Category Archives: Kansas state government

Highway budget cuts and sweeps in Kansas

A public interest group makes claims about Kansas roads and highways that are not supported by data. It’s not even close.

Excerpt from fundraising email. Click for larger.
A fundraising email sent by Save Kansas Coalition makes claims about Kansas roads and highways that readers will recognize as a few of the standard complaints common among Kansas spending and taxation advocates. It’s charitable, thoough, to call them complaints, because they are actually outright lies.

“Budget cuts and sweeps from the Bank of KDOT have decimated our state’s transportation infrastructure investments.” Decimate means “to reduce drastically” or “to cause great destruction or harm to.”1

Total spending on major road programs in Kansas. Click for larger.
Spending on major road programs in Kansas. Click for larger.
Reading that, you might think that spending has been cut by — how much? 10 percent? That doesn’t sound like decimating. 50 percent? 75 percent? That’s more like what decimating means.

So what is the story on Kansas Department of Transportation spending? Nearby is a chart. It shows amounts of money actually spent on road and highway programs, according to KDOT’s annual financial reports. SKC is correct, partially. There have been sweeps from KDOT to the general fund. Those are not a good idea, even though they’ve been practiced for many years. But as shown nearby and in more detail at Spending on roads in Kansas spending has not declined. It been up and down a little, but is higher than it was in 2007 and 2008, before the recession.

In particular, spending on maintenance has been fairly level until dipping a bit in 2016. Spending on preservation rose rapidly until dipping, also in 2016. It’s still twice as high as in the pre-recession years of 2007 and 2008.

Does this sound like spending has been decimated?

Transfers from sales tax to Kansas highway fund. Click for larger.
By the way, there are sweeps from sales tax to the highway fund. Nearby is another chart showing how much sales tax was transferred to the highway fund. In 2006 the transfer was $98,914. In 2016 it was $517,698, an increase of $418,784 or 423 percent.

SKC also writes: “Whereas we formerly maintained 1200 miles of roadway each year, the state now can only afford 200 miles of upkeep. That means road repair once every 50 years!”

Each year KDOT publishes a list of the road projects underway. I’ve obtained this data in machine-readable form for five years, and I present the relevant data in a nearby table.

(A few definitions: According to KDOT, “The Preservation program protects the public’s investment in its highway system by maintaining the ‘as built’ condition of roads and bridges. Projects in this group range from roadway surfacing rehabilitation and bridge repairs to pavement and bridge replacement.”2 For Modernization, KDOT says “Projects under this program are designed to enhance safety and/or improve roadways by adding shoulders, flattening hills, straightening curves and upgrading intersections on already existing roadways.”3)

While SKC isn’t specific in what it means by “maintained” or “upkeep,” it’s possible it is referring to the category “Non-Interstate Resurfacing (PMS 1R).” As you can see in the table, the number of miles in the program has risen for the past three years, and is far above the 200 miles SKC claims we can afford.

The claims made by Save Kansas Coalition don’t add up. Ironically, SKC’s website promises “A willingness to engage in meaningful discussion, in-depth research and critical analysis is vital to the health of the Kansas economy.” But nothing in the record of relevant data supports these claims — unless SKC has secret data it isn’t willing to share.

Sum of KDOT projects, selected categories, measured in miles. Click for larger.


Notes

  1. Merriam-Webster. https://www.merriam-webster.com/dictionary/decimate.
  2. Appendix to the Kansas Department of Transportation’s 2016 Annual Report.
  3. ibid

Kansas revenue estimates

Kansas revenue estimates are frequently in the news and have become a political issue. Here’s a look at them over the past decades.

A favorite criticism of liberals and progressives across the nation is that in Kansas, actual revenues to the state’s general fund have fallen short of projections, month after month. Reading most newspaper reports and editorials, one might think that these negative variances are a new phenomenon, and one relished by the Left. As many as a dozen articles on this topic have appeared in the New York Times in the past two years.

The revenue estimates in Kansas are produced by a body known as the Consensus Revenue Estimating Group. It consists of one member each from the Division of the Budget, Department of Revenue, Legislative Research Department, and one consulting economist each from the University of Kansas, Kansas State University, and Wichita State University.

