Estimates from the Kansas Department of Education show that school funding would set new records under the block grant proposal, at $6.147 billion or $13,347 per pupil; only $3 million of the $171 million increase this year is for KPERS.

School funding has increased by more than $3 billion since 1998 and is $1.5 billion higher than if adjusted for enrollment and inflation. Yet only 36 percent of White students scored well enough on the 2014 ACT exam to be considered college-ready in English, Reading, Math and Science; it’s even worse for Hispanic and African American students, at 14 percent and 7 percent, respectively. Only 38 percent of 4th Grade students are Proficient in Reading on the National Assessment of Educational Progress (NAEP) and Low Income 4th Graders are almost three years’ worth of learning behind everyone else — in the 4th Grade!

The old school formula certainly gave institutions a lot more money but it didn’t work for students. The new formula should hold districts accountable for improving outcomes; it should also be transparent and require efficient use taxpayer money.

WichitaLiberty.TV: United States Congressman Mike Pompeo

In this episode of WichitaLiberty.TV: Congressman Mike Pompeo talks about risks to America from overseas, Benghazi, congressional scorecards, the Grant Return for Deficit Reduction Act, and labeling food with genetically engineered ingredients. View below, or click here to view at YouTube. Episode 78, broadcast March 15, 2015.

Energy subsidies for electricity production, in proportion

To compare federal subsidies for the production of electricity, we must consider subsidy values in proportion to the amount of electricity generated, because the magnitude is vastly different.

Kansas wind turbinesWhen comparing federal subsidies for the production of electricity, it’s important to look at the subsidy values in proportion to the amount of electricity generated. That’s because the scales vary widely. For example, in 2010 for the United States, as can be seen in the accompanying table, coal accounted for the production of 1,851 billion kWh (or megawatt hours) of electricity production. That’s 44.9 percent of all electricity produced. Solar power accounted for the production of 1,851 billion kWh, which is 0.025 percent of all electrical production.

Solar power, however, received 8.2 percent of all federal subsidies, or about 328 times its share of production.

The nearby table and chart are based on data from the Energy Information Administration (EIA), Direct Federal Financial Interventions and Subsidies in Energy in Fiscal Year 2010 through the Congressional Research Service, along with the author’s calculations.

Click table for larger version.
Click table for larger version.

Of particular interest is wind power, as it receives subsidy in the form of cash equivalent tax credits, and many states (including Kansas) have mandates forcing its use. For the year covered in the table, wind accounted for 2.3 percent of U.S. electricity generation. It received 42.0 percent of federal energy subsidies.

Electricity production and subsidy, 2010

Kansas school funding still sets new record with block grant proposal

Kansas school funding is at a record high this year and is projected to rise next year, writes Dave Trabert of Kansas Policy Institute.

School funding still sets new record with block grant proposal

By Dave Trabert

You wouldn’t know it from media reports or school district newsletters, but school funding will still set another new record this year. Superintendents say they are dealing with budget cuts but that is largely government-speak for not getting as much of an increase as they would like — and media laps it up without asking how this year’s funding compares with last year.

The Kansas Department of Education (KDSE) says the proposed block grants for the current school year total $3.409 billion, but the block grants do not include state funding for Special Education or Bond and Interest aid. Including those amounts as listed in the Governor’s Budget Report puts total state aid at $3.985 billion. A few months ago, KSDE Deputy Superintendent of Finance Dale Dennis estimated Local aid at $1.652 billion and Federal aid at $510 million. That would put total taxpayer support at $6.147 billion this year and set a new funding record for the fourth consecutive year.

Funding per-pupil would be $13,262 (based on KSDE estimated enrollment of 463,500) and set a new record for the third consecutive year.

Total funding last year according to KSDE was $5.976 billion, so the revised estimate for this year represents a $171 million increase. Also of note, KSDE puts KPERS funding last year at $312 million and shows $315 million included in the block grant. That means — contrary to claims you might have heard — that almost all of the funding increase is not related to pension funding.

Here is a historical perspective on per-pupil school funding, adjusted upward for KPERS in the years prior to 2005 (when it wasn’t included in KSDE funding reports). The blue line shows actual funding and red line show what funding would have if adjusted for inflation each year. FYI, funding this year would be $1.503 billion less if it had just been increased for inflation and enrollment.

Legislation to end Economic Development Administration introduced

U.S. Rep. Mike Pompeo calls for an end to a wasteful federal economic development agency.

economic-development-administrationIf you think a proper function of the federal government is spending your tax dollars to build replicas of the Great Pyramids in Indiana or a gift shop in a winery, you’re not going to like legislation introduced by U.S. Representative Mike Pompeo, a Republican who represents the Kansas fourth district, including the Wichita metropolitan area.

Others, however, will appreciate H.R. 661: EDA Elimination Act of 2015. In the following article from 2012, Pompeo explains the harm of the Economic Development Administration, which he describes as a “politically motivated federal wealth redistribution agency.” Pompeo had introduced similar legislation in the past, and this bill keeps the effort alive in the new Congress.

In his article Pompeo mentions the trip by Assistant Secretary of Commerce for Economic Development John Fernandez to Wichita. This was in conjunction with EDA’s grant to Bombardier, part of which was to facilitate production of a new airplane, the LearJet 85. Since then, Fernandez has moved on to the private sector, working for a law firm in a role that seems something like lobbying.

Unfortunately, earlier this year Bombardier mothballed the LearJet 85 project, with industry observers doubting it will be revived.

For more background on the EDA, see Economic Development Administration at Downsizing the Federal Government.

End the Economic Development Administration — Now

By U.S. Representative Mike Pompeo, January, 2012

As part of my efforts to reduce the size of government, I have proposed to eliminate the Economic Development Administration (EDA), a politically motivated federal wealth redistribution agency. Unsurprisingly, the current leader of that agency, Assistant Secretary of Commerce for Economic Development John Fernandez, has taken acute personal interest in my bill to shutter his agency.

Last week, Secretary Fernandez invited himself to Wichita at taxpayer expense and met with the Wichita Eagle’s editorial board. Afterwards, the paper accurately noted I am advocating eliminating the EDA even though that agency occasionally awards grant money to projects in South Central Kansas. They just don’t get it. Thanks to decades of this flawed “You take yours, I’ll take mine” Washington logic, our nation now faces a crippling $16 trillion national debt.

I first learned about the EDA when Secretary Fernandez testified in front of my subcommittee that the benefits of EDA projects exceed the costs and cited the absurd example of a $1.4 million award for “infrastructure” that allegedly helped a Minnesota town secure a new $1.6 billion steel mill. As a former CEO, I knew there is no way that a taxpayer subsidy equal to less than one-tenth of one percent (0.1%) of the total capital needed made a difference in launching the project. That mill was getting built whether EDA’s grant came through or not. So, I decided to dig further.

I discovered that the EDA is a federal agency we can do without. Similar to earmarks that gave us the infamous “Bridge to Nowhere” or the Department of Energy loan guarantee scandal that produced Solyndra, the EDA advances local projects that narrowly benefit a particular company or community. To be sure, the EDA occasionally supports a local project here in Kansas. But it takes our tax money every year for projects in 400-plus other congressional districts, many if not most of which are boondoggles. For example: EDA gave $2 million to help construct UNLV’s Harry Reid Research and Technology Park; $2 million for a “culinary amphitheater,” tasting room, and gift shop at a Washington state winery; and $500,000 to construct (never-completed) replicas of the Great Pyramids in rural Indiana.

Several times in recent decades, the Government Accountability Office has questioned the value and efficacy of the EDA. Good-government groups like Citizens Against Government Waste have called for dismantling the agency. In addition, eliminating the EDA was listed among the recommendations of President Obama’s own bipartisan Simpson-Bowles Deficit Reduction Commission.

So why hasn’t it been shut down already? Politics. The EDA spreads taxpayer-funded project money far and wide and attacks congressmen who fail to support EDA grants. Soon after that initial hearing, Secretary Fernandez flew in his regional director — again at taxpayer expense — to show me “all the great things we are doing in your home district” and handed me a list of recent and pending local grants. Hint, hint. You can’t say I wasn’t warned to back off. Indeed, Eagle editors missed the real story here: Secretary Fernandez flew to Wichita because he is a bureaucrat trying to save his high-paying gig. The bureaucracy strikes back when conservatives take on bloated, out-of-control, public spending, so I guess I’m making progress.

Please don’t misunderstand. I am not faulting cities, universities, or companies for having sought “free” federal money from the EDA. The fault lies squarely with a Washington culture that insists every program is sacred and there is no spending left to cut.

A federal agency run at the Assistant Secretary level has not been eliminated in decades. Now is the time. My bill to eliminate the EDA (HR 3090) would take one small step toward restoring fiscal sanity and constitutional government.

How TIF routes taxpayer-funded benefits to Wichita’s political players

From January 2012, how tax increment financing routes benefits to politically-connected firms.

It is now confirmed: In Wichita, tax increment financing (TIF) leads to taxpayer-funded waste that benefits those with political connections at city hall.

The latest evidence we have is the construction of a downtown parking garage that benefits Douglas Place, especially the Ambassador Hotel, a renovation of a historic building now underway.

The flow of tax dollars Wichita city leaders had planned for Douglas Place called for taxpayer funds to be routed to a politically-connected construction firm. And unlike the real world, where developers have an incentive to build economically, the city created incentives for Douglas Place developers to spend lavishly in a parking garage, at no cost to themselves. In fact, the wasteful spending would result in profit for them.

The original plan for Douglas Place as specified in a letter of intent that the city council voted to support, called for a parking garage and urban park to cost $6,800,000. Details provided at the August 9th meeting of the Wichita City Council gave the cost for the garage alone as $6,000,000. The garage would be paid for by capital improvement program (CIP) funds and tax increment financing (TIF). The CIP is Wichita’s long-term plan for building public infrastructure. TIF is different, as we’ll see in a moment.

At the August 9th meeting it was also revealed that Key Construction of Wichita would be the contractor for the garage. The city’s plan was that Key Construction would not have to bid for the contract, even though the garage is being paid for with taxpayer funds. Council Member Michael O’Donnell (district 4, south and southwest Wichita) expressed concern about the no-bid contract. As a result, the contract was put out for competitive bid.

Now a winning bid has been determined, according to sources in city hall, and the amount is nearly $1.3 million less than the council was willing to spend on the garage. This is money that otherwise would have gone into the pockets of Key Construction. Because of the way the garage is being paid for, that money would not have been a cost to Douglas Place’s developers. Instead, it would have been a giant ripoff of Wichita taxpayers. This scheme was approved by Mayor Carl Brewer and all city council members except O’Donnell.

Even worse, the Douglas Place developers have no incentive to economize on the cost of the garage. In fact, they have incentives to make it cost even more.

Two paths for developer taxes

Recall that the garage is being paid for through two means. One is CIP, which is a cost to Wichita taxpayers. It doesn’t cost the Douglas Place developers anything except for their small quotal share of Wichita’s overall tax burden. In exchange for that, they get part of a parking garage paid for.

Flows of funds in regular and TIF development.
Flows of funds in regular and TIF development.
But the tax increment financing, or TIF, is different. Under TIF, the increased property taxes that Douglas Place will pay as the project is completed won’t go to fund the general operations of government. Instead, these taxes will go to pay back bonds that the city will issue to pay for part of the garage — a garage that benefits Douglas Place, and one that would not be built but for the Douglas Place plans.

Under TIF, the more the parking garage costs, the more Douglas Place property taxes are funneled back to it — taxes, remember, it has to pay anyway. (Since Douglas Place won’t own the garage, it doesn’t have to pay taxes on the value of the garage, so it’s not concerned about the taxable value of the garage increasing its tax bill.)

Most people and businesses have their property taxes go towards paying for public services like police protection, firemen, and schools. But TIF allows these property taxes to be used for a developer’s exclusive benefit. That leads to distortions.

Why would Douglas Place be interested in an expensive parking garage? Here are two reasons:

First, the more the garage costs, the more the hotel benefits from a fancier and nicer garage for its guests to park in. Remember, since the garage is paid for by property taxes on the hotel — taxes Douglas Place must pay in any case — there’s an incentive for the hotel to see these taxes used for its own benefit rather than used to pay for firemen, police officers, and schools.

Second, consider Key Construction, the planned builder of the garage under a no-bid contract. The more expensive the garage, the higher the profit for Key.

Now add in the fact that one of the partners in the Douglas Place project is a business entity known as Summit Holdings LLC, which is composed of David Wells, Kenneth Wells, Richard McCafferty, John Walker Jr., and Larry Gourley. All of these people are either owners of Key Construction or its executives. The more the garage costs, the higher the profit for these people. Remember, they’re not paying for the garage. City taxpayers are.

The sum of all this is a mechanism to funnel taxpayer funds, via tax increment financing, to Key Construction. The more the garage costs, the better for Douglas Place and Key Construction — and the worse for Wichita taxpayers.

Fueled by campaign contributions?

It’s no wonder Key Construction principals contributed $16,500 to Wichita Mayor Carl Brewer and five city council members during their most recent campaigns. Council Member Jeff Longwell (district 5, west and northwest Wichita) alone received $4,000 of that sum, and he also accepted another $2,000 from managing member David Burk and his wife.

This scheme — of which few people must be aware as it has not been reported anywhere but here — is a reason why Wichita and Kansas need pay-to-play laws. These laws impose restrictions on the activities of elected officials and the awarding of contracts.

An example is a charter provision of the city of Santa Ana, in Orange County, California, which states: “A councilmember shall not participate in, nor use his or her official position to influence, a decision of the City Council if it is reasonably foreseeable that the decision will have a material financial effect, apart from its effect on the public generally or a significant portion thereof, on a recent major campaign contributor.”

This project also shows why complicated financing schemes like tax increment financing need to be eliminated. Government intervention schemes like this turn the usual economic incentives upside down, and at taxpayer expense.

School choice and state spending on schools

States like Kansas that are struggling to balance budgets could use school choice programs as a way to save money.

When states consider implementing school choice programs, a common objection is that the state can’t afford school choice. Public school spending interest groups will tell legislators that school choice programs drain money from already under-funded public schools. School choice, they will say, is a luxury the state can’t afford, much less local school districts.

Research shows, however, that school choice programs can be constructed in a way that does not harm local school districts. Simply: A typical Kansas school district has variable costs of $8,709 per student. If such a district loses a student and associated funding, as long as that funding is less than $8,709, the district’s fiscal situation is improved. Base state aid in Kansas is $3,852, although state spending per student is $7,088 (2013 to 2014 school year). So it’s quite likely that any student who leaves a public school for any reason, including attending a private school or home school, improves the fiscal standing of the district, on a per student basis.

At the state level, a similar dynamic applies, although the reasoning is easier to follow: If the state funds that follow the child are less than average state spending per student, the state has the opportunity to save. The savings can be large, if states are willing to embrace choice programs.

Savings from school voucher programs, from Friedman Foundation for Educational Choice. Click for larger version.
Savings from school voucher programs, from Friedman Foundation for Educational Choice. Click for larger version.
In the report The School Voucher Audit: Do Publicly Funded Private School Choice Programs Save Money?, prepared for the Friedman Foundation for Educational Choice, the author finds that from 1991 to 2011, voucher programs alone have saved state governments a cumulative $1.7 billion. While representing just a small portion of total state spending, this total is from the ten states that had voucher programs in effect at the time of the study. In 2011 about 70,000 students were in these voucher programs.

The key understanding is that when student enrollment declines — for whatever reason — schools see reduced costs. For those who deny that, there is a corollary:

Opponents claim, simplistically, that school choice drains money from the public school system. That rhetoric obscures an important fact: A public school is also relieved of a cost burden for any student switching to private school. By not acknowledging such variable cost savings, opponents implicitly argue that all public school costs are “fixed.” By extension, they then conclude that the loss of funding for a student using a voucher to transfer to a private school harms all the remaining students at the affected public school. But that argument strains credulity: If there were no savings when a public school’s enrollment declines, logic dictates there would be no additional costs for schools when their enrollment grows.

It may be that costs do not decrease (or rise) smoothly as enrollment declines: “That phenomenon reflects the reality that schools must fund classrooms, not students.” Many businesses face this cost structure and are able to adapt, and it should be no different for schools.

An important note is that as students leave a school and its cost burden falls, the school must actually take steps to reduce spending in response to the reduced cost burden it experiences.

A problem is that critics of school choice may notice that no money has been saved after school choice programs are implemented. This is because “savings are typically reallocated to other spending, either directly or indirectly.” It is not uncommon for public schools to be held fiscally harmless for declining enrollments. The net effect is that public schools are paid for students that are no longer enrolled, and that absorbs the savings due to school choice. The cost savings are there; but are still spent on schools rather than spent elsewhere, saved, or returned to taxpayers.

In Kansas, resolving school district spending variances could yield savings

From Kansas Policy Institute.

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.

WichitaLiberty.TV: Mayor Carl Brewer’s State of the City address, and the Libertarian Mind

In this episode of WichitaLiberty.TV: We’ll take a look at a few things Wichita Mayor Carl Brewer told the city in his recent State of the City Address. Then a look at topics from a new book titled “The Libertarian Mind: A Manifesto for Freedom.” View below, or click here to view at YouTube. Episode 76, broadcast February 22, 2015.

Better outcomes at a better price in Johnson County

From Kansas Policy Institute.

Better outcomes at a better price in Johnson County:

USD 232 De Soto and USD 231 Gardner-Edgerton

By Dave Trabert

The most recent performance and spending records of Johnson County school districts serves as a good reminder that there is no relationship between high spending and high achievement. In fact, the two districts that spend the least happen to have the best outcomes on state assessments.

Students who read grade-appropriate material with full comprehension and usually perform accurately on all grade-level math tasks are best positioned for success in college and career. Disparate demographic compositions and achievement gaps distort districts’ average scores, so student cohorts must be separately compared. De Soto and Gardner-Edgerton have the highest and second-highest percentages of income-based cohorts attaining these levels in Reading and Math and also spend the least per-pupil on current operations (no capital or debt included).

The achievement gap for low income students is common across Kansas and there are also large variances in student body compositions across districts. For example, only 8.4% of Blue Valley students are considered low income (based on eligibility for free / reduced lunch) whereas as Shawnee Mission has 37.8% who qualify as low income; eligibility for free/reduced lunch is the official metric of “income” via the Kansas Department of Education. Blue Valley’s average score benefits from having very few low income students and masks the fact that other districts do as well or better on individual student groups.

De Soto’s and Gardner-Edgerton’s superior performance has great significance for taxpayers. In fact, if the other five Johnson County districts operated at the per-pupil cost of De Soto, the burden on taxpayers could be reduced by $127.1 million! Of course, while De Soto has the lowest operating cost per-student, that doesn’t mean that the district is efficient; savings across the county would be even greater if De Soto’s costs were reduced through consolidation of non-instruction services across district lines and other efficiency opportunities.

FY 2014 per-pupil spending for each Johnson County district is shown below by cost center. Click here to download these blog tables and per-pupil spending comparisons of all Johnson County school districts, showing how spending has changed since FY 2005.

STAR bonds in Kansas

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.

STAR bonds in Kansas. Click for larger version.
STAR bonds in Kansas. Click for larger version.
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.

It’s not just legislators that are holding these incongruous views. Secretary of Commerce Pat George promoted the STAR bonds program to legislators. Governor Sam Brownback supported the program.

When Brownback and a new, purportedly more conservative Kansas House took office, I wondered whether Kansas would pursue a business-friendly or capitalism-friendly path: “Plans for the Kansas Republican Party to make Kansas government more friendly to business run the risk of creating false, or crony capitalism instead of an environment of genuine growth opportunity for all business.” I quoted John Stossel:

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.

The problem

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.

Arnold King has written about the ability of government experts to decide what investments should be made with public funds. There’s a problem with knowledge and power:

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.

Kansas must get serious about spending

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.

Click to open this visualization in a new window.
Click to open this visualization in a new window.
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 Policy Institute has provided a plan for balancing the Kansas budget. It relies on structural changes and small improvements in efficiency.

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.”

The bill passed the House of Representatives by a vote of 79 to 40. It was referred to the Senate Committee on Federal and State Affairs, where it did not advance.

Privatization and public-private partnerships

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.

Then, there’s the warning that private industry pays less. Most of the time representatives of state workers like KOSE make the case that it is they who are underpaid, but here the argument is turned around when it supports the case they want to make. One thing is probably true: Benefits — at least pension plans — may be lower in the private sector. But we’re now painfully aware that state government has promised its workers more pension benefits than the state has been willing to fund.

Performance measures

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.

WichitaLiberty.TV: Kansas school employment and spending

In this excerpt from WichitaLiberty.TV: What is the trend in Kansas school employment? Then, what do citizens know about Kansas school spending? Finally, what did Milton Friedman have to say about private vs. government spending? View below, or click here to view at YouTube. Originally boradcast November 23, 2014.

Mentioned in this excerpt:
Are Kansas classroom sizes growing?, Kansans still uninformed on school spending, and Friedman: The fallacy of the welfare state

Kansas school funding controversy is about entitlement, not need

From Kansas Policy Institute.

School funding controversy is about entitlement, not need
By Dave Trabert

When every Johnson County school district qualifies as a property-poor district, you know you have a broken school funding formula … and a controversial claim based on entitlement.

The Kansas Legislature authorized $134 million in school funding this year in a good-faith effort to resolve the Supreme Court equity finding in Gannon v. State of Kansas. Most of the increase, $109 million –- was for Supplemental General State Aid (SGSA), which equalizes Local Option Budgets for property-poor districts.  The other $25 million was for equalization of Capital Outlay aid.

Kansas Judicial Center
Kansas Judicial Center
You wouldn’t know it from most media coverage, but the Supreme Court ruling on equity provides the Legislature with broad latitude in resolving wealth-based disparity, and does not require specific funding levels. “We agree that the infirmity can be cured in a variety of ways — at the choice of the legislature. And the legislature should have an opportunity to promptly cure. Any cure will be measured by determining whether it sufficiently reduces the unreasonable, wealth-based disparity so the disparity then becomes constitutionally acceptable, not whether the cure necessarily restores funding to the prior levels.

The Legislature didn’t have to increase SGSA in order to satisfy the Supreme Court ruling on LOB equity, but they did so anyway. The $109 million authorized was based on calculations from the Kansas State Department of Education, but KSDE underestimated the amount by which districts would increase their Local Option Budgets, and now school districts want another $36 million from taxpayers. Districts want this money because the formula says they are entitled to it. But there is ample evidence that more money is not needed, and now SB 71 has been introduced into Senate Ways and Means Committee to revise the equalization formula and eliminate the $36 million increase.

SB 71 is opposed by school districts, but it is a necessary fix to a broken formula and frankly, districts don’t need the extra money.

The intention of SGSA is to offset wealth-based disparity among school districts, but calculations from the Kansas Department of Education has the current formula allocating $54.8 million to districts in Johnson County –- the state’s wealthiest county. Every district in Johnson County is considered a “property-poor” district under the current formula, including Blue Valley, which may be the most affluent district in Kansas.

Johnson County schools are being subsidized by taxpayers in far less affluent parts of Kansas under the current formula. One additional mill of property tax levied in the Blue Valley district raises $2.3 million; one mill raises $2.9 in Shawnee Mission and $1.7 million in Olathe. But taxpayers in counties where one mill generates less than $50,000 are being asked to subsidize property-rich districts; those counties include Cheyenne, Clark, Edwards, Ellis, Gove, Gray, Greeley, Kearny, Kiowa, Lane, Logan, Ness, Reno, Rice, Rooks, Rush, Russell, Stafford, Thomas, Trego and Wallace. One or more districts in those counties are considered ineligible for equalization aid by the current formula, but those districts’ patrons are expected to subsidize urban districts in Johnson County, Sedgwick County, Shawnee County and Wyandotte County –- just to name a few.

On the issue of need, the K-12 Commission on Student Achievement and Efficiency heard testimony from school districts, regional service centers and others recently, confirming that school districts could operate much more efficiently. However, school districts made it very clear that they are strongly opposed to being required to make efficient use of taxpayer money. Legislative Post Audit also told the Commission that districts have not enacted many of their recommendations to reduce the cost of services.

There is also no need to increase equalization of Capital Outlay aid. The $25 million allocated for this year was based on Capital Outlay property taxes levied by school districts last year, but districts increased local property taxes even more, entitling them to $20 million more in Capital Outlay equalization. This is another example of a broken school funding formula, as it has nothing to do with need. School districts began this year with a record $434.9 million set aside for Capital projects. Capital Outlay reserves are completely separate from capital projects related to bond issues and have increased each year since 2005. Districts may feel entitled to even more money for capital projects but there is no need to further pump up their reserves.

The equalization system and the entire entitlement-based school funding system need to be replaced with a student-focused and taxpayer-focused perspective.

Judicial panel used cherry-picked data in Gannon decision

From Kansas Policy Institute.

Judicial panel used cherry-picked data in Gannon decision

By David Dorsey

(w)e conclude that the Kansas K-12 school finance formula still stands as constitutionally inadequate by its failure to assure and implement adequate funding to meet and sustain a constitutionally adequate education as a matter of sound expert opinion from those with relevant and reliable expertise and experience with the Kansas K-12 school system.(emphasis added)

Thus is the opinion, filed December 30, 2014, from the Shawnee County District Court three-judge panel as tasked by the Kansas Supreme Court pursuant to their decision in Gannon v. Kansas in March of 2014.

We reported in a previous KPI blog that the unspecified underfunding of K-12 public education in Kansas identified in this decision is at least $548 million. The judges based their opinion on several categories of adequacy they deemed relevant to the case. One such category in the decision is entitled Adequacy As A Matter Of Student Performance (pp. 20-48). The judges included as its linchpin evidence an interview with Kansas City, Kansas USD 500 superintendent Dr. Cynthia Lane. Dr. Lane provided testimony regarding how a federal grant enabled Emerson Elementary, a USD 500 school, to significantly increase student performance.

In short, Emerson Elementary is a small K-5 school. Several years ago, it gained notoriety for being declared the lowest performing elementary school in Kansas. As such, it was awarded a School Improvement Grant (SIG) from KSDE, authorized by the No Child Left Behind law. The school was given nearly $3 million over a three-year period (2010-11 to 2012-13 school years) to improve state assessment test scores. Dr. Lane testified that “fewer than 30 percent” of the students met state standards in math and reading prior to receiving the grant. According to demographic data published by KSDE, Emerson has about 95% economically disadvantaged students. While Dr. Lane testified that Emerson is ethnically “about 50 percent African American and about 48 percent Hispanic,” KSDE reported that the ethnic breakdown is about two-thirds Hispanic, one-quarter African American and less than 10% white. She told the court that over the life of the grant Emerson’s students performed “on both the reading and math state assessment to have more than 85 percent … meeting or exceeding expectations just in the last three years. It’s a remarkable story.”

Apparently the court agreed, afforded to say:

Given the continuing grade advancement and migration upwards of K-12 schoolers during their school careers, it seems but obvious that for educational advancement, much less the maintenance of results accomplished prior with the earlier funding initiatives implemented, but now abandoned, that the revenue streams which supported those results in that period of favorable funding needed to be continued to be provided in order to properly educate the continuing stream of new faces going forward, either initially entering the school system or advancing in grade. No evidence or proffer of evidence supports otherwise. (pp. 39-40, emphasis not added)

Translated: More money = greater student achievement, and there is no evidence to the contrary.

I will now proffer contrary evidence, a much less remarkable story that should have been proffered in the original court case: Northwest Middle School.

The same year Emerson Elementary was awarded its SIG, another USD 500 school, Northwest Middle School, was awarded a similar grant with a higher amount of $4.77 million. Northwest has similar minority and economically disadvantaged populations to Emerson Elementary (just over half African American and just over one-third Hispanic and 98% low income). But the outcomes pursuant to the SIG were very much dissimilar, indeed.

The following table and the accompanying graph show how Northwest Middle School scored on the state reading and math assessments for the three years prior to receiving the SIG and during the three-year implementation of the grant.

Northwest Middle school from KPI 2015-01

As the graphics show, achievement at Northwest had an uptick in both math and reading the first year of the grant, but then fell off dramatically the following two years. To put their performance in perspective the following graphs compare Northwest to Rosedale Middle School (the USD 500 school most comparable to Northwest according to KSDE) and the USD 500 district as a whole.

Northwest and Rosedale from KPI 2015-01

In reading, Northwest underperformed both Rosedale (which did not get a SIG) and the district as a whole both prior to and after receiving the grant. The trend and gap between Northwest and Rosedale remained amazingly consistent throughout this period. The picture in math is a little different. Northwest students maintained a slight advantage over Rosedale throughout the grant period and nearly eliminated the gap with the district as a whole. However, the overall trend is downward, with just over 40% of the Northwest middle schoolers proficient in math as of the last recorded state assessments.

It is safe to say that in terms of achievement, that $4.77 million granted to Northwest Middle School in Kansas City, Kansas didn’t buy much. This is evidence that, once again, more money does not inherently make a difference in student outcomes. This nationwide study conducted by the Heritage Foundation supports that contention. Even Kansas’s own Legislative Post Audit says in this report (p. 107) that a correlation between increased funding and increased outcomes is inconclusive.

As a 20-year teaching veteran, I know it’s not the money that makes a difference in student achievement. It’s commitment by students, parents, teachers, principals and administrators to make it happen. Trying to quantify that in dollar terms is a fool’s errand. If the increase in education funding prescribed in the most recent Gannon decision were to become a reality, it would mean a nice raise for teachers and likely more administrators, but student outcomes would remain flat and achievement gaps would continue. Think of it as Montoy redux.

Clearly, the judges got it wrong. Let’s hope their decision gets overturned on appeal and an end is put to this seemingly endless carousel of education funding lawsuits. The citizens of Kansas deserve better.

The philosophy and research supporting at-risk funding

From Kansas Policy Institute.

The philosophy and research supporting at-risk funding –- second in a series
By David Dorsey, Kansas Policy Institute

As I discussed in the first blog in this series, the state of Kansas provides almost $400 million additionally each year for at-risk funding to K-12 education. But what is the philosophy behind spending more taxpayer dollars to educate economically disadvantaged students? What does the research say? And how have states responded in their particular “at-risk” funding formulas? In this blog I will briefly answer address these questions.

It may sound like a dumb question, but why is it that it should cost more to adequately educate students who are disadvantaged? Sure, it seems intuitive, but where did that idea start and where is the research to back it up?

The genesis of the premise that it costs more to adequately educate the economically disadvantaged comes from a 1969 article in theNational Tax Journal by three economists who attempted to explain why the cost of all local public services was outpacing inflation in post-World War II America. (Sidebar: their article is proof that the concern over rapidly expanding government spending is not a recent phenomenon.) The researchers suggested that differing costs for public service across jurisdictions could partially be explained by environmental factors. Specifically regarding education, they say that outcomes might be a function of “the ‘basic intelligence’ of pupils, home backgrounds and neighborhood conditions.” That seems to be the phrase subsequent researchers have locked onto to justify the need for what has become commonly known as at-risk funding.

Many studies since then, including this 1997 study and this one from 2004, focused on spending disparities and “outcome” disparities among school districts within states. Again, without getting too “wonky,” studies showed school districts that were property poor, and as a parallel had lower per pupil spending (since school financing is primarily a function of property values), had lower outcomes than their counterparts with higher property values. And of course, those property poor districts had a disproportionate share of low income families/students. Therefore, the studies concluded that poor school districts needed more money to bring their students up to an acceptable minimum outcome standard. Researchers typically defined outcome as an index of a combination of standardized test scores and other indicators such as graduation rates.

But these studies have remained academic exercises. Even though it is now a given that poor students require more money to reach a given outcome, most states now have some form of additional funding based on economic status of students. However, the amounts states have allocated are all less than the research concludes are necessary.

Yes, politics and budget constraints trump academia.

The Kansas At-Risk Timeline

In 1992 a new law entitled the School District Finance and Quality Performance Act included a 5% weighting for students who qualified for free school lunch. That percentage was increased to 6.5% in 1997 and increased seven more times in the next decade to its current level of 45.6%. In 2006, two more categories of at risk were added. One was for schools with high percentages of at risk populations and/or an enrollment density of at least 212.1 students per square mile. The other additional category targeted money for students non-proficient in math and reading, but not eligible for a free lunch. (The non-proficient category was eliminated in 2014.) In dollar terms, the 5% in 1992 generated just over $13 million. That amount is now nearly $400 million.

The situation in Kansas is not dissimilar to those in other states. At least 35 states have a mechanism for additional funding generated by economically disadvantaged students. Most of them use some variation of the number of students who qualify for free OR free or reduced lunches through the National School Lunch Program (NSLP). NSLP has been the choice because it is an expedient and convenient proxy for determining economically disadvantaged students since qualification for free/reduced lunches is predominantly income based. And like Kansas many have weight values that are not static. A 2004 study out of the University of Wisconsin reports that nationwide the weights range from 15% in Vermont to 62.5% in Illinois, while a presentation last year to the Nevada state legislature showed a low of 9.15% in New Mexico to 180.0% in Georgia. The thing to keep in mind here is that it is nearly impossible to compare Kansas to other states because not all states use the same definition of disadvantaged and some use multiple factors to determine additional spending.

So how did Kansas go from a relatively modest 5% at-risk weighting in 1992 to a hefty 45.6% (with two additional categories) by 2006? That is the topic of the next blog.

Next: The political history of at-risk funding in Kansas

A Kansas calamity, at $15,399 per pupil

If things are so bad in Kansas schools at this level of spending, will any amount of spending satisfy school districts?

The Washington Post has presented a letter written by a schoolteacher in Wamego. Reading it, one might be excused for concluding that a massive calamity has befallen Kansas and Wamego specifically.

The letter is full of complaints: “Resources and staff are limited.” “Due to budget cuts, again, we are not able to have a full-time librarian, art teacher, technology teacher or music teacher.” “Schools are already struggling because of underfunding so adding more fiscal responsibility will only further cut programs.”

Click for larger version.
Click for larger version.
Given these complaints, we might look at the statistics for this district. Total spending for the school year that ended in 2014 was $15,399 per pupil. That’s lower than 2009, when spending was $16,154 (inflation-adjusted dollars). Spending in 2014 was up from the year before. See Kansas school teacher cuts, student ratios.

Spending supported by the state was $7,359 last year, down from $8,609 in 2009 (inflation-adjusted).

School Employment, USD 320 WamegoEmployment in this district has risen. Both the number of teachers and the number of certified employees is much higher than the 2009 — 2011 years. Correspondingly, the ratios of these employees to students has declined since then, although the pupil-teacher ratio has risen the past two years. See Kansas school spending visualization updated.

School Employment ratios, USD 320 WamegoThis school district has one certified employee for every eight pupils.

So: Some numbers are up, others are down, and some mostly unchanged. Taxpayers have to wonder, though: If a school district receives well over $15,000 per pupil each year, how much more does it want?

For Kansas schools, a share of your income is the standard

If Kansas personal income rises but the school spending establishment doesn’t get its cut, something is wrong, they say.

A publication by KASB is titled “Despite increases, share of Kansans’ incomes spent on public schools is at a 30-year low.”

In the document, KASB, the Kansas Association of School Boards, states: “According to new reports released by state agencies, total funding for Kansas school districts will exceed $6 billion for the first time this year. However, when compared to the total income of all Kansans, school spending will be at the lowest level in at least 30 years.”

This is not the first time KASB has made this argument. It’s a curious and ultimately spurious argument, that even though more will be spent on Kansas schools this year, it’s still not enough, as Kansan’s incomes rose faster than school spending.

Can we list the reasons why this argument is illogical?

1. What if Kansas income declined? Would KASB then call for reducing school spending to match? Not likely.

2. What if the number of students declined? Would KASB then be satisfied with spending less of our income on public schools? I don’t think so.

3. What if Kansans decided to spend more on private education rather than public education? Would KASB be satisfied if the total spent on education remained constant? Not likely, as KASB is only concerned about public education. Money spent on private education, in fact, is viewed by KASB as money that should have been spent on public schools.

Another indication of the perversity of this argument is that spending less of a share of our income to obtain a product or service is usually viewed as an advancement, not a situation to be cured. For example in 1929, American households spent 23.4 percent of disposable personal income on food. In 2013 it was 9.8 percent. This is a good thing. We have to work less in order to feed ourselves.

But to the Kansas school spending establishment, that’s not the way the world should work. If personal income rises, so too should Kansas school spending, they say. This is the entitlement society at work. When KASB writes “Kansas are spending less of their income to fund public education” it’s not meant as a sign of advancement. Instead, it is the Kansas school spending establishment complaining that it isn’t getting its share.

It’s a risky argument to make. Many Kansans are concerned that school spending rises while the quality of education falls. Kansas school vigorously oppose any sort of market-based reforms to Kansas education, such as school choice or treating teachers like private-sector employees are treated.

Now, Kansas schools argue that if hard-working Kansans increase their income, schools should get their cut too.

Effect of federal grants on future local taxes

Grants.gov logo“Nothing is so permanent as a temporary government program.” — Nobel Laureate Milton Friedman

Is this true? Do federal grants cause state and/or local tax increases in the future after the government grant ends? Economists Russell S. Sobel and George R. Crowley have examined the evidence, and they find the answer is yes.

The research paper is titled Do Intergovernmental Grants Create Ratchets in State and Local Taxes? Testing the Friedman-Sanford Hypothesis.

The difference between this research and most other is that Sobel and Crowley look at the impact of federal grants on state and local tax policy in future periods.

This is important because, in their words, “Federal grants often result in states creating new programs and hiring new employees, and when the federal funding for that specific purpose is discontinued, these new state programs must either be discontinued or financed through increases in state own source taxes.”

The authors caution: “Far from always being an unintended consequence, some federal grants are made with the intention that states will pick up funding the program in the future.”

The conclusion to their research paper states:

Our results clearly demonstrate that grant funding to state and local governments results in higher own source revenue and taxes in the future to support the programs initiated with the federal grant monies. Our results are consistent with Friedman’s quote regarding the permanence of temporary government programs started through grant funding, as well as South Carolina Governor Mark Sanford’s reasoning for trying to deny some federal stimulus monies for his state due to the future tax implications. Most importantly, our results suggest that the recent large increase in federal grants to state and local governments that has occurred as part of the American Recovery and Reinvestment Act (ARRA) will have significant future tax implications at the state and local level as these governments raise revenue to continue these newly funded programs into the future. Federal grants to state and local governments have risen from $461 billion in 2008 to $654 billion in 2010. Based on our estimates, future state taxes will rise by between 33 and 42 cents for every dollar in federal grants states received today, while local revenues will rise by between 23 and 46 cents for every dollar in federal (or state) grants received today. Using our estimates, this increase of $200 billion in federal grants will eventually result in roughly $80 billion in future state and local tax and own source revenue increases. This suggests the true cost of fiscal stimulus is underestimated when the costs of future state and local tax increases are overlooked.

So: Not only are we taxed to pay for the cost of funding federal and state grants, the units of government that receive grants are very likely to raise their own levels of taxation in response to the receipt of the grants. This is a cycle of ever-expanding government that needs to end, and right now.

An introduction to the paper is Do Intergovernmental Grants Create Ratchets in State and Local Taxes?.

Wichita school district checkbook updated

writing checkData now available through November 2014.

USD 259, the Wichita public school district, makes its monthly checkbook register available. I’ve gathered the monthly spreadsheets made the consolidated available for analysis through Tableau Public.

The workbook (click here to open it in a new window) has a number of tabs, each showing the same data organized and summarized in a different way.

There are some caveats. First, not all school district spending is in this database. For each year, the total of the checks is in the neighborhood of $350 million, while the total spending for USD 259 is over $600 million. So there’s spending that isn’t included in this checkbook data.

Second, there are suppliers such as “Commerce Bank Visa BusinessCard.” Payments made to this supplier are over $7 million per year. These payments from the district’s checkbook undoubtedly pay a credit card bill, and this alone doesn’t let us know what the $7 million was spent on.

wichita-school-checkbook-data-quality-exampleThere are some data quality issues, as seen nearby.

USD 259 supplies this advice with this data: “The information you find may cause you to ask more questions. If so, the person to contact is Wichita Public School’s Controller, Barbara Phillips. She can be reached at (316) 973-4628, or at bphillips@usd259.net.”

Using the Wichita school district visualization
Using the Wichita school district visualization

At risk school funding in Kansas

From Kansas Policy Institute.

At Risk School Funding 101

by David Dorsey

Note: this is the first blog in a series on the issue of at risk funding and accompanies a comprehensive KPI at risk research project.

Funding for public schools is a complicated proposition.

There are many factors that go into determining just how much money school districts will receive and where it will come from every year from state and local sources. There are property taxes, state equalization, local options, and so many more considerations that it takes 93 columns on the master spreadsheet used by the Kansas Department of Education to sort it all out! And that doesn’t even count federal money.

One piece of this funding puzzle is the “weighting” formula the state uses to adjust (increase) the amount of money that will go to each district based on certain characteristics of a) students (e.g. the number in vocational education) and b) the district (e.g. low or high enrollment). I presented the weighting formula in an earlier blog where you can see the formula in its entirety.

One part of that formula determines how much extra money goes to districts under the banner of “at risk.” So what is this at risk funding? It provides extra dollars to schools based on the number of economically disadvantaged students enrolled. It is rooted in a philosophy, and research has attempted to support, that it costs more to adequately educate poor students. That ideal is operationalized (quantified) by using the number of students who qualify for free lunch under the United States Department of Agriculture’s National School Lunch Program (NSLP). Some states also include the number of students who qualify for reduced lunch cost under NSLP. Nearly all states use the school lunch program in some form as a basis for determining their versions of at risk population.

This graphic shows how it works under current Kansas law. Base state aid per pupil (BSAPP) is $3,852. A student who qualifies for a free lunch is presently weighted at anadditional 45.6% of BSAPP and generates $5,609. (I say presently because at risk weightings have increased over time — more on that in the next blog.) Additionally, if more than half the students in a district are free lunch students a supplementary 10.5% weighting is added ($6,013). Currently, that applies to 57 of the state’s 286 school districts. One hundred four districts get a smaller, sliding scale additional percentage because they have between 35% and 50% at-risk students (more than $5,609 but less than $6,013). One hundred twenty five districts get no additional at risk money. Then, in order to determine the exact dollar amount a district will receive, the total weighted percentage is multiplied by the current BSAPP ($3,852 per pupil for 2015).

I told you it’s complicated.

Coincidentally, it is actually simpler than previous years because the legislature passed a law that eliminated a small at risk category in the 2014 session.

To show exactly how free lunch turns into at risk dollars, I present the following table that shows at risk funding for seven selected school districts that reveals the funding impact at risk dollars can have.

At risk data for selected districts, 2014-2015, from Kansas Policy Institute

Wichita, by far the biggest school district in the state, gets over $72 million per year. Pittsburg and Hays have virtually identical enrollments, but Pittsburg gets nearly $2.3 million more at risk money than Hays because Pittsburg has nearly twice the number of free lunch students, but more than twice as many weighted free lunch students. For the entire state the total at risk funding is just over $395 million.

That’s a lot of money, even in government terms.

One of the core issues associated with at risk funding is how it impacts student achievement, especially in light of the numerous and significant increases in at risk funding over the years (to be presented in the next blog). We will examine in depth what previous KPI research has shown to have limited positive effect.

Next: How did we get here? A look at the research and realities of additional funding for educating the economically disadvantaged.

Wichita schools seek to rebrand

While poormouthing and suing taxpayers for more money, the Wichita school district wants to spend on a rebranding and marketing campaign.

The idea that a government agency needs to market itself illustrates a few inconsistencies, as shown below. But spending any money on this effort shows that the district leadership is a little out of touch with the taxpayers.

First, taxpayers are being sued for more money by a collection of Kansas school districts, including the Wichita district. So the district is using taxpayer money to extract more taxpayer money, and now it wants to spend more taxpayer money to tell taxpayers how wonderful it is.

Second, school districts continually say how spending has been “cut to the bone,” and that there is nowhere else to cut. But, there is money to spend for marketing.

The article quoted Wendy Johnson, director of marketing and communications for the Wichita district: “For people who suggest that we need to operate like a business and employ business strategies: Businesses tune into their customers, do market research, are active listeners all the time.” (Wichita school board to consider hiring marketing firm, rebranding district; Wichita Eagle, January 11, 2015)

First of all, the Wichita school district is not an “active listener.” If you say what the district wants to hear, yes. But the district is not welcoming to those with a different opinion. A notable example comes from 2012 when Betty Arnold was board president. At a meeting, citizens had criticized the board for large and important issues, but also for such mundane things as the amount of the superintendent’s monthly car allowance. Arnold admonished citizens for speaking about things like this in public. It’s not respectful, she said. Finally, after directing a uniformed security guard to station himself near a citizen speaker, Arnold told the audience: “If we need to clear the room, we will clear the room. This board meeting is being held in public, but it is not for the public, or of the public. And I hope you understand that.”

The idea that the Wichita school district is in any way like a business is laughable.

Most businesses do not have laws that force customers to use their products and services. (Mandatory attendance laws.)

Most businesses are not able to force people to pay them even if people do not use their service. Even people who pay to send their children to private schools must still pay the public schools. (Schools are funded by taxes.)

Businesses are not able to decide whether to allow new competitors. (Usually this is the case. Some states have laws that allow existing companies like movers decide whether new moving companies should be allowed to form.)

The article mentioned charter schools as a source of competition for the Wichita school district. But the district must approve the formation of any charter schools within its boundaries. Anyone who investigates would soon realize that the Wichita school district has no intent of allowing charter schools.

If the Wichita school district wanted to experience a little bit of the competition for customers that business face — competition which would improve the district — it could signal its awareness to approve charter school applications. That would do more to improve the experience for Wichita schoolchildren than any marketing message.

Ratios of teachers and employees to students have fallen in the Wichita school district.
Ratios of teachers and employees to students have fallen in the Wichita school district.

Year in Review: 2014

Here is a sampling of stories from Voice for Liberty in 2014.

January

A transparency agenda for Wichita
Kansas has a weak open records law, and Wichita doesn’t want to follow the law, as weak as it is. But with a simple change of attitude towards open government and citizens’ right to know, Wichita could live up to the goals its leaders have set.

New York Times on Kansas schools, again
The New York Times — again — intervenes in Kansas schools. As it did last October, the newspaper makes serious errors in its facts and recommendations.

Visit Wichita, and pay a tourism fee
The Wichita City Council will consider adding a 2.75 percent tax to hotel bills, calling it a “City Tourism Fee.” Welcome to Wichita!

Wichita’s growth in gross domestic product
Compared to peer areas, Wichita’s record of growth in gross domestic product is similar to that of job creation: Wichita performs poorly.

The death penalty in Kansas, a conservative view
What should the attitude of conservatives be regarding the death penalty? Ben Jones of Conservatives Concerned about the Death Penalty spoke on the topic “Capital Punishment in Kansas from a conservative perspective: Is it a failed policy?”

Kansas school test scores, the subgroups
To understand Kansas school test scores, look at subgroups. Sometimes Kansas ranks very well among the states. In other instances, Kansas ranks much lower, even below the national average. It’s important for Kansans — be they citizens, schoolchildren, parents, education professionals, or (especially) politicians of any party — to understand these scores.

The state of Wichita, 2014
Wichita Mayor Carl Brewer delivered the annual State of the City address. He said a few things that deserve discussion.

February

In Wichita, why do some pay taxes, and others don’t?
A request by a luxury development in downtown Wichita raises issues, for example, why do we have to pay taxes?

Wichita considers policy to rein in council’s bad behavior
he Wichita City Council considers a policy designed to squelch the council’s ability to issue no-bid contracts for city projects. This policy is necessary to counter the past bad behavior of Wichita Mayor Carl Brewer and several council members, as well as their inability to police themselves regarding matters of ethical behavior by government officials.

Our Kansas grassroots teachers union
Letters to the editor in your hometown newspaper may have the air of being written by a concerned parent of Kansas schoolchildren, but they might not be what they seem.

Wichita’s legislative agenda favors government, not citizens
This week the Wichita City Council will consider its legislative agenda. This document contains many items that are contrary to economic freedom, capitalism, limited government, and individual liberty. Yet, Wichitans pay taxes to have someone in Topeka promote this agenda.

Wichita planning documents hold sobering numbers
The documents hold information that ought to make Wichitans think, and think hard. The amounts of money involved are large, and portions represent deferred maintenance. That is, the city has not been taking care of the assets that taxpayers have paid for.

In Wichita, citizens want more transparency in city government
In a videographed meeting that is part of a comprehensive planning process, Wichitans openly question the process, repeatedly asking for an end to cronyism and secrecy at city hall.

March

Special interests struggle to keep special tax treatment
When a legislature is willing to grant special tax treatment, it sets up a battle to keep — or obtain — that status. Once a special class acquires preferential treatment, others will seek it too.

In Wichita, West Bank apartments seem to violate ordinance
Last year the Wichita City Council selected a development team to build apartments on the West Bank of the Arkansas River, between Douglas Avenue and Second Street. But city leaders may have overlooked a Wichita City Charter Ordinance that sets aside this land to be “open space, committed to use for the purpose of public recreation and enjoyment.”

In Wichita, pushing back at union protests
A Wichita automobile dealer is pushing back at a labor union that’s accusing the dealer of unfair labor practices.

Wichita City Council to consider entrenching power of special interest groups
The Wichita City Council will consider a resolution in support of the status quo for city elections. Which is to say, the council will likely express its support for special interest groups whose goals are in conflict with the wellbeing of the public.

State employment visualizations
There’s been dueling claims and controversy over employment figures in Kansas and our state’s performance relative to others. I present the actual data in interactive visualizations that you can use to make up your own mind.

State and local government employment levels vary
The states vary widely in levels of state government and local government employees, calculated on a per-person basis. Only ten states have total government employee payroll costs greater than Kansas, on a per-person basis.

April

Wichita not good for small business
When it comes to having good conditions to support small businesses, well, Wichita isn’t exactly at the top of the list, according to a new ranking from The Business Journals.

Cronyism is welfare for rich and powerful, writes Charles G. Koch
“The central belief and fatal conceit of the current administration is that you are incapable of running your own life, but those in power are capable of running it for you. This is the essence of big government and collectivism,” writes Charles G. Koch in the Wall Street Journal.

Rich States, Poor States for 2014 released
In the 2014 edition of Rich States, Poor States, Utah continues its streak at the top of Economic Outlook Ranking, meaning that the state is poised for growth and prosperity. Kansas continues with middle-of-the-pack performance rankings, and fell in the forward-looking forecast.

Wichita develops plans to make up for past planning mistakes
On several issues, including street maintenance, water supply, and economic development, Wichita government and civic leaders have let our city fall behind. Now they ask for your support for future plans to correct these mistakes in past plans.

May

Poll: Wichitans don’t want sales tax increase
According to a newly released poll from Kansas Policy Institute, Wichitans may want more jobs and a secure water source but they certainly don’t support a sales tax increase as the means to get either. Reporting on this poll is available in these articles: In Wichita, opinion of city spending consistent across party and ideology, Few Wichitans support taxation for economic development subsidies, Wichitans willing to fund basics, and To fund government, Wichitans prefer alternatives to raising taxes.

Contrary to officials, Wichita has many incentive programs
Wichita government leaders complain that Wichita can’t compete in economic development with other cities and states because the budget for incentives is too small. But when making this argument, these officials don’t include all incentives that are available.

In Wichita, the streetside seating is illuminated very well
Wichita city leaders tell us that the budget and spending have been cut to the bone. Except for the waste, that is.

Wichita seeks to form entertainment district
A proposed entertainment district in Old Town Wichita benefits a concentrated area but spreads costs across everyone while creating potential for abuse.

In Wichita, capitalism doesn’t work, until it works
Attitudes of Wichita government leaders towards capitalism reveal a lack of understanding. Is only a government-owned hotel able to make capital improvements?

Wichita, again, fails at government transparency
At a time when Wichita city hall needs to cultivate the trust of citizens, another incident illustrates the entrenched attitude of the city towards its citizens. Despite the proclamations of the mayor and manager, the city needs a change of attitude towards government transparency and citizens’ right to know.

Wichita per capita income not moving in a good direction
Despite its problematic nature, per capita income in Wichita is used as a benchmark for the economy. It’s not moving in the right direction. As Wichita plans its future, leaders need to recognize and understand its recent history.

Uber, not for Wichita
A novel transportation service worked well for me on a recent trip to Washington, but Wichita doesn’t seem ready to embrace such innovation.

For Kansas’ Roberts, an election year conversion?
A group of like-minded Republican senators has apparently lost a member. Is the conservative voting streak by Pat Roberts an election year conversion, or just a passing fad?

June

Wichita property taxes compared
An ongoing study reveals that generally, property taxes on commercial and industrial property in Wichita are high. In particular, taxes on commercial property in Wichita are among the highest in the nation.

Government employee costs in the states
The states vary widely in levels of state government and local government employees and payroll costs, calculated on a per-person basis. Kansas ranks high in these costs, nationally and among nearby states.

With new tax exemptions, what is the message Wichita sends to existing landlords?
As the City of Wichita prepares to grant special tax status to another new industrial building, existing landlords must be wondering why they struggle to stay in business when city hall sets up subsidized competitors with new buildings and a large cost advantage.

Wichita city council schools citizens on civic involvement
Proceedings of a recent Wichita City Council meeting are instructive of the factors citizens should consider if they want to interact with the council and city government at a public hearing.

Forget the vampires. Let’s tackle the real monsters.
Public service announcements on Facebook and Wichita City Channel 7 urge Wichitans to take steps to stop “vampire” power waste. But before hectoring people to introduce inconvenience to their lives in order to save small amounts of electricity, the city should tackle the real monsters of its own creation.

July

Wichita property taxes rise again
The City of Wichita is fond of saying that it hasn’t raised its mill levy in many years. But the mill levy has risen in recent years.

For Wichita leaders, novel alternatives on water not welcome
A forum on water issues featured a presentation by Wichita city officials and was attended by other city officials, but the city missed a learning opportunity.

For Wichita’s new water supply, debt is suddenly bad
Wichita city leaders are telling us we need to spend a lot of money for a new water source. For some reason, debt has now become a dirty word.

Pat Roberts, senator for corporate welfare
Two years ago United States Senator Pat Roberts voted in committee with liberals like John Kerry, Chuck Schumer, and Debbie Stabenow to pass a bill loaded with wasteful corporate welfare.

August

Charles Koch: How to really turn the economy around
Writing in USA Today, Charles Koch offers insight into why our economy is sluggish, and how to make a positive change.

Wichita airport statistics updated
As the Wichita City Council prepares to authorize funding for Southwest Airlines, it’s worth taking a look at updated statistics regarding the airport.

Wichita sales tax hike would hit low income families hardest
Analysis of household expenditure data shows that a proposed sales tax in Wichita affects low income families in greatest proportion, confirming the regressive nature of sales taxes.

Welcome back, Gidget
Gidget stepped away for a few months, but happily she is back writing about Kansas politics at Kansas GOP Insider (wannabe).

September

Wichita planning results in delay, waste
Wichita plans an ambitious road project that turns out to be too expensive, resulting in continued delays for Wichita drivers and purchases of land that may not be needed.

‘Transforming Wichita’ a reminder of the value of government promises
When Wichita voters weigh the plausibility of the city’s plans for spending proposed new sales tax revenue, they should remember this is not the first time the city has promised results and accountability.

Fact-checking Yes Wichita: NetApp incentives
In making the case that economic development incentives are necessary and successful in creating jobs, a Wichita campaign overlooks the really big picture.

Arrival of Uber a pivotal moment for Wichita
Now that Uber has started service in Wichita, the city faces a decision. Will Wichita move into the future by embracing Uber, or remain stuck in the past?

Fact-checking Yes Wichita: Boeing incentives
The claim that the “city never gave Boeing incentives” will come as news to the Wichita city officials who dished out over $600 million in subsidies and incentives to the company.

Beechcraft incentives a teachable moment for Wichita
The case of Beechcraft and economic development incentives holds several lessons as Wichita considers a new tax with a portion devoted to incentives.

For Kansas budget, balance is attainable
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.

To Wichita, a promise to wisely invest if sales tax passes
Claims of a reformed economic development process if Wichita voters approve a sales tax must be evaluated in light of past practice and the sameness of the people in charge. If these leaders are truly interested in reforming Wichita’s economic development machinery and processes, they could have started years ago using the generous incentives we already have.

For Wichita Chamber’s expert, no negatives to economic development incentives
An expert in economic development sponsored by the Wichita Metro Chamber of Commerce tells Wichita there are no studies showing that incentives don’t work.

Water, economic development discussed in Wichita
Dr. Art Hall, Executive Director of the Center for Applied Economics at the University of Kansas School of Business, presented his “Thoughts on Water and Economic Development” at the Wichita Pachyderm Club Friday, September 19, 2014

Stuck in the box in Wichita, part one
To pay for a new water supply, Wichita gives voters two choices and portrays one as bad. But the purportedly bad choice is the same choice the city made over the last decade to pay for the last big water project. We need out-of-the-box thinking here.

October

Kansas economy has been underperforming
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.

Union Station TIF provides lessons for Wichita voters
A proposed downtown Wichita development deserves more scrutiny than it has received, as it provides a window into the city’s economic development practice that voters should peek through as they consider voting for the Wichita sales tax.

A simple step towards government transparency in Wichita
Kansas law requires publication of certain notices in newspapers, but cities like Wichita could also make them available in other ways that are easier to use.

While Wichita asks for new taxes, it continues to spend and borrow
The City of Wichita says it doesn’t have enough revenue for things like street maintenance and transit, but continues to borrow for spending on new projects.

Wichita debt levels seen to rise
As part of the campaign for a proposed Wichita sales tax, the city says that debt is bad. But actions the city has taken have caused debt levels to rise, and projections are for further increases.

For Wichita, another economic development plan
The Wichita City Council will consider a proposal from a consultant to “facilitate a community conversation for the creation of a new economic development diversification plan for the greater Wichita region.” Haven’t we been down this road before?

In Wichita, pro-sales tax campaign group uses sales tax-exempt building as headquarters
While “Yes Wichita” campaigns for higher sales taxes, it operates from a building that received a special exemption from paying sales tax.

For Wichita Chamber of Commerce chair, it’s sales tax for you, but not for me
A Wichita company CEO applied for a sales tax exemption. Now as chair of the Wichita Metro Chamber of Commerce, he wants you to pay more sales tax, even on the food you buy in grocery stores.

Should Wichita expand a water system that is still in commissioning stage?
Should we be concerned about rushing a decision to expand a water production system that has not yet proven itself?

Wichita sends educational mailer to non-Wichitans, using Wichita taxes
Why is the City of Wichita spending taxpayer money mailing to voters who don’t live in the city and can’t vote on the issue?

Wichita to consider tax exemptions
A Wichita company asks for property and sales tax exemptions on the same day Wichita voters decide whether to increase the sales tax, including the tax on groceries.

November

In election coverage, The Wichita Eagle has fallen short
Citizens want to trust their hometown newspaper as a reliable source of information. The Wichita Eagle has not only fallen short of this goal, it seems to have abandoned it.

Kansas school spending visualization updated
There’s new data available from Kansas State Department of Education on school spending. I’ve gathered the data, adjusted it for the consumer price index, and now present it in this interactive visualization.

In Kansas, school employment rises again
For the fourth consecutive year, the number of teachers in Kansas public schools has risen faster than enrollment, leading to declining pupil-teacher ratios.

Richard Ranzau, slayer of cronyism
In Sedgwick County, an unlikely hero emerges in the battle for capitalism over cronyism.

Kansans still uninformed on school spending
As in the past, a survey finds Kansans are uninformed or misinformed on the level of school spending, and also on the direction of its change.

In Kansas, voters want government to concentrate on efficiency and core services before asking for taxes
A survey of Kansas voters finds that Kansas believe government is not operating efficiently. They also believe government should pursue efficiency savings, focus on core functions, and spend unnecessary cash reserves before cutting services or raising taxes.

Kansas cities should not unilaterally grant tax breaks
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.

City of Wichita State Legislative Agenda: Cultural Arts Districts
Wichita government spending on economic development leads to imagined problems that require government intervention and more taxpayer contribution to resolve. The cycle of organic rebirth of cities is then replaced with bureaucratic management.

December

City of Wichita State Legislative Agenda: Airfares
The City of Wichita’s legislative agenda regarding the Affordable Airfares subsidy program seems to be based on data not supported by facts.

Options for funding Wichita’s future water supply
Now that the proposed Wichita sales tax has failed, how should Wichita pay for a future water supply?

KU records request seen as political attack
A request for correspondence belonging to a Kansas University faculty member is a blatant attempt to squelch academic freedom and free speech.

Why is this man smiling?
In Wichita, the chair of the Wichita Metro Chamber of Commerce crafts a sweetheart deal for his company to the detriment of Wichita taxpayers.

Wichita Metro Chamber of Commerce: What is the attitude towards taxes?
Does the Wichita Metro Chamber of Commerce support free markets, capitalism, and economic freedom, or something else?

Will the next Wichita mayor advocate enforcing our ethics laws?
Wichita has laws that seem clear. But the city attorney said they don’t mean what they seem to say. Will our next mayor stand up for ethics?

Campaign contribution stacking in Wichita
Those seeking favors from Wichita City Hall use campaign contribution stacking to bypass contribution limits. This has paid off handsomely for them, and has harmed everyone else.

Economic development in Wichita: Looking beyond the immediate
Decisions on economic development initiatives in Wichita are made based on “stage one” thinking, failing to look beyond what is immediate and obvious.

Economic development in Sedgwick County
The issue of awarding an economic development incentive reveals much as to why the Wichita-area economy has not grown.

Research on economic development incentives

As Wichita considers how to grow its economy, its reliance on targeted economic development incentives should be guided by research, not the grandstanding of politicians and bureaucrats.

symbols-going-upwardsHere’s a summary of the peer-reviewed academic research that examines the local impact of targeted tax incentives from an empirical point of view. “Peer-reviewed” means these studies were stripped of identification of authorship and then subjected to critique by other economists, and were able to pass that review.

Ambrosius (1989). National study of development incentives, 1969 — 1985.
Finding: No evidence of incentive impact on manufacturing value-added or unemployment, thus suggesting that tax incentives were ineffective.

Trogan (1999). National study of state economic growth and development programs, 1979 — 1995.
Finding: General fiscal policy found to be mildly effective, while targeted incentives reduced economic performance (as measured by per capita income).

Gabe and Kraybill (2002). 366 Ohio firms, 1993 — 1995.
Finding: Small reduction in employment by businesses which received Ohio’s tax incentives.

Fox and Murray (2004). Panel study of impacts of entry by 109 large firms in the 1980s.
Finding: No evidence of large firm impacts on local economy.

Edmiston (2004). Panel study of large firm entrance in Georgia, 1984 — 1998
Finding: Employment impact of large firms is less than gross job creation (by about 70%), and thus tax incentives are unlikely to be efficacious.

Hicks (2004). Panel study of gaming casinos in 15 counties (matched to 15 non-gambling counties).
Finding: No employment or income impacts associated with the opening of a large gambling facility. There is significant employment adjustment across industries.

LaFaive and Hicks (2005). Panel study of Michigan’s MEGA tax incentives, 1995 — 2004.
Finding: Tax incentives had no impact on targeted industries (wholesale and manufacturing), but did lead to a transient increase in construction employment at the cost of roughly $125,000 per job.

Hicks (2007a). Panel study of California’s EDA grants to Wal-Mart in the 1990s.
Finding: The receipt of a grant did increase the likelihood that Wal-Mart would locate within a county (about $1.2 million generated a 1% increase in the probability a county would receive a new Wal-Mart), but this had no effect on retail employment overall.

Hicks (2007b). Panel study of entry by large retailer (Cabela’s).
Finding: No permanent employment increase across a quasi-experimental panel of all Cabela’s stores from 1998 to 2003.

(Based on Figure 8.1: Empirical Studies of Large Firm Impacts and Tax Incentive Efficacy, in Unleashing Capitalism: Why Prosperity Stops at the West Virginia Border and How to Fix It, Russell S. Sobel, editor. Available here.)

In discussing this research, the authors of Unleashing Capitalism explained:

Two important empirical questions are at the heart of the debate over targeted tax incentives. The first is whether or not tax incentives actually influence firms’ location choices. The second, and perhaps more important question, is whether, in combination with firms’ location decisions, tax incentives actually lead to improved local economic performance.

We begin by noting that businesses do, in fact, seem to be responsive to state and local economic development incentives. … All of the aforementioned studies, which find business location decisions to be favorably influenced by targeted tax incentives, also conclude that the benefits to the communities that offered them were less than their costs.

References:

Ambrosius, Margery Marzahn. 1989. The Effectiveness of State Economic Development Policies: A Time-Series Analysis. Western Political Quarterly 42:283-300.
Trogen, Paul. Which Economic Development Policies Work: Determinants of State Per Capita Income. 1999. International Journal of Economic Development 1.3: 256-279.
Gabe, Todd M., and David S. Kraybill. 2002. The Effect of State Economic Development Incentives on Employment Growth of Establishments. Journal of Regional Science 42(4): 703-730.
Fox, William F., and Matthew Murray. 2004. Do Economic Effects Justify the Use of Fiscal Incentives? Southern Economic Journal 71(1): 78-92.
Edmiston, Kelly D. 2004. The Net Effects of Large Plant Locations and Expansions on County Employment. Journal of Regional Science 44(2): 289-319.
Hicks, Michael J. 2004. A Quasi-Experimental Estimate of the Impact of Casino Gambling on the Regional Economy. Proceedings of the 93rd Annual Meeting of the National Tax Association.
LeFaivre, Michael and Michael Hicks 2005. MEGA: A Retrospective Assessment. Michigan:Mackinac Center for Public Policy.
Hicks, Michael J. 2007a. The Local Economic Impact of Wal-Mart. New York: Cambria Press.
Hicks, Michael J. 2007b. A Quasi-Experimental Test of Large Retail Stores’ Impacts on Regional Labor Markets: The Case of Cabela’s Retail Outlets. Journal of Regional Analysis and Policy, 37 (2):116-122.

WichitaLiberty.TV: The need for reform at Wichita City Hall

In this episode of WichitaLiberty.TV: An episode this week at the Wichita city council meeting highlights the need for campaign finance reform in Wichita. We’ll examine a few incidents and see if there’s a way we can reform Wichita city government so that it is capitalism friendly instead of crony friendly. View below, or click here to view at YouTube. Episode 69, broadcast December 21, 2014.

Campaign contribution stacking in Wichita

Those seeking favors from Wichita City Hall use campaign contribution stacking to bypass contribution limits. This has paid off handsomely for them, and has harmed everyone else.

Not long ago a person who is politically active wrote a letter that was published in the Wichita Eagle. It criticized the role of campaign contributions in federal elections, noting “Corporations don’t spend money on politics because they are patriotic; rather, the companies expect a financial return.” Later the letter held this: “Locally, I understand that elections for the Wichita City Council underwent ideal, nonpartisan campaign-finance reform years ago, and that these limits are scrupulously practiced.”

The writer is correct, but only superficially. Our campaign contribution limits for city and school board offices are relatively small. What we find, however, is that the cronies, that is, the people who want stuff from city hall, stack contributions using family members and employees.

Stacked campaign contributions received by James Clendenin from parties associated with Key Construction. Click for larger version.
Stacked campaign contributions received by James Clendenin from parties associated with Key Construction. Click for larger version.
Here’s how a handful of cronies stack campaign contributions. In 2012 council members James Clendenin (district 3, southeast and south Wichita) and Lavonta Williams (district 1, northeast Wichita) were preparing to run again for their offices in spring 2013. Except for $1.57 in unitemized contributions to Clendenin, two groups of related parties accounted for all contributions received by these two incumbents for an entire year. A group associated with Key Construction gave a total of $7,000 — $4,000 to Williams, and $3,000 to Clendenin. Another group of people associated with movie theater owner Bill Warren gave $5,000, all to Clendenin.

The casual observer wouldn’t realize this stacking of campaign contributions by looking at campaign finance reports. That’s because for city offices, the name of the company a contributor works for isn’t required. Industry and occupation are required, but these aren’t of much help. Further, contribution reports are not filed electronically, so the information is not easy to analyze. Some reports are even submitted using handwriting, and barely legible handwriting at that.

So it’s not easy to analyze campaign contributions for Wichita city offices. It takes a bit of effort to unpack the stacking. You have to see a name and investigate who that person is. When you do that, you might find that a man from Valley Center who list his occupation and industry as Manager and Aviation Subcontractor is married to someone who lists her occupation and industry as Director of Marketing. Investigating her reveals that she is an executive of Key Construction.

That company, Key Construction, is a prominent company in Wichita. It is an example of a company that seeks to earn outsized profits through the political system rather than by meeting customer needs in the market. Profits through cronyism, that is. Here’s an example. In August 2011 the Wichita city council voted to award Key Construction a no-bid contract to build the parking garage that is part of the Ambassador Hotel project, now known as Block One. The no-bid cost of the garage was to be $6 million, according to a letter of intent. Later the city decided to place the contract for competitive bid. Key Construction won the bidding, but for a price $1.3 million less.

Let me make sure you understand that. Mayor Carl Brewer, Lavonta Williams, and James Clendenin were willing to spend an extra $1.3 million of your tax money to reward their benefactors through a no-bid contract. Since then reforms have been implemented to prevent this. Hopefully the reforms will work. I am skeptical.

Wichita Mayor Carl Brewer with major campaign donor Dave Wells of Key Construction. Brewer has voted for no-bid contracts for Key.
Wichita Mayor Carl Brewer with major campaign donor Dave Wells of Key Construction. Brewer has voted for no-bid contracts for Key.
In 2012 there was another incident involving Key Construction that show the need for campaign finance reform. Key and another construction company were engaged in a dispute as to who should build the new Wichita airport. The city council was tasked to act in a quasi-judicial manner to decide the issue. Given all the campaign contributions Key was making at the time, and given the mayor’s well-known friendship with Dave Wells of Key Construction, can you guess who was awarded the contract? And can you guess whose contract was more expensive for taxpayers?

So back to the letter in the newspaper, which held: “Corporations don’t spend money on politics because they are patriotic; rather, the companies expect a financial return.” I’m not going to defend cronyism at the federal level. It exists and it is harmful. But I would like to let the writer of the letter know that cronyism also exists in Wichita city government. In fact, it may be worse in Wichita. At the federal level, Congress usually passes laws that benefit an entire industry — say the sugar industry or banks — to the detriment of consumers and taxpayers. (Sometimes the benefits are quite specific. American Enterprise Institute reports that the just-passed omnibus bill contains a section that provides protection from an Obamacare provision for exactly one entity: Blue Cross Blue Shield. Conservative writer Yuval Levin explained: “This section is, simply put, a special favor for Blue Cross/Blue Shield allowing them to count ‘quality improvement’ spending as part of the medical loss ratio calculation required of them under Obamacare. And it’s made retroactive for four years, saving them loads of money.”)

That’s bad enough. Here in Wichita, however, the cronyism is more concentrated and personal. The links between campaign contributions and handouts from city hall is much more direct. We should insist that the city council stop picking the pocket of your fellow man so it can give the proceeds to campaign contributors. Campaign finance reform can help.

Balancing the Kansas budget

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.

The policy brief Trabert mentioned may be downloaded from KPI at A Five-Year Budget Plan for the State of Kansas: How to balance the budget and have healthy ending balances without tax increases or service reductions or alternatively from Scribd here (may work better on mobile devices). A press release from KPI announcing the policy brief is at 5 Year Budget Plan Outlines Path To Protect Essential Services and Tax Reform.

This week, Wichita has a chance to increase government transparency

The Wichita City Council can decide to disclose how taxpayer money is spent, or let it remain being spent in secret.

The City of Wichita has three surrogate quasi-governmental agencies that are almost totally taxpayer-funded, specifically Go Wichita Convention and Visitors Bureau, Wichita Downtown Development Corporation, and Greater Wichita Economic Development Coalition. Each agency contends it is not a “public agency” as defined in Kansas law, and therefore does not have to fulfill records requests.

Go Wichita Convention and Visitors BureauThese agencies spend considerable sums of tax money. This week the city will consider funding Go Wichita with a budget of $2,356,851 for 2015. That is not all the taxpayer money this agency will spend, as earlier this year the council voted to increase the city’s hotel tax by 2.75 cents per dollar, with the proceeds going to Go Wichita. City documents indicate that tax is estimated to generate $2.3 million per year.

That is a lot of tax money, and also a high proportion of the agency’s total funding. According to the 2012 IRS form 990 for Go Wichita, the organization had total revenue of $2,609,545. Of that, $2,270,288 was tax money from the city. That’s 87 percent taxpayer-funded. When the surge of higher hotel tax money starts flowing in, that percent will undoubtedly rise, perhaps to 93 percent or more.

Despite being nearly totally funded by taxes, Go Wichita refuses to supply spending records. Many believe that the Kansas Open Records Act requires that it comply with such requests. If the same money was being spent directly by the city, the records undoubtedly would be supplied.

City of Wichita Spends 2 million Rebuffs Citizen’s Transparency RequestI’ve appeared before the council several times to ask that Go Wichita and similar organizations comply with the Kansas Open Records Act. See Go Wichita gets budget approved amid controversy over public accountability, City of Wichita Spends $2 million, Rebuffs Citizen’s Transparency Request, and articles at Open Records in Kansas.

The lack of transparency at Go Wichita is more problematic than this. Earlier this year Go Wichita refused to provide to me its contract with a California firm retained to help with the re-branding of Wichita. When the Wichita Eagle later asked for the contract, it too was refused. If the city had entered into such a contract, it would be a public record. Contracts like this are published each week in the agenda packet for city council meetings. But Go Wichita feels it does not have to comply with simple transparency principles.

The City of Wichita could easily place conditions on the money it gives to these groups, requiring them to show taxpayers how their tax dollars are being spent. But the City does not do this. This is not transparency.

In the past I’ve argued that Go Wichita is a public agency as defined in the Kansas Open Records Act. But the city disagreed. And astonishingly, the Sedgwick County District Attorney agreed with the city’s interpretation of the law.

So let’s talk about good public policy. Let’s recognize that even it is the case that the Kansas Open Records Act does not require Go Wichita, WDDC, and GWEDC to disclose records, the law does not prohibit or prevent them from fulfilling requests for the types of records I’ve asked for. Even if the Sedgwick County District Attorney says that Go Wichita is not required to release documents, the law does not prevent the release of these records.

Once we understand this, we’re left with these questions:

Why does Go Wichita want to keep secret how it spends taxpayer money, as much as $4.6 million next year?

Why is this city council satisfied with this lack of disclosure of how taxpayer funds are spent? Many council members have spoken of how transparency is important. One said: “We must continue to be responsive to you. Building on our belief that government at all levels belongs to the people. We must continue our efforts that expand citizen engagement. … And we must provide transparency in all that we do.” That was Mayor Brewer speaking in his 2011 State of the City address.

It would be a simple matter for the council to declare that the city and its taxpayer-funded partner agencies believe in open government. All the city has to have is the will to do this. It takes nothing more. It costs the city and its agencies nothing, because the open records law lets government charge for filling records requests. I would ask, however, that in the spirit of open transparent government, in respect for citizens’ right to know how tax funds are spent, and as a way to atone for past misdeeds, that Go Wichita fulfill records requests at no charge.

Kansas ‘Green Book’ released

Kansas Policy Institute has published a book exploring the relationship between the size of government and economic growth.

Kansas Policy Institute Green Book 2014 coverTo introduce its book of economic statistics for Kansas and the nation, Kansas Policy Institute writes:

U.S. Supreme Court Justice Louis Brandeis saw states as “laboratories of democracy” conducting “experiments” in public policy. Today, more than eight decades after Brandeis coined the phrase, state experimentation with tax policy makes it abundantly clear that tax policy has a direct impact on economic growth. As shown on page 19, each of the eleven states that enacted an income tax since 1960 now has a smaller share of state GDP relative to the other 39 states and each one also has a smaller share of state and local tax revenue. That is a remarkable statistic; those eleven states enacted a new source of tax revenue and they lost revenue share to other states! To the contrary, states with low tax burdens and states without an income tax consistently outshine their higher-burden peers the on the key, tangible measures like private sector job, GDP, and wage growth. What’s more, citizens are taking notice and “voting with their feet” by flocking to low-burden states from higher-burden counterparts. Skeptics try to dismiss this definitive migratory trend by cherry-picking success stories like Texas and Florida and characterizing them as ‘’happy accidents” of favorable geography, climate, and/or resource abundance.

The book is available in pdf form here.

Wichita Metro Chamber of Commerce: What is the attitude towards taxes?

Does the Wichita Metro Chamber of Commerce support free markets, capitalism, and economic freedom, or something else?

Your chamber of commerce radio buttonsVery often, local chambers of commerce support crony capitalism instead of pro-growth policies that allow free enterprise and genuine capitalism to flourish.

We saw this in Wichita this year, where the Wichita Metro Chamber of Commerce campaigned for a sales tax increase. The Chamber recommended that Wichitans vote in favor of a sales tax of one cent per dollar, with some of the proceeds to be dedicated for a jobs fund. (Other uses were to be for a new water supply, expanded bus transit, and accelerated neighborhood street repair.) Chamber leaders told the Wichita city council that if the jobs fund was not included in the package presented to voters, the Chamber would not support the sales tax.

Not long ago the Wichita Chamber was opposed to higher sales taxes. In March 2010, as chair of the Wichita Chamber, Sam Williams submitted a letter to the Wichita Eagle in which he wrote “Tax increases and government spending will not create employment or revive the state’s economic engine. Increasing the costs of goods and services will only lead to fewer purchases, more business closures, higher unemployment and less taxes being paid.”

In April of same year, he wrote again to the Eagle, advising Wichitans this: “Simply put, raising taxes hurts business, costs jobs and ultimately leads to fewer taxpayers and fewer taxes being paid to fund state and local government.”

Having espoused these anti-tax sentiments just four years ago, it’s curious that the Wichita Chamber would support and campaign for a sales tax for Wichita this year. This spills over to mayoral politics. As far as I saw, Sam Williams, — the Chamber’s chair in 2010 — did not take a public position on the sales tax this year. Except for this: Williams is chair of the Wichita Downtown Development Corporation, and that organization endorsed the sales tax.

Regarding mayoral politics: Did you know that Sam Williams is running for mayor? And that it appears he has the support of the Wichita Chamber?

I have a request. If you see Sam Williams, would you ask him about his position on raising sales taxes?

Your chamber of commerce

Most people probably think that local chambers of commerce — since their membership is mostly business firms — support pro-growth policies that embrace limited government and free markets. But that’s usually not the case. Here, in an excerpt from his article “Tax Chambers” economist Stephen Moore explains:

The Chamber of Commerce, long a supporter of limited government and low taxes, was part of the coalition backing the Reagan revolution in the 1980s. On the national level, the organization still follows a pro-growth agenda — but thanks to an astonishing political transformation, many chambers of commerce on the state and local level have been abandoning these goals. They’re becoming, in effect, lobbyists for big government.

In as many as half the states, state taxpayer organizations, free market think tanks and small business leaders now complain bitterly that, on a wide range of issues, chambers of commerce deploy their financial resources and lobbying clout to expand the taxing, spending and regulatory authorities of government. This behavior, they note, erodes the very pro-growth climate necessary for businesses — at least those not connected at the hip with government — to prosper. Journalist Tim Carney agrees: All too often, he notes in his recent book, “Rip-Off,” “state and local chambers have become corrupted by the lure of big dollar corporate welfare schemes.”

In the states, chambers have come to believe their primary function is to secure tax financing for sports stadiums, convention centers, high-tech research institutes and transit boondoggles. Some local chambers have reportedly asked local utilities, school administrators and even politicians to join; others have opened membership to arts councils, museums, civic associations and other “tax eater” entities.

“I used to think that public employee unions like the NEA were the main enemy in the struggle for limited government, competition and private sector solutions,” says Mr. Caldera of the Independence Institute. “I was wrong. Our biggest adversary is the special interest business cartel that labels itself ‘the business community’ and its political machine run by chambers and other industry associations.”

From Stephen Moore in the article “Tax Chambers” published in The Wall Street Journal February 10, 2007. The full article can be found here.

Options for funding Wichita’s future water supply

Now that the proposed Wichita sales tax has failed, how should Wichita pay for a future water supply?

At the December 2 meeting of the Wichita city council, discussion by Council member Pete Meitzner (district 2, east Wichita) referred to the recent election in which Wichita voters rejected a proposed sales tax. (Video below, or click here to view at YouTube.) The major portion of the tax, $250 million collected over five years, would have been used to expand the ASR system as a way of providing for Wichita’s future water needs.

One of the arguments advanced by opponents of the sales tax such as myself is that water users should pay for future water supply. Advocates of the sales tax disagreed, arguing that Wichitans and visitors should pay higher sales taxes to fund a new water supply.

What does the arithmetic look like if we pay for a water supply though water bills? (Some use the term rates.) First, let’s set aside the questions of when the city needs an expanded water supply and how that water should be supplied.

Meitzner’s questioning of city public works director Alan King elicited how many water meters or accounts the water department has, which King said is almost 140,000. Meitzner then proceeded to ask if the cost of a new water supply — $250 million — was born equally by each of these customers, how much would that add to water bills? King said it would be in the range of “23, almost 24 dollars per bill, and at the high end something closer to 30 dollars per bill. That would be each month, you would have to pay that for 60 months.”

Meitzner then ran through computations that resulted in a cost of $1,500 per meter over five years to pay for the cost of a new water supply. He then compared that to sales tax opponents who said that the cost of the additional sales tax per family would be $160 per year. Meitzner said that would be an additional cost of $800 over five years to pay for everything the proposed sales tax was dedicated to, not just a new water supply.

The line of reasoning followed by Meitzner is superficially appealing but economically unsound. It is true that water bills would have to rise by quite a bit in order to raise $250 million over five years. But it seems unlikely that the city would decide to spread that cost equally among its water customers. Would the city ask its largest industrial customers to contribute the same amount each month as small households that do no outside irrigation? I don’t think that most people would think this is reasonable. But Meitzner’s arithmetic implies that the city would, or could, do exactly this.

There are many ways the city could apportion the cost of a new water supply among water users. First, the city could simply raise the price of a gallon of water. That would let water users participate in the funding of a new water supply in proportion to the amount of water they use.

Second, the city could add a fixed amount to each water bill, that money reserved for a future water supply. The city already has a fixed cost for water service. It’s referred to in the rate ordinance as the “minimum monthly” charge. It varies from $11.95 per month for the smallest hookups to $478.78 per month for the largest wholesale users. This amount could be increased by equal portion — say ten percent — for everyone. Or, if the city wants to reduce the burden on small households, it could leave the rate for small hookups as it is, and raise it for larger hookups.

Third, the city could decide to raise the price of a gallon of water by different amounts for different classes of water users. Wichita, like many cities, use a tiered structure of rates that separates summer irrigation water usage from household usage inside the home. How does Wichita’s tiered structure of rates compare to other cities? A recent Black & Veatch survey found for that the 50 cities in the survey, considering only the water portion of bills, the average cost for using 3,750 gallons per month is $19. For using 15,000 gallons, the cost is $65. That’s a ratio of 3.4 to 1. For Wichita, the survey reported costs of $18 and $36, for a ratio of 2.0 to 1.

These are two important numbers: 3.4 and 2.0. They mean that while the price per gallon of Wichita water becomes marginally more expensive as more water is used, the slope is as steep as the average. It means that Wichita households that use low amounts of water pay about average rates, but those Wichita households using a lot of water pay rates much less than average. This is something the city could easily adjust. It would also have the benefit of encouraging conservation, which is something the city says is important for our future.

We need to be aware of the cost of water

Wichita proposed sales tax explanation on waterIt’s important to have water users pay for a new water supply. The benefit is that water users will become acutely aware of the costs of a new water supply. That awareness is difficult to achieve. Many citizens are surprised to learn that the city has spent $247 million over the past decade on a water project, the ASR program. Nearly all that was paid by using long-term debt, the same type of debt that the city urged citizens to avoid during the sales tax campaign.

Paying for a new water supply through water bills would let commercial and industrial users participate in paying the cost of the project. These water users usually don’t pay a lot of sales tax. A restaurant, for example, does not pay sales tax on the food ingredients it purchases. An aircraft manufacturer does not pay sales tax on the raw materials and component parts it buys. But these companies have a water bill. Yet, the city recommended that low income households pay more sales tax on their groceries. The city said this is the best way to pay for a new water supply to protect our lawns and golf courses during a drought.

Wichita economic development items

The Wichita city council has been busy with economic development items, and more are upcoming.

At the November 25 meeting of the Wichita City Council, on the consent agenda, the council passed these items.

Approved a sublease in a warehouse. This action was necessary as the incentivized warehouse pays no property taxes due to a subsidy program. Given tax costs and industrial building rents, this policy gives these incentivized buildings a cost advantage of about 20 to 25 percent over competitors. That’s very high, and makes it difficult for existing buildings to compete. This lease is for 40,500 square feet for annual rent of $196,425.00, which is $4.85 per square foot. Competing warehouse space might be able to charge rent of $4.25 plus property tax of about $1.00, for a total rent of $5.25 per square foot to the tenant. In the case of the subsidized building, the landlord collects $4.85 instead of $4.25, and the tenant pays $4.85 instead of $5.25. Everyone’s happy. Everyone, that is, except for existing industrial landlords in Wichita — especially those with available space to rent — who must be wondering why they attempt to stay in business when city hall sets up subsidized competitors with new buildings and a large cost advantage. Then, other commercial tenants must be wondering why they don’t get discounted rent. Taxpayers must be wondering why they have to make up the difference in taxes that the subsidized tenants aren’t paying. (On second thought, these parties may not be wondering about this, as we don’t have a general circulation newspaper or a business newspaper that cares to explain these things.) See Wichita speculative industrial buildings.

While asking for tax breaks, the owner of this building wanted you to pay higher taxes.
While asking for tax breaks, the owner of this building wanted you to pay higher taxes.
Set January 6 as the date for a public hearing on a TIF district project plan. This is the plan for Union Station in downtown Wichita. The public hearing for the formation of its tax increment financing district has already been held, and it passed. The project plan will consider and authorize the actual project and spending of taxpayer funds to reimburse the developer for various items. Unlike the formation of the TIF district, the county and school district have no ability to object to the project plan.

Set December 16 as the date for the public hearing on the formation of a community improvement district. This district is for the benefit of the River Vista project, the proposed apartments on the west bank of the Arkansas River between Douglas and First streets. CIDs redirect sales tax revenue from general government to the developers of the project. Say, does anyone remember Charter Ordinance No. 144, which says this land “shall be hereafter restricted to and maintained as open space”? See In Wichita, West Bank apartments seem to violate ordinance.

Also on that day, during its workshop, the council heard items for the city’s legislative agenda. I have a several articles covering these topics as they relate to the legislative agenda: Airfares, passenger rail, cultural arts districts, and economic development.

On its December 2 agenda, the council has these items:

Property tax and sales tax exemptions for Bombardier Learjet. The council may grant property tax discounts worth as much as $268,548 per year for up to ten years, according to city documents. This will be split among taxing jurisdictions as follows: City $72,389, State $3,340, County $65,415, and USD 259 $127,404. The purchased items may also receive an exemption from sales tax, but city documents give no amount. Bombardier boasts of “Investing in the communities where we do business to ensure we have strong contexts for our operations” and “We support our home community through donations, sponsorships and our employee volunteering program.” Evidently this commitment to investment and support does not extend to shouldering the same tax burden that everyone else does.

Property tax exemptions for Cessna Aircraft Company. The council may grant property tax discounts worth as much as $302,311 per year for up to ten years, according to city documents. This will be split among taxing jurisdictions as follows: City $81,491, County $73,639, State $3,760, and USD 259 $143,421. Generally, items purchased with proceeds of the IRB program also receive sales tax exemption, but city documents do not mention this. Cessna speaks of its commitment to the communities where it operates, but evidently this commitment does not extend to shouldering the same tax burden that everyone else does.

High Touch Technologies in downtown Wichita, with sign calling for higher sales tax.
High Touch Technologies in downtown Wichita, with sign calling for higher sales tax.
Property tax exemptions for High Touch. This is an extension of tax breaks first granted last year. See In Wichita, the case for business welfare. Did you know the CEO of this company is also chair of the Wichita Metro Chamber of Commerce? And that while campaigning for higher sales taxes in Wichita, including higher taxes on groceries for low-income households, he sought and received a sales tax exemption for his company?

Forgivable loan to Apex Engineering International. The Wichita Eagle reported that this company “has been growing briskly and adding employees.” Still, the company seeks incentives, in this case a forgivable loan from the city of $90,000. It will ask Sedgwick County for the same amount. These loans are grants of cash that do not need to be repaid as long as goals are met. Three years ago Apex received $1,272,000 in tax credits and grants under programs offered by the State of Kansas. It is not known at this time if Apex is receiving additional subsidy from the state. According to a company news release, “AEI was nominated for the Wichita Metro Chamber of Commerce 2012 Small Business Awards. This prestigious award recognizes two companies each year who are selected based on specific criteria including: entrepreneurship, employee relations, diversity, community contribution and involvement, and leadership and performance.” Maybe we can justify this grant as repayment for Apex’s community contribution. This forgivable loan may receive resistance from some council members. Current council member and mayoral candidate Jeff Longwell (district 5, west and northwest Wichita) was recently quoted in the Wichita Eagle as wanting a “moratorium on forgivable loans right now until we can reassess the way that we do economic development.” While campaigning for his current office, Council member Pete Meitzner (district 2, east Wichita) told an audience “I am not for forgivable loans.” He noted the contradiction inherent in the terms “forgivable” and “loan,” calling them “conflicting terms.” Meitzner has said he will run for his current office again.

Set January 6 as the date for the public hearing regarding the project plan for the Mosely Avenue Project TIF district in Old Town. This TIF district is a project of David Burk and Steve Barrett. Burk has received millions of taxpayer dollars in subsidy. But he’s not finished.

Consider whether to raise water bills by about 5 percent.

Consider a new lease agreement with Museum of World Treasures, Inc. which will, among other things, reduce the museum’s rent paid to the city from $60,000 per year to $1.

Consider passing the legislative agenda. See above for more on this topic.

City of Wichita State Legislative Agenda: Cultural Arts Districts

Wichita government spending on economic development leads to imagined problems that require government intervention and more taxpayer contribution to resolve. The cycle of organic rebirth of cities is then replaced with bureaucratic management.

Commerce Street Arts District P9As the City of Wichita prepares its legislative agenda for 2015, an issue arises for the first year. It seems that the success of government spending on development has created rising property values, which creates higher tax bills, and that is a burden for some. Here’s the issue the city has identified: “Cultural arts enterprises in certain areas are threatened by rising property values and the resulting tax burden.”

Here’s the solution the city proposes: “The Wichita City Council supports state legislation that would allow local governments to use innovative measures to protect cultural arts enterprises from circumstantial increases in property taxes. The intent is to nurture and preserve arts activity throughout the City of Wichita and the State of Kansas.”

What are the “innovative measures” the city wants to use? Nothing special; just allowing a special group of people to shirk paying the same taxes that everyone else has to pay. The city wants to be able to use tax abatements for up to ten years. The percentage of taxes that could be forgiven could be as high as 80 percent.

So there’s really nothing innovative to see here. The city merely wants to broaden the application of tax forgiveness. Which means the tax base shrinks, and the people who still find themselves unlucky enough to still be part of the tax base face increasing demands for their tax payments.

The city manager said that artists from Commerce Street came to the city looking for a solution to their problem. Which is about the same problem that everyone else has: high taxes.

Here’s the nub of the problem, as explained by the city manager: “The more successful that we are with the redevelopment, the higher the value of the properties, and therefore harder for them who are on thin margins to begin with to stay in the districts, so they lose their charm of being the artistic or art districts.”

The proposed solution, which will require a change to state law, is that a government bureaucrat will decide the boundaries of one or more cultural arts districts. The bureaucrat will also decide which types of business firms qualify for discounts on their taxes. Besides Commerce Street, the manager identified Delano, Old Town, and the Douglas Design District as possible districts where artists might receive 80 percent discounts on their property taxes.

After this, other taxpayers have to make up the lost tax revenue from the artists. That is, unless the city decides to reduce spending by the amount of the tax discounts. I’ve proposed that to the city in other similar circumstances, and the idea was rejected. I believe council members thought I was delusional.

There are many people and business firms that operate on the same “thin margins” that the city manager wants to help artists escape. We see them come to city hall seeking special treatment. As a result, the city plans and manages an increasing share of the economy, and economic freedom, entrepreneurship, and the potential for a truly dynamic economy decline.

Who will stake out the next frontier?

There are many problems with the idea the city is proposing.

One is that the city is asking poor people to pay their full share of property taxes while granting artists a discount. This is a serious problem of equity, which is that people in similar circumstances should be treated the same. Just because someone chooses art as a business or vocation doesn’t mean they should be treated specially with respect to the taxes they pay.

Bob Weeks and Bill Goffrier in the artist's studio, Flatiron Building, Wichita, 1982
Bob Weeks and Bill Goffrier in the artist’s studio, Flatiron Building, Wichita, 1982
Another problem is that the process of establishing arts districts will interrupt the dynamism of the way cities develop. Arts districts develop because artists want (or need) places with cheap rent. Unless they can persuade city hall to grant property tax discounts, this generally means artists rent space in “bad” parts of town, that is, parts of town that are run down, blighted, and may have high crime rates. Thus, cheap rent.

If things go well, that is, the artists are successful and a community develops, things get fixed up. Rents rise. Taxes rise. The artists can’t afford the higher rent and taxes and have to move on. Which means the cycle repeats. The artists on the cutting edge find other places to move to, and the cycle repeats. Other parts of the city are reborn — organically — through the benefits of markets, not government bureaucracy. This is good.

Except: The City of Wichita is proposing to end the cycle by granting discounts on taxes to artists so they may remain where they are.

We replace dynamism with stagnation by bureaucracy. The city says this is innovative.

City of Wichita State Legislative Agenda: Passenger rail

Instead of calling for the expansion of Amtrak — perhaps the worst of all federal agencies — the City of Wichita should do taxpayers a favor and call for an end to government subsidy of Amtrak everywhere.

Wichita Legislative Agenda, November 2014, page 07, Passenger RailThe City of Wichita’s legislative calls for the pursuit of money to pay for the funding of an environmental study of the proposed passenger rail extension to Oklahoma City. Not an actual rail line, just an environmental study.

Amtrak is very expensive. In most parts of the country it relies on massive taxpayer subsidy. For example, for the line from Fort Worth to Oklahoma City — the line proposed for extension to Wichita – taxpayers pay a subsidy of $26.76 per passenger for the trip. And that’s a short trip.

Being expensive, Amtrak is usually pitched as an economic development driver. Yes, taxpayers pay for passengers to ride, but once in your town they spend money there! Never mind that so few people travel on trains (outside the Northeast Corridor) that they are barely noticed. In 2012 intercity Amtrak accounted for 6,804 million passenger-miles of travel. Commercial air racked up 580,501 million passenger-miles, or 85 times as many.

U.S. Passenger Miles, Air and Amtrak. Note difference in scales.
U.S. Passenger Miles, Air and Amtrak. Note difference in scales.

So some people, like Wichita City Council Member Pete Meitzner (district 2, east Wichita) take a different tack. Passenger rail is about boosting business productivity.

For him and the local business leaders he’s spoken with, it’s all about productive hours. Meitzner says the people who are interested in regional train travel for business are often people who are currently driving to their destinations instead. They’re equipped with smartphones, tablet computers and other technologies, but they can’t use them much, or at all, while they’re driving. Sitting on trains, businesspeople could get work done, he says. He suggests the rise of new mobile technology is one reason passenger rail travel is on the rise. ( Meitzner says there’s a business case for passenger rail in Wichita, Wichita Business Journal, July 18, 2012)

Unfortunately for Meitzner’s business case, at about this time the New York Times published a piece detailing the extreme frustration Amtrak riders had with on-train wi-fi service, reporting “For rail travelers of the Northeast Corridor, the promise of Wi-Fi has become an infuriating tease.” Contemporary new stories report that Amtrak is still planning to upgrade its wi-fi systems.

Considering the speed at which government works, by the time a passenger rail line could be established between Wichita and Oklahoma City, it’s quite likely that driverless cars will be a reality. (Remember, we’ve been trying to raise money just for an environmental impact study for many years.) Then, workers can be in their car, use their computers for business productivity, and travel directly to their destination instead of to a train station. Plus, they will be able to do this on their own schedule, not Amtrak’s schedule. That is invaluable, as only one train each day is contemplated.

Furthermore, if there really is a business case for travel between Wichita and Oklahoma City, I imagine that some of the entrepreneurs who have built a new industry around inter-city bus travel might establish service. These new companies use buses with wi-fi, first class accommodations, and other amenities. Buses are much lower cost than rail, are more flexible, and most importantly, are operated by private sector entrepreneurs rather than government.

I understand that leaders like Pete Meitzner and others in city hall see federal money being spent elsewhere, and they want that money also spent here. It doesn’t really matter to them whether the spending is worthwhile, they just want it spent here. This greed for federal tax dollars contributes to the cycle of rising spending. We end up buying and building a lot of stuff that doesn’t really work except for lining the pockets of special interest groups. And, in the case of Meitzner’s pet project, we do this with borrowed money.

We expect this behavior from the progressive members of the council. But conservatives are supposed to stand for something else.

Those who call for an end to subsidy for one industry are often asked why they don’t oppose subsidy for all industry. It’s a fair question, although it distracts from the main issue, which is why it is raised. So, let’s end subsidies for all forms of transportation. Let’s try to match relevant user fees such as motor fuel taxes as closely as possible with the compatible expenditures.

The scope of Amtrak subsidy

In 2010 I reported that Subsidyscope, an initiative of the Pew Charitable Trusts, published a study about the taxpayer subsidy flowing into Amtrak. For the Heartland Flyer route, which runs from Fort Worth to Oklahoma, and is proposed by taxpayer-funded rail supporters to extend into Kansas through Wichita and Kansas City, we find these statistics about the finances of this operation:

Amtrak reports a profit/loss per passenger mile on this route of $-.02, meaning that each passenger, per mile traveled, resulted in a loss of two cents. Taxpayers pay for that.

But this number, as bad as it is, is not correct. Subsidyscope calculated a different number. This number, unlike the numbers Amrak publishes, includes depreciation, ancillary businesses and overhead costs — the types of costs that private sector businesses bear and report. When these costs are included, the Heartland Flyer route results in a loss of 13 cents per passenger mile, or a loss of $26.76 per passenger for the trip from Fort Worth to Oklahoma City.

Subsidy to Amtrak compared to other forms of transporation

Table 4 Net Federal Subsidies per Thousand Passenger-Miles by Mode FY 1990-2002

From Federal Subsidies to Passenger Transportation, Bureau of Transportation Statistics, December 2004.

From Randal O’Toole Stopping the Runaway Train: The Case for Privatizing Amtrak:

According to the U.S. Bureau of Transportation Statistics, after adjusting for inflation to 2011 dollars, subsidies to domestic air travel averaged about $14 billion a year between 1995 and 2007. Considering that the airlines carried an average of more than 500 billion passenger miles a year during those years, average subsidies work out to about 2.8 cents per passenger mile (see Figure 2).

Using Bureau of Transportation Statistics’ numbers, highway subsidies over the same time period averaged about $48 billion a year. Highways carried about 4.1 trillion passenger miles per year, for an average subsidy of 1.1 cents per passenger mile. While 95 percent of the airline subsidies came from the federal government, all of the highway subsidies came from state and local governments.

By comparison, federal Amtrak subsidies over the same time period averaged 25 cents per passenger mile.11 State subsidies averaged another 2.8 cents. Per-passenger-mile subsidies to Amtrak were nearly times subsidies to air travel and nearly 22 times subsidies to highway travel.

Airline, Highway, and Amtrak Subsidies per Passenger Mile, Cato Institute, 2012

From Amtrak And The Progressive Sleight Of Hand, Competitive Enterprise Institute:

The deficit in what Amtrak collects in revenue and what it spends every year cannot even be taken at face value. Unlike most firms, Amtrak does not count maintenance as an operating cost and instead considers it a capital cost. This allows it to treat routine maintenance like long-term investments in new rail and carrier capacity, pushing these costs off its balance sheet.

What is the evidence on taxes and growth?

… results consistently point to significant negative effects of taxes on economic growth even after controlling for various other factors such as government spending, business cycle conditions, and monetary policy.

From Tax Foundation.

What is the evidence on taxes and growth?

By William McBride

The idea that taxes affect economic growth has become politically contentious and the subject of much debate in the press and among advocacy groups. That is in part because there are competing theories about what drives economic growth. Some subscribe to Keynesian, demand-side factors, others Neo-classical, supply-side factors, while yet others subscribe to some mixture of the two or something entirely unique. The facts, historical and geographical variation in key parameters for example, should shed light on the debate. However, the economy is sufficiently complex that virtually any theory can find some support in the data.

TaxFor instance, the Congressional Research Service (CRS) has found support for the theory that taxes have no effect on economic growth by looking at the U.S. experience since World War II and the dramatic variation in the statutory top marginal rate on individual income. They find the fastest economic growth occurred in the 1950s when the top rate was more than ninety percent. However, their study ignores the most basic problems with this sort of statistical analysis, including: the variation in the tax base to which the individual income tax applies; the variation in other taxes, particularly the corporate tax; the short-term versus long-term effects of tax policy; and reverse causality, whereby economic growth affects tax rates. These problems are all well known in the academic literature and have been dealt with in various ways, making the CRS study unpublishable in any peer-reviewed academic journal.

So what does the academic literature say about the empirical relationship between taxes and economic growth? While there are a variety of methods and data sources, the results consistently point to significant negative effects of taxes on economic growth even after controlling for various other factors such as government spending, business cycle conditions, and monetary policy. In this review of the literature, I find twenty-six such studies going back to 1983, and all but three of those studies, and every study in the last fifteen years, find a negative effect of taxes on growth. Of those studies that distinguish between types of taxes, corporate income taxes are found to be most harmful, followed by personal income taxes, consumption taxes and property taxes.

Continue reading at Tax Foundation.

Government employment and payroll in Kansas

The United States Census Bureau collects employment data from governmental units. Here I present the Census data for government employment and payroll in Kansas. This data is for 2012.

To open the visualization in a new window, click here. The major interactivity in this visualization is selecting one or more counties to display, along with statewide values.

Kansas government employment example.
Kansas government employment example.

In Kansas, voters want government to concentrate on efficiency and core services before asking for taxes

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.

From Kansas Policy Institute public opinion survey, November 2014.
From Kansas Policy Institute public opinion survey, November 2014.
From Kansas Policy Institute public opinion survey, November 2014.
From Kansas Policy Institute public opinion survey, November 2014.
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.

From Kansas Policy Institute public opinion survey, November 2014.
From Kansas Policy Institute public opinion survey, November 2014.
From Kansas Policy Institute public opinion survey, November 2014.
From Kansas Policy Institute public opinion survey, November 2014.
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.

From Kansas Policy Institute public opinion survey, November 2014.
From Kansas Policy Institute public opinion survey, November 2014.
From Kansas Policy Institute public opinion survey, November 2014.
From Kansas Policy Institute public opinion survey, November 2014.
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.

From Kansas Policy Institute public opinion survey, November 2014.
From Kansas Policy Institute public opinion survey, November 2014.
From Kansas Policy Institute public opinion survey, November 2014.
From Kansas Policy Institute public opinion survey, November 2014.
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.

A press release announcing the survey is New Survey: Kansans Remain Misinformed Regarding K-12 Finance. The results of the survey from SurveyUSA are here. Coverage of questions from the survey on education funding is at Kansans still uninformed on school spending.

Kansans still uninformed on school spending

As in the past, a survey finds Kansans are uninformed or misinformed on the level of school spending, and also on the direction of its change.

This month Kansas Policy Institute produced a survey asking registered voters in Kansas questions on the topic of school spending. The first two questions measured the level of knowledge of Kansas school spending.

From Kansas Policy Institute public opinion survey, November 2014.
From Kansas Policy Institute public opinion survey, November 2014.
From Kansas Policy Institute public opinion survey, November 2014.
From Kansas Policy Institute public opinion survey, November 2014.
Question 1 asked: “How much state funding do you think Kansas school districts currently receive per pupil each year from JUST the state of Kansas?” As can be seen in the nearby table and chart, the most frequent response was less than $4,000 per year. 63 percent — nearly two-thirds — thought funding from the state was less than $5,000 per year.

The correct answer is that for the most recent school year (2013 — 2014) Kansas state funding per student was $7,088. This is estimated to rise to $8,604 for the current school year.

(The source of data for past school years is Kansas State Department of Education. Estimates for the current school year were obtained from Dale Dennis, who is Deputy Commissioner, Fiscal and Administrative Services.)

In the last school year base state aid per pupil was $3,838. How, then, does the state spend $7,088 per pupil? The answer is that various weightings are applied for things like bilingual education and at-risk pupils.

From Kansas Policy Institute public opinion survey, November 2014.
From Kansas Policy Institute public opinion survey, November 2014.
From Kansas Policy Institute public opinion survey, November 2014.
From Kansas Policy Institute public opinion survey, November 2014.
Question 2 asked about funding from all sources: “How much funding per pupil do you think Kansas school districts currently receive from ALL taxpayer sources per year, including State, Federal and Local taxpayers? The most common answer was less than $7,000. Two-thirds answered less than $10,000.

The correct answer is per-pupil spending from all sources for the 2013 — 2014 school year was $12,960. The estimate for the current school year is $13,268.

From Kansas Policy Institute public opinion survey, November 2014.
From Kansas Policy Institute public opinion survey, November 2014.
From Kansas Policy Institute public opinion survey, November 2014.
From Kansas Policy Institute public opinion survey, November 2014.
Question 3 asked about the change in school funding: “Over the last 4 years, how much do you think total per-pupil funding has changed?” 65 percent — nearly two-thirds — thought spending had fallen over this period. Only 14 percent thought spending had risen, and only seven percent by more than five percent. That last category holds the correct answer, which is 8.02 percent.

The findings of these three questions, which are that people are generally uninformed as to the level of school spending, are not able produce estimates that are in the same ballpark of actual values, and are wrong on the direction of change of spending, are not surprising. Past versions of similar surveys in Kansas have produced similar results. It’s not just a Kansas problem, as similar findings are found across the nation.

Commenting on the survey, KPI president Dave Trabert remarked:

It is impossible for citizens to develop informed opinions on education funding and state budget issues without accurate information. We continue to see that citizens who are accurately informed on K-12 funding have significantly different opinions than those who believe school funding is much lower than reality.” The number of Kansans who can correctly answer this question remains disturbingly low, but knowing how frequently funding is misrepresented by education officials and special interests, it’s not surprising. Instead of trying to low-ball school funding to justify increased aid, the focus should be on improving outcomes.

Kansans are providing record funding levels that exceed adjustments for enrollment and inflation over the last ten years, but outcomes on independent national assessments are relatively unchanged. It will always cost a lot of money to provide public education but the data shows that it’s how the money is spent that matters — not how much. “Just spend more” is about funding institutions. The focus needs to shift to getting more of the record-setting funding into classrooms where it will best help students.

Legislators and citizens cannot make good decisions about the challenges facing the state without good information. This survey confirms what we’ve known previously: Kansans are being misinformed and that cannot lead to good decision making. We encourage legislators and others to honestly examine facts without political bias. No finger pointing … no attempts to score political points … and no shading the facts … just civil discussion of the issues and facts.

A press release announcing the survey is New Survey: Kansans Remain Misinformed Regarding K-12 Finance. The results of the survey from SurveyUSA are here.

The problem with government spending

Of interest is that when people make major — or even minor — purchases, many will expend considerable effort researching the possibilities. Spending their own money, automobile purchasers want to get a good deal on a car that meets their preferences. That’s human nature.

But every two years, taxpayers spend on each student the amount that will buy a nice new car. In four years, taxpayers spend enough on each student to buy a new luxury car. The average taxpayer doesn’t pay that much tax for schools. But collectively, we all do.

The lack of knowledge of government spending reminds me of a passage from Free to Choose: A Personal Statement, written by Rose and Milton Friedman. It explains why government spending is wasteful, how it leads to corruption, how it often does not benefit the people it was intended, and how the pressure for more spending is always present. Spending on public schools falls in either category III — spending someone else’s money on yourself (or your children) — or category IV — spending someone else’s money on someone else. It’s no wonder it hasn’t worked very well.

Here’s a passage from Free to Choose.

A simple classification of spending shows why that process leads to undesirable results. When you spend, you may spend your own money or someone else’s; and you may spend for the benefit of yourself or someone else. Combining these two pairs of alternatives gives four possibilities summarized in the following simple table:

friedman-spending-categories-2013-07

Category I in the table refers to your spending your own money on yourself. You shop in a supermarket, for example. You clearly have a strong incentive both to economize and to get as much value as you can for each dollar you do spend.

Category II refers to your spending your own money on someone else. You shop for Christmas or birthday presents. You have the same incentive to economize as in Category I but not the same incentive to get full value for your money, at least as judged by the tastes of the recipient. You will, of course, want to get something the recipient will like — provided that it also makes the right impression and does not take too much time and effort. (If, indeed, your main objective were to enable the recipient to get as much value as possible per dollar, you would give him cash, converting your Category II spending to Category I spending by him.)

Category III refers to your spending someone else’s money on yourself — lunching on an expense account, for instance. You have no strong incentive to keep down the cost of the lunch, but you do have a strong incentive to get your money’s worth.

Category IV refers to your spending someone else’s money on still another person. You are paying for someone else’s lunch out of an expense account. You have little incentive either to economize or to try to get your guest the lunch that he will value most highly. However, if you are having lunch with him, so that the lunch is a mixture of Category III and Category IV, you do have a strong incentive to satisfy your own tastes at the sacrifice of his, if necessary.

All welfare programs fall into either Category III — for example, Social Security which involves cash payments that the recipient is free to spend as he may wish; or Category IV — for example, public housing; except that even Category IV programs share one feature of Category III, namely, that the bureaucrats administering the program partake of the lunch; and all Category III programs have bureaucrats among their recipients.

In our opinion these characteristics of welfare spending are the main source of their defects.

Legislators vote to spend someone else’s money. The voters who elect the legislators are in one sense voting to spend their own money on themselves, but not in the direct sense of Category I spending. The connection between the taxes any individual pays and the spending he votes for is exceedingly loose. In practice, voters, like legislators, are inclined to regard someone else as paying for the programs the legislator votes for directly and the voter votes for indirectly. Bureaucrats who administer the programs are also spending someone else’s money. Little wonder that the amount spent explodes.

The bureaucrats spend someone else’s money on someone else. Only human kindness, not the much stronger and more dependable spur of self-interest, assures that they will spend the money in the way most beneficial to the recipients. Hence the wastefulness and ineffectiveness of the spending.

But that is not all. The lure of getting someone else’s money is strong. Many, including the bureaucrats administering the programs, will try to get it for themselves rather than have it go to someone else. The temptation to engage in corruption, to cheat, is strong and will not always be resisted or frustrated. People who resist the temptation to cheat will use legitimate means to direct the money to themselves. They will lobby for legislation favorable to themselves, for rules from which they can benefit. The bureaucrats administering the programs will press for better pay and perquisites for themselves — an outcome that larger programs will facilitate.

The attempt by people to divert government expenditures to themselves has two consequences that may not be obvious. First, it explains why so many programs tend to benefit middle- and upper-income groups rather than the poor for whom they are supposedly intended. The poor tend to lack not only the skills valued in the market, but also the skills required to be successful in the political scramble for funds. Indeed, their disadvantage in the political market is likely to be greater than in the economic. Once well-meaning reformers who may have helped to get a welfare measure enacted have gone on to their next reform, the poor are left to fend for themselves and they will almost always he overpowered by the groups that have already demonstrated a greater capacity to take advantage of available opportunities.

The second consequence is that the net gain to the recipients of the transfer will be less than the total amount transferred. If $100 of somebody else’s money is up for grabs, it pays to spend up to $100 of your own money to get it. The costs incurred to lobby legislators and regulatory authorities, for contributions to political campaigns, and for myriad other items are a pure waste — harming the taxpayer who pays and benefiting no one. They must be subtracted from the gross transfer to get the net gain — and may, of course, at times exceed the gross transfer, leaving a net loss, not gain.

These consequences of subsidy seeking also help to explain the pressure for more and more spending, more and more programs. The initial measures fail to achieve the objectives of the well-meaning reformers who sponsored them. They conclude that not enough has been done and seek additional programs. They gain as allies both people who envision careers as bureaucrats administering the programs and people who believe that they can tap the money to be spent.

Category IV spending tends also to corrupt the people involved. All such programs put some people in a position to decide what is good for other people. The effect is to instill in the one group a feeling of almost God-like power; in the other, a feeling of childlike dependence. The capacity of the beneficiaries for independence, for making their own decisions, atrophies through disuse. In addition to the waste of money, in addition to the failure to achieve the intended objectives, the end result is to rot the moral fabric that holds a decent society together.

Another by-product of Category III or IV spending has the same effect. Voluntary gifts aside, you can spend someone else’s money only by taking it away as government does. The use of force is therefore at the very heart of the welfare state — a bad means that tends to corrupt the good ends. That is also the reason why the welfare state threatens our freedom so seriously.

Kansas school teacher cuts, student ratios

What has been the trend in Kansas school employment and pupil-teacher ratio?

“More students, but fewer teachers — Since 2009, Kansas schools have gained more than 19,000 students but have 665 fewer teachers.” (Quality at Risk: Impact of Education Cuts, Kansas Center for Economic Growth)

“Class sizes have increased, teachers and staff members have been laid off.” (What’s the Matter With Kansas’ Schools?, New York Times)

This is typical of the sentiment in Kansas — that there are fewer teachers since Sam Brownback became governor, and that class sizes have exploded.

Here’s the data, fresh from Kansas State Department of Education. Can you show me where there has been a reduction in teachers, or a rise in the ratio of pupils to teachers? (Class size is not the same as pupil-teacher ratio. But if there are proportionally more teachers than students, we have to wonder why class sizes are growing — if, in fact, they are.)

The story is not the same in each school district. So I’ve created an interactive visualization that lets you examine the employment levels and ratios in Kansas school districts. Click here to open the visualization in a new window.

Kansas School Enrollment and Employment
Kansas School Enrollment and Employment
Kansas School Employment
Kansas School Employment
Kansas School Pupil-Teacher Ratio
Kansas School Pupil-Teacher Ratio