An interactive visualization of tax collections by state governments shows Kansas distinguished from some of its neighbors.
As shown in the nearby illustration, Kansas collects more taxes than some nearby states, on a per-person basis. This information should guide Kansas legislators and policymakers and Kansas prepares to balance its budget. Does Kansas want to further separate itself from its neighbors with even higher taxes?
The values are from the United States Census Bureau, and are for tax collections by the state only. Local governmental entities like cities, counties, townships, improvement districts, cemetery districts, library districts, drainage districts, watershed districts, and school districts are not included.
You may use this interactive visualziaton to prepare your own analysis and illustrations. Of particular interest is the “State Total” tab. Here you can select a number of states and compare their tax burdens. (Probably three or four states at a time is the practical limit.)
Charter schools benefit minority and poor children, yet Kansas does not leverage their benefits, despite having a pressing need to boost the prospects of these children.
The CREDO studies at Stanford University are often cited as the most comprehensive and reliable research on charter schools. Opponents of charter school focus on a finding that some charter schools are worse than local traditional public schools, the figures being 19 percent for reading and 31 percent for math. Because of this, opponents of charter schools feel justified in keeping them out of Kansas. (Kansas does allow charter schools, but the law is so stacked against charter schools that there are very few, effectively none.)
The findings from the Stanford CREDO National Charter School Study from 2013 contain much more information than this simple conclusion. In particular, here is a partial quote from its executive summary: “Enrollment and persistence in charter schools is especially helpful for some students, particularly students in poverty [and] black students …”
Why would we not want to experience these benefits, especially for poor and minority students?
This is important. While the Kansas public education establishment touts the state’s relatively high performance on national tests, when results are analyzed closely, we see some things that should cause all Kansans to embrace whatever we can do to correct this.
Nearby is a chart of NAEP scores for Kansas and national public schools. It is an example from a visualization of NAEP scores that you may use yourself. I’ve circled some troubling results. An example of something that must be changed is this: For grade four math, 14 percent of Kansas black students are at the level “proficient” or better. For national public schools, the figure for the same population subgroup is 19 percent.
Following, some findings from the CREDO study that show how charter schools help precisely the students that need the most help. But the Kansas school establishment does not want charter schools, and so far Kansas Republicans — including Governor Brownback and legislative leaders — have been unwilling to help the most vulnerable Kansas schoolchildren.
“The 27 states in our study provide the widest angle view of the charter school sector to date. Across multiple measures, the students in these charter schools have shown both improved quality over the results from 2009 and an upward trend in their performance over the past five years.”
“The average charter school student now gains an additional 8 days of learning each year in reading, compared to the loss of 7 days each year reported in 2009. In math, charter students in 2009 posted 22 fewer days of learning; now that gap is closed so their learning each year is on par with their peers in traditional public schools.”
“Looking back to the demographics of the charter school sector in the 27 states, charter school enrollment has expanded among students in poverty, black students, and Hispanic students. These are precisely the students that, on average, find better outcomes in charter schools. These findings lend support to the education and social policies that focus on education as the mechanism to improve life chances for historically underserved students. Charter schools are especially beneficial learning environments for these students, as the following graphics illustrate in greater detail.”
“Enrollment and persistence in charter schools is especially helpful for some students, particularly students in poverty, black students, and English language learners all of whom post significantly higher learning gains in both reading and math. Hispanic students are on par with their TPS peers in both reading and math. For students with multiple designations (such as being black and in poverty), the impacts of charter schooling are especially positive and noteworthy.”
Wichita City Council members speak in opposition to Kansas Governor Sam Brownback’s veto of Senate Bill 338, which would have given cities additional power to take property. April 12, 2016. View below, or click here to view at YouTube. For more on this issue, see Governor Brownback, please veto this harmful bill.
In Rich States, Poor States, Kansas continues with middle-of-the-pack performance, and fell sharply in the forward-looking forecast.
In the 2016 edition of Rich States, Poor States, Utah continues its streak at the top of Economic Outlook Ranking, meaning that the state is poised for growth and prosperity. Kansas continues with middle-of-the-pack performance rankings, and fell sharply in the forward-looking forecast.
Rich States, Poor States is produced by American Legislative Exchange Council. The authors are economist Dr. Arthur B. Laffer, Stephen Moore, who is Distinguished Visiting Fellow, Project for Economic Growth at The Heritage Foundation, and Jonathan Williams, who is vice president for the Center for State Fiscal Reform at ALEC.
Rich States, Poor States computes two measures for each state. The first is the Economic Performance Ranking, described as “a backward-looking measure based on a state’s performance on three important variables: State Gross Domestic Product, Absolute Domestic Migration, and Non-Farm Payroll Employment — all of which are highly influenced by state policy.” The process looks at the past ten years.
Looking forward, there is the Economic Outlook Ranking, “a forecast based on a state’s current standing in 15 state policy variables. Each of these factors is influenced directly by state lawmakers through the legislative process. Generally speaking, states that spend less — especially on income transfer programs, and states that tax less — particularly on productive activities such as working or investing — experience higher growth rates than states that tax and spend more.”
For economic performance, Kansas is twenty-seventh. That’s up from twenty-eighth last year.
In this year’s compilation for economic outlook, Kansas ranks twenty-seventh, down from eighteenth last year and fifteenth the year before. In 2008, the first year for this measure, Kansas was twenty-ninth.
Kansas compared to other states
A nearby chart shows the Economic Outlook Ranking for Kansas and some nearby states, shown as a trend over time since 2008. The peak of Kansas in 2013 is evident, as is the decline since then.
Why Kansas fell
Kansas fell in the Economic Outlook Ranking from 2013 to 2016. To investigate why, I gathered data for Kansas from 2008 to 2016. The nearby table shows the results for 2016 and the rank among the states, with the trend since 2008 shown. A rank of one is the best ranking, so for the trend lines, an upward slope means a decline in ranking, meaning the state is performing worse.
There are several areas that may account for the difference.
The most notable change is in the measure “Recently Legislated Tax Changes (per $1,000 of personal income)” Kansas fell forth positions in rank. By this measure, Kansas added $2.67 in taxes per $1,000 of personal income, which ranked forty-seventh among the states. This is a large change in a negative direction, as Kansas had ranked seventh the year before.
In “Property Tax Burden (per $1,000 of personal income)” Kansas improved one position in the rankings, despite the tax burden rising.
In “Sales Tax Burden (per $1,000 of personal income)” Kansas fell one spot in rank. The burden is calculated proportional to personal income. The sales tax burden, as measured this way, fell slightly in Kansas, but the ranking fell in comparison to other states. (Although the Kansas sales tax rate rose in 2015, this report uses data from 2013, which is the most recent data available from the U.S. Census Bureau. It’s likely that the 2015 sales tax hike will increase this burden, but whether the ranking changes depends on actions in other states.)
Kansas improved six rank positions for “Debt Service as a Share of Tax Revenue.”
Kansas remains one of the states with the most public employees, with 672 full-time equivalent employees per 10,000 population. This ranks forty-eighth among the states.
Kansas has no tax and spending limits, which is a disadvantage compared to other states. These limitations could be in the form of an expenditure limit, laws requiring voter approval of tax increases, or supermajority requirements in the legislature to pass tax increases.
How valuable is the ranking?
After the 2012 rankings were computed, ALEC looked retrospectively at rankings compared to actual performance. The nearby chart shows the correlation of ALEC-Laffer state policy ranks and state economic performance. In its discussion, ALEC concluded:
There is a distinctly positive relationship between the Rich States, Poor States’ economic outlook rankings and current and subsequent state economic health.
The formal correlation is not perfect (i.e., it is not equal to 100 percent) because there are other factors that affect a state’s economic prospects. All economists would concede this obvious point. However, the ALEC-Laffer rankings alone have a 25 to 40 percent correlation with state performance rankings. This is a very high percentage for a single variable considering the multiplicity of idiosyncratic factors that affect growth in each state — resource endowments, access to transportation, ports and other marketplaces, etc.
Today Kansas Governor Sam Brownback vetoed Senate Bill 338. As explained by John Todd, this bill unnecessarily and dangerously increased the power of cities over private property rights. Thank you to the governor for understanding the harm of this bill and acting appropriately. Most of all, thank you to John Todd for recognizing the bill’s danger, for his committee testimony, and for his tireless work in helping inform the governor and his staff about this bill.
Following, the governor’s veto message:
The right to private property serves as a central pillar of the American constitutional tradition. It has long been considered essential to our basic understanding of civil and political rights. Property rights serve as a foundation to our most basic personal liberties. One of government’s primary purposes is to protect the property rights of individuals.
The purpose of Senate Bill 338, to help create safer communities, is laudable. However, in this noble attempt, the statute as written takes a step too far. The broad definition of blighted or abandoned property would grant a nearly unrestrained power to municipalities to craft zoning laws and codes that could unjustly deprive citizens of their property rights. The process of granting private organizations the ability to petition the courts for temporary and then permanent ownership of the property of another is rife with potential problems.
Throughout the country, we have seen serious abuse where government has broadened the scope of eminent domain, especially when private development is involved. The use of eminent domain for private economic development should be limited in use, not expanded. Senate Bill 338 opens the door for serious abuse in Kansas. Governmental authority to take property from one private citizen and give it to another private citizen should be limited, but this bill would have the effect of expanding such authority without adequate safeguards.
Kansans from across the political spectrum contacted me to discuss their concerns that this bill will disparately impact low income and minority neighborhoods. The potential for abuse of this new statutory process cannot be ignored. Government should protect property rights and ensure that the less advantaged are not denied the liberty to which every citizen is entitled.
There is a need to address the ability of municipalities and local communities to effectively maintain neighborhoods for public safety. However, Senate Bill 338 does much more. Though I am vetoing this bill, I would welcome legislation that empowers local communities to respond to blight and abandoned property that does not open the door to abuse of the fundamental rights of free people.
How does Kansas state support for higher education compare to other states?
In the Wichita Eagle, Chapman Rackaway contributes a satirical look at Kansas Governor Sam Brownback and his handling of Kansas government. And, the governor deserves many of Rackaway’s jabs. But there is something that needs clarification, which is the contention that Kansas is a backwater state when it comes to higher education funding, at least compared to Washington state. (Chapman Rackaway: How about Brownback as K-State president?, April 8, 2016.)
Rackaway writes: “That Washington State could pay [departing Kansas State University president Kirk] Schulz so much more is unsurprising to anyone paying attention to states’ budget priorities.” He goes on to write that Kansas government has not prioritized higher education funding, and that Washington state recently committed to additional higher education support.
There are organizations that collect and present data on this topic. State Higher Education Executive Officers Association publishes a report titled State Higher Education Finance (SHEF) study 1 The figures used below are for the most recent year for which data is available.
According to this report, in fiscal year 2014, Kansas appropriated $5,648 per FTE. Washington’s figure is $5,700, or 0.9 percent more than Kansas. Over the past five years, Kansas appropriations per FTE fell by 15.8 percent. In Washington they fell by 20.6 percent. (Table 5)
For fiscal year 2013, higher education support per capita in Kansas was $342. In Washington, it was $197. The same table also reports higher education support per $1000 of personal income. In Kansas the figure is $7.70, and in Washington, $4.13. For Kansas, these two figures are 132 percent and 133 percent of the national average. (Table 10)
From these two data points — and these are not the only ways to compare — I think we can conclude that Kansas appropriates nearly as much as does Washington, on a per-student basis.
Further, Kansans are much more generous in supporting its public universities, when measured by per-capita contribution. (Calling Kansans generous with their taxes is a falsehood, as taxation has nothing to do with generosity, except the generosity of politicians with money that belongs to other people.)
The Wichita Pachyderm Club is a friendly club. Everyone is welcome to attend meetings. The meeting cost, which includes a delicious buffet lunch plus coffee and/or iced tea, is $15 ($12 for Pachyderm Club members). This event is held in the Wichita Petroleum Club, located on the top floor of the Ruffin Building at 100 N. Broadway. You may park in the garage on Broadway, and if you do, bring your parking ticket to have it stamped for $1.00 parking.
First, Dunphy refers to Sam Brownback as the “Tea Party” governor of Kansas. As far as I know, the tea party favors reducing not only taxation, but spending too. Given the choice, Brownback preferred raising taxes rather than cutting spending. Not very tea party-like.
Dunphy: “Moderate Republicans who voiced objections to such extremist politics were targeted by the Tea Party and voted out of office in 2012. With the legislature now dominated by True Believers, Brownback was able to pass the largest tax cut in Kansas history.” I’ll leave it to others to judge whether the legislators voted into office in 2012 classify as “True Believers.” (My opinion is that True Believers are scarce in the Kansas Legislature.) But I do know this: The tax cuts were passed during the 2012 legislative session, which ended months before the 2012 primary elections. There seems to be a timing issue here.
Dunphy: “With such drastically-reduced revenue, Kansas had to cut social services.” Except Kansas spending has continued to climb, although there have been a few cuts here and there.
Dunphy: “Rather than admit that slashing taxes created a disaster …” Tax cuts allow people to keep more of what is rightfully theirs. That is not a disaster. That is good.
Dunphy: “Trickle-down economics doesn’t work. Although most Republicans choose to ignore it, George H.W. Bush said as much while campaigning for the GOP presidential nomination in 1980.” Contrary to this assertion (made during a political campaign, and we know how much those are worth), the administration and policies of Ronald Reagan ushered in the The Great Moderation, a period of sustained economic growth.
In this episode of WichitaLiberty.TV: Do corporations prefer markets or big government? Legislative malpractice in Kansas. Education reform, or lack thereof. View below, or click here to view at YouTube. Episode 115, broadcast April 3, 2016.
Senate Bill 338 has been passed by the Legislature and is now on its way for Governor Sam Brownback to consider. The Governor should veto this bill. This bill gives cities, in conjunction with their preferred nonprofit organizations, the ability to take possession of unoccupied residential houses that the property taxes are currently paid in full. This bill will clearly place vulnerable senior citizens and less affluent property owners in the position of being victimized.
Cities in Kansas have all the powers they need to deal with property issues through current law. Over the past few years, the City of Wichita has bulldozed hundreds of houses for housing code violations. Enhancing the power of cities and their appointed nonprofit redevelopment organizations to take privately owned properties they do not own without compensation is wrong.
In this episode of WichitaLiberty.TV: There are a few things that make Bob wonder. Then, a troubling episode for Wichita government and news media. Finally, the harm of teachers unions. View below, or click here to view at YouTube. Episode 114, broadcast March 27, 2016.
KNEA says: “Jeff Melcher, the man who has fought to completely eliminate collective bargaining and other rights for teachers continued his war today with his bill intended to end teacher representation.”
The bill simply mandates elections every three years on whether teachers are satisfied with their current representation, which is almost always KNEA or an affiliate. It’s not surprising the union is opposed to this. Accountability, after all.
KNEA says: “Make no mistake, the intent of this bill is to end professional representation for teachers and leave them as at-will indentured labor.” Indentured labor!Government employees as indentured labor! By whom are teachers indentured? Other government employees (principals and superintendents)? What, do principals and superintendents get masters and doctors degrees in learning how to indenture the teachers that work for them? Why do professionals like these need a labor union to manage their relationship? Who would want to enter a profession where a labor union is needed to protect them from their bosses (or oppressors, as the teachers union would lead us to believe)?
KNEA says: “In a very fundamental way, this war on teachers and schools is about selling off public schools to the highest corporate bidder and making a quality education a privilege not a right.”
Here we see bashing of capitalism. You see, the teachers union believes that education can’t be run by the private sector. Never mind that charter schools and for-profit schools are successful in many areas of the country — but their teachers are not often union members. Second, with school choice programs the state still pays for students to attend private and charter schools. All that changes is parents have the privilege of choice for the children.
KNEA says: “Would force the teachers to pay for state mandated elections.”
No, the union pays for the elections.
Kansas progressives and Democrats oppose a judicial selection system that is used by U.S. Presidents, both Democrats and Republicans.
What is the substantive difference between these two systems?
A) A state’s chief executive appoints a person to be a judge on the state’s highest court. Then the state’s senate confirms or rejects.
B) A nation’s chief executive appoints a person to be a judge on the nation’s highest court. Then the nation’s senate confirms or rejects.
Perhaps there is a difference that I’m not smart enough to see. I’m open to persuasion. Until then, I agree with KU Law Professor Stephen Ware and his 2007 analysis of the way Kansas selects Supreme Court judges as compared to the other states.1 That analysis concludes that “Kansas is the only state in the union that gives the members of its bar majority control over the selection of state supreme court justices.”
Ware has made other powerful arguments in favor of discarding the system Kansas uses: “In supreme court selection, the bar has more power in Kansas than in any other state. This extraordinary bar power gives Kansas the most elitist and least democratic supreme court selection system in the country. While members of the Kansas bar make several arguments in defense of the extraordinary powers they exercise under this system, these arguments rest on a one-sided view of the role of a judge.”2
Judges, Ware says, make law, and that is a political matter: “Non-lawyers who do not know that judges inevitably make law may believe that the role of a judge consists only of its professional/technical side and, therefore, believe that judges should be selected entirely on their professional competence and ethics and that assessments of these factors are best left to lawyers. In short, a lawyer who omits lawmaking from a published statement about the judicial role is furthering a misimpression that helps empower lawyers at the expense of non-lawyers, in violation of basic democratic equality, the principle of one-person, one-vote.”3
For Kansas progressives and Democrats to oppose Kansas adopting the same system that has enabled Barack Obama to appoint two liberal justices to the U.S. Supreme Court, with perhaps more to come — don’t they realize that Kansas will (likely) have a Democratic governor someday? As Clay Barker noted, for the last 50 years, no Kansas governor has been followed by a successor of the same party (except for Mark Parkinson filling the remainder of a term after Kathleen Sebelius resigned). If that pattern holds — and there’s no guarantee that it will — the next Kansas governor will be a Democrat, just three years from now.
Superficially, it doesn’t seem to make sense for Kansas Democrats to oppose the governor making judicial selections while supporting the President of the United States having the same power. It does make sense, however, when we realize that Kansas Democrats are comfortable with the state’s bar selecting the judicial nominees that the governor may consider. (Which gives truly useful and enjoyable bars a bad name.) Lawyers, especially lawyers that take an active role in politics, tend to be Democrats, and progressive Democrats at that. If the Kansas bar was dominated by constitutional conservatives, would Kansas Democrats feel the same?
I’m not claiming that the motives of conservative Kansas Republicans are pure. Will they change their stance on the desirability of the governor appointing Supreme Court judges if there is a Democratic governor? I don’t know, but I have a suspicion.
Defenders of the current Kansas system claim that the system is based on merit, not politics. To which we must note that this year the Kansas Supreme Court was reversed by the United States Supreme Court. It wasn’t even close, with justices voting eight to zero that the Kansas court was wrong in its application of the law. (The other Supreme Court justice said “I do not believe these cases should ever have been reviewed by the Supreme Court.)
Ware, Stephen J., The Bar’s Extraordinarily Powerful Role in Selecting the Kansas Supreme Court (September 25, 2009). Kansas Journal of Law & Pubic Policy, Vol. 18, No. 3, p. 392, 2009. Available at SSRN: http://ssrn.com/abstract=1478660. ↩
A bill working its way through the Kansas Legislature will give cities additional means to seize property.
The bill is SB 338, titled “Rehabilitation of abandoned property by cities.” This bill has passed the Senate by a vote of 32 to eight. It has had a hearing in the House of Representatives.
Wichitan John Todd is opposed to this bill and provided oral and written testimony this week to a House committee. In his testimony, Todd made these points, among others:
Senate Bill 338 appears to provide local governmental units with additional tools that they don’t need to “take” properties in a manner that circumvents the eminent domain statutes that private property rights advocates fought so hard to achieve in 2006.
The total lack of compensation to the property owner for the deprivation or taking of his or her property is missing in the bill.
Allowing a city or their third party take possession of vacant property they do not own and have not obtained legal title to is wrong.
Please take a look at a comparison between a free-market private sector solution as contrasted to a government mandated program to achieving affordable housing and the impact highly subsidized government housing solutions are having on adjacent home owners.
In closing his testimony, Todd remarked: “In summary, cities in Kansas clearly have all the powers they need to deal with property issues through current law. By enhancing the power of cities and their appointed non-profit community redevelopment organizations to ‘take’ privately owned properties without compensation in an involuntary manner violates the individual private property rights that are essential for the rule of law and liberty to prevail.”
Click here to view Todd’s written testimony and visual exhibits.
Separately, Todd supplied a map of a portion of northeast Wichita. He remarked:
I am told that there are over 100 vacant lots in this neighborhood represented by green color. It also shows “Poor” and “Very Poor to Unsound” properties in tan and yellow. SB 338 was touted to provide a tool to deal with blight. The point of this map is to demonstrate how the City of Wichita has been using existing law to deal with blighted properties, and how this law has facilitated the destruction of huge numbers of houses. Many had economic value, but there was no compensation to the property owners. My conclusion was that given the existing law, coupled with tax foreclosure sales, there was no need to give cities additional tools.
What we have under existing law is actually a regulatory taking of private property with no compensation to property owners. Passage of SB 338 would expand those tools to allow cities or their chosen non-profit entities to seize vacant properties they do not have legal title to. The result for a property owner is a “regulatory taking,” ordered by the Kansas Courts with no compensation, allowing the city or the non-profit time to seek title through a mandated court order and judicial deed. Both are methods of forced government transfer and are wrong.
Kansas City Star editorialist Steve Rose visits with Kansas State Senator Jim Denning.
It’s helpful for Kansans to have commentary and factual injection accompany a Steve Rose editorial in the Kansas City Star. In this case let’s look at a column based on his interview with Kansas State Senator Jim Denning.
Steve Rose: “The numbers can be sliced and diced to make a positive or negative picture, but it is undeniable that Kansas government itself is virtually bankrupt, and Brownback’s tax policies are responsible.”
A government can balance a budget by taxing more or spending less. We see the clear preference of Rose here: There is not enough taxation. We now have an efficiency study that shows some ways to save money. The question is why didn’t the legislature commission this study in 2012, the year in which it cut taxes?
“[State Sen. Jim Denning of Overland Park] Denning said: ‘The governor rolled the dice on the most aggressive tax cut policy in history, and things just did not turn out the way he expected.'”
It’s a shame to see Republicans — or anyone, for that matter — referring to tax cuts as “rolling the dice.” Cutting taxes simply means that people are allowed to keep more of what is rightfully theirs in the first place — which is a good thing. There is legitimate concern that the 2012 tax cuts were distributed in an unfair or unwise way. The way to fix that is to cut taxes for those who didn’t receive the purportedly unfair cuts.
As far as the results of the tax cuts, the governor should not have bragged as he did. The ability of government to manage the economy is limited, especially at the state level. Consider the Obama stimulus. The nation’s unemployment rate was always above the rate the administration predicted if there were no stimulus. See Brownback and Obama stimulus plans.
Further, what is the role of taxation in Kansas? Is it taxation or government spending that is purportedly good for the Kansas economy? Is it to support spending? If so, the tax cuts have not have an effect on spending. While some programs have been trimmed, overall state spending continues on a largely upward trend (for all funds spending) or remains mostly flat (for general fund spending). See Spending and taxing in Kansas.
Denning: “If we would have closed the [LLC] loophole, we would have brought in an additional $200 million, and the governor would have been a hero.”
The LLC loophole Denning refers to is the zero income tax on pass-through business income. Eliminating it and recapturing the $200 million would not have balanced the Kansas budget. In fiscal years 2014 and 2015 the state spent $340 million and $308 million more than it took in as revenue. Spending restraint is necessary.
Denning: “The Legislature has controlled spending to the lowest levels on record. … Our constituents wanted us to reduce spending, and we did.”
The economic details of a semi-secret sale of bonds by the State of Kansas are worse than what’s been reported.
The late realization last year that the Kansas Department of Transportation had issued $400 million in long-term bonds — largely under the radar — has been met with appropriate levels of indignation by some editorial writers. An example is Dr. Edward Flentje who wrote:
Right-wing Republican lawmakers have operated under the radar to suspend all statutory limits on highway debt, and that unprecedented authority was recently used to issue record-breaking levels of long-term debt to pay for their reckless income tax cuts this year and next.
Six lines buried deep in a 700-page appropriation bill last spring gave the Kansas Department of Transportation unlimited authority to issue debt, and in early December, without public disclosure, the agency used that authority to issue $400 million in highway bonds. (H. Edward Flentje: Debt limits suspended to pay for tax cuts, Wichita Eagle, December 18, 2015)
A few notes: The Secretary of Transportation has, in the past, been given broad — but maybe not “unlimited” — authority to issue bonds and borrow money. The series 2012C bonds were issued with this statement: “The 2010 Act Amendments authorized the Secretary to issue highway revenue bonds so long as the Secretary certifies that, as of the date of issuance of any such bonds, the maximum annual debt service on all Outstanding Bonds and on such bonds proposed to be issued will not exceed 18% of Revenues projected for the then-current or any future Fiscal Year.”
In 2010 Kansas had a Democrat for a governor, which should caution us to not make this issue too political. As far as borrowing from the “Bank of KDOT,” it’s been done before, as explained in 2015 by KDOT. 1 And, payments on these loans have been deferred or not made.
Instead of politicizing the issue, let’s concentrate on the facts and merits. And when looking at the Series 2015B bonds, there is plenty to criticize.
First, the state will not pay any principal on these bonds until 2026. Until then the state will pay only the interest on the $400 million, which is $20 million per year. Then, starting in 2026, the state will make 11 annual payments of various amounts towards the principal. In all, KDOT’s schedule shows the state will pay $282,494,750 in interest on a loan of $400 million.
I don’t think that most Kansans would appreciate the state borrowing so much money for such a long time without making any effort at retiring the principal. But before we politicize: The KDOT Series 2010A bonds ($325 million, dated September 1, 2010) don’t require principal payments until 2032. (These bonds are “Buy America Bonds,” a program of the 2009 American Recovery and Reinvestment Act, and the federal government will pay 35 percent of the interest.) The plan, as outlined in KDOT’s official statement, is that starting in 2032 the state will make five annual payments of between $61 million and $69 million, totaling $325 million, and then the bonds will be retired. 2
There’s even more to criticize about the 2015B bonds. The actual proceeds the state will receive from the bonds (after costs of issuance and the underwriters’ discount) is $488,242,912. How, you may be asking, can the state issue $400 million in bonds but receive $488 million when it sells them? The answer is an “original issue premium” of about $89 million.
To explain: Bonds similar to these ought to yield in the range of 2.00 percent to maybe 2.75 percent. But, KDOT is paying 5.00 percent interest. Therefore, bond buyers are willing to pay more than the face value (the $400 million) for these bonds, because they will be earning higher-than-market interest. 3 In fact, these bonds were sold at premiums ranging from 119 percent to 126 percent. Meaning that for every $1.00 worth of bonds bought (representing money the state must repay), the state actually received from $1.19 to $1.26. 4
That sounds like a good deal for the state, but in exchange for the premiums, the state pays much higher interest. There are several different ways of looking at this, but the upshot is that the state is receiving additional money now in exchange for paying a higher interest rate for many years. About $89 million in extra interest, which increases the actual cost of these bonds beyond what we thought.
(Again, before we politicize, the state under a Democratic governor has done the same.)
The allure of borrowing large sums and spending now is not limited to transportation bonds. The state is currently using the recent $1 billion in proceeds from KPERS bonds as a rationale to skip KPERS contributions this year, and also suspend a rule that most proceeds from the same of surplus property goes to KPERS. See This is why we must eliminate defined-benefit public pensions.
FY 2002 Loan to State General Fund. The 2002 Legislature borrowed $94.6 million from the State Highway Fund for the State General Fund and directed that the funds were to be repaid to the State Highway Fund by June 30, 2003. The 2003 Legislature deferred the repayment of the $94.6 million loan into four equal annual installments beginning prior to June 30, 2007. In addition, the 2003 Legislature directed that the State Highway Fund transfer to the State General Fund $30.6 million for activities of the State Highway Patrol and the 2003 Legislature directed that this transfer also be repaid in four equal annual installments beginning prior to June 30, 2007. The first repayment installment was made in June 2007 and the second in June 2008. The 2009 Legislature delayed the June 2009 repayment to June 2011 and the 2010 Legislature eliminated the language authorizing the June 2011 repayment. At this time, there is no authorization for the final two repayments. The Department’s projections included in this Official Statement do not include receiving the final two repayments. ↩
Actions considered by the Kansas Legislature demonstrate — again — that governments are not capable of managing defined-benefit pension plans.
The Kansas Legislature is considering a bill that will allow Governor Sam Brownback to defer making payments to KPERS, the state’s defined-benefit pension system for public employees. The deferred payments would be made up in future years, although there is really no mechanism to enforce this.
Also, the bill considers eliminating the requirement that when the state sells surplus property, that 80 percent must be used to reduce the unfunded actuarial pension liability of KPERS. There is also a moratorium on employer contribution to KPERS Death and Disability fund, which is much smaller than the retirement fund.
That unfunded liability is a big problem. It refers to the difference between what KPERS expects to pay compared to the revenue it expects to receive. In recent years the Kansas pension fund has been among the worst in the country, based on the funded ratio. The nearby charts shows the trend of this funded ratio through 2014, the latest date for KPERS valuation reports.
Last year the state issued $1 billion in bonds to address a portion of the unfunded liability. While this helps KPERS, it simply means that the state owes another billion dollars on a different balance sheet. But it’s the same taxpayers that will eventually pay.
Barry Poulson, Ph.D., Emeritus Professor at the University of Colorado — Boulder has written on the danger of borrowing to shore up state pension funds. As explained below, there is the “lack of nexus between the investment of the bond proceeds and payments for unfunded liabilities in the plan.” This means that the borrowed funds may be used for current spending rather than for correcting the KPERS unfunded liability.
He further explains: “If legislators see that additional funds are available to pay off unfunded liabilities in the pension plan they may choose to allocate less general fund money to meet these pension obligations.”
This is what is happening in Kansas. The borrowing of a billion dollars has let legislators and the governor feel — incorrectly — that there is breathing room, and that the state can slack off making the contributions it should be making this year. This is highly irresponsible and reckless.
Following, from Dr. Paulson:
A major flaw in the proposed issuance of pension obligation bonds is the lack of nexus between the investment of the bond proceeds and payments for unfunded liabilities in the plan. The experience in other states is that sometimes bond proceeds are earmarked for other state expenditures. The most egregious example of this problem is the state of Illinois which issued $10 billion in pension obligation bonds and then used the proceeds to meet current expenditures rather than to pay off unfunded liabilities in the pension plan.
Even if the state of Kansas would not commit this form of fraud on the taxpayers the fungible nature of state funding makes it impossible to guarantee the nexus between bond proceeds and the payment for unfunded liabilities in the pension plan. If legislators see that additional funds are available to pay off unfunded liabilities in the pension plan they may choose to allocate less general fund money to meet these pension obligations. The state has not allocated the annual required contribution (ARC) to KPERS for several decades and is not projected to do so for the foreseeable future. Legislators continue to promise pension benefits without allocating the funds required to meet these obligations. We should expect this moral hazard to be even greater with the issuance of pension obligation bonds.
Even if the proceeds of pension obligation bonds could be set aside in a lock box and earmarked to pay off unfunded liabilities in the pension plan the state must still address the accumulation of unfunded liabilities in the defined benefit plan. Without fundamental structural change, including shifting public employees to some form of defined contribution pension plan, these unfunded liabilities will continue to accumulate. Legislators should not be diverted from this difficult task by non-reforms, such as the issuance of pension obligation bonds.
In a press release, ACU said “This year’s ratings of the 2015 Kansas legislature by the American Conservative Union Foundation revealed that a little over a quarter of all Republican legislators are willing to do what it takes to defend the freedom of everyday Kansans. After an analysis of their voting records, ACU will recognize 36 members for their effort to work towards enacting conservative solutions.”
The chair of ACU is Matt Schlapp, a former Wichitan and son of former Wichita City Council Member Sue Schlapp.
According to ACU, the ratings are based on constitutional principles: “Like our Congressional ratings, ACU’s State Ratings reflect how elected officials view the role of government in an individual’s life. Kansas legislators with the strongest scores consistently voted with the ideals articulated in our U.S. Constitution.”
ACU says these members will receive a 2015 ACU Ratings Award:
Representatives: BRUNK, B. CARPENTER, CLAEYS, CORBET, COUTURE-LOVELADY, DeGRAAF, GARBER, GOICO, GROSSERODE, HIGHLAND, HILDABRAND, HOUSER, K. JONES, KELLEY, LUNN, MACHEERS, MASON, McPHERSON, POWELL, RHOADES, SCHWAB, SUTTON, THIMESCH, TODD, and WHITMER
Senators: BAUMGARDNER, DENNING, LYNN, MELCHER, O’DONNELL, PILCHER-COOK, POWELL, PYLE, and SMITH
The ACU press release is here, and the full report with vote explanations and rakings for all members is here.
In this excerpt from WichitaLiberty.TV: There are things simple and noncontroversial that the Kansas Legislature should do in its upcoming session. View below, or click here to view at YouTube. Originally broadcast January 3, 2016.
Difficulty balancing the Kansas budget is different from, and has not caused, widespread spending cuts.
Across the state Kansas newspapers declare Governor Sam Brownback’s tax cuts a failure. There are two prongs of criticism. One is that the budget is not balanced; that is, the state is spending more than it has received in revenue. That has been true, especially for fiscal years 2014 and 2015. That problem can be fixed by either collecting more revenue, or by cutting spending. Last year the Governor and the Legislature decided to balance the budget by relying, almost entirely, on collecting more revenue. Raising taxes, in other words.
The second prong of attack on the tax cuts is to hold them responsible for spending cuts. This is what really upsets the state’s liberals and moderates. Here’s an example. Former Kansas State Budget Director Duane Goossen recently wrote “The Brownback tax cuts brought the revenue stream down so significantly that truly damaging expense cuts coupled with a sales tax increase have not repaired the budgetary mess.” (emphasis added) (I will agree with Goossen that we have a problem with the budget, a problem that could be fixed with relatively small reforms in spending. But Goossen wants more revenue.)
But have there been severe spending cuts in Kansas? “Truly damaging” cuts? While some programs have been trimmed, overall state spending continues on a largely upward trend (for all funds spending) or remains mostly flat (for general fund spending).
So why are Kansas liberals and moderates upset? It is the spending of money by government that is important when considering how well the state is providing the services liberals and moderates (conservatives, too) look for government to provide. Taxation is merely one way to pay for government spending. And spending isn’t declining.
Is this an important distinction?
For the years when Kansas was spending down its bank balance, the state was experiencing the benefit of Washington-style deficit spending. That is, the state was spending more than it collected in revenue. The difference is that Kansas made up the revenue deficit by using savings rather than debt. (At least mostly so.)
(Another difference between Kansas and federal spending is that Kansas can’t continue to borrow to support spending unless it engages in extraordinary measures, some of which may have happened. The federal budget, however, has been in a permanent state of deficit spending since 2000 and appears to remain in deficit for as far as anyone can project.)
The takeaway is that problems with balancing the budget is not the same as spending cuts. We’ve had the former, but not the latter, when considering the entire budget.
Nearby charts show Kansas government spending, from both the general fund and all funds spending. One chart shows total dollars spent, and one shows per-capita spending. Both are adjusted for inflation. On these charts it’s difficult to see where total spending has been cut or slashed in recent years. All funds spending continues its upward trend, with a few exceptions. General fund spending remains level or trending slightly upwards.
Notes for charts:
Data is from Kansas Fiscal Facts 2015
2015 through 2017 are approved figures, not actual spending
2015 and beyond population are my estimates
CPI is Consumer Price Index – All Urban Consumers, CUUR0000AA0