As described: “This group meets each spring and fall. Before December 4th, the group makes its initial estimate for the budget year and revises the estimate for the current year. By April 20th, the fall estimate is reviewed, along with any additional data. A revised estimate is published, which the Legislature may use in adjusting expenditures, if necessary.”1

The estimates are important because the legislature and governor are required to use them when formulating budgets and spending plans. If the estimates are high, meaning that revenue is less than expected, it’s possible that the legislature or (more likely) the governor will need to make spending cuts. (The other alternative is that leftover funds from prior years may be used, if available.)

If, on the other hand, the estimates are too low, meaning that revenue is higher than expected, the state has collected too much tax revenue. In this case, the state should refund the excess to taxpayers. Some states do that, notably Colorado, although residents may vote to let the state keep the excess.

Some states have true rainy day funds, and the excess revenue might be used to build that fund’s balance. In a true rainy day fund, the fund’s balances can be spent only during specific sets of circumstances.

But in Kansas, the excess revenue is simply called the “ending balance” and is available to spend at the legislature’s whim. That’s what happened in fiscal years 2014 and 2015, when the state spent $340 million and $308 million, respectively, of the ending balance rather than cut spending.

What has been the history of the revenue estimates compared to actual revenue? First, know that making these estimates is not easy. Some of the inputs to the process include the inflation rate in future years, interest rates in future years, and the prices of oil and natural gas in the future. If someone knew these values with any certainty, they could earn huge profits by trading in futures markets.

The state makes the revenue estimates available.2 I’ve presented the results since 1975 in a chart at the end of this article. For each year, two numbers are presented. One it the difference from the Original Estimate and actual revenue. The other is the difference from the Adjusted Final Estimate and actual revenue.

We can see that in fiscal years 2014 and 2016, the variance of the estimates is negative, meaning that revenue was lower than the estimates. The magnitude of these variances, however, is not out of line with the magnitude of the variances of other years, either positive or negative.

In fact, the negative variances — revenue shortfalls, in other words — in the periods 2002 to 2003 and 2009 to 2010 were generally much larger in magnitude than those of recent years. This is of interest as Duane Goossen, who was the budget director during these periods, is a prominent critic of the recent revenue shortfalls. Evidently, he has forgotten the difficulty of creating these estimates.

While Goossen along with newspaper reporters and editorialists use the negative revenue estimate variances as a political weapon against the governor and conservatives, it is in the interest of the people of Kansas that revenue estimates be as accurate as possible. In an effort to produce more accurate revenue estimates, Governor Brownback created a commission to study the issue. That group released its report in October.3

Kansas revenue estimate errors. Click for larger.


Notes

  1. Consensus Revenue Estimating Group. Available at budget.ks.gov/cre.htm.
  2. Kansas Division of the Budget. State General Fund Receipt Revisions for FY 2016 and FY 2017. May 2, 2016. Available at: budget.ks.gov/files/FY2017/CRE_Long_Memo_April2016.pdf. Also Kansas Legislative Research for 2016 figures.
  3. Governor’s Consensus Revenue Estimating Working Group. Final Recommendations. Available at budget.ks.gov/files/FY2017/cre_workgroup_report.pdf.

In Kansas, the war on property rights

John Todd makes an appearance on The Voice of Reason with Andy Hooser to talk about proposed legislation in Kansas that would be harmful to private property rights. View below, or click here to view on YouTube. Recorded on March 16, 2017.

For more information on this important issue, see In Kansas, the war on blight continues: Kansas governments are trying — again — to expand their powers to take property to the detriment of one of the fundamental rights of citizens: private property rights.

Kansas tax receipts

Kansas tax receipts by category, presented in an interactive visualization.

The Kansas Division of the Budget publishes monthly statistics regarding tax collections. I’ve gathered these figures present them in an interactive visualization. In the visualization, there are these available tabs:

Table: A table of data. For each month the two data items supplied by the state are the actual value and the estimated value. This table also holds the computed variance, or difference, between the actual value and the estimated value. A positive number means the actual value was greater than the estimated value.

Collections: Shows monthly collections for each component. Because monthly numbers vary widely, this data is presented as the moving average of the previous 12 months.

Annual Change: Shows the change from the same month of the previous year. A positive value means the value for the month is greater than the same month last year.

Estimates: The Governor’s Consensus Revenue Estimating Working Group provides monthly estimates. This chart shows the variance, or difference, between the actual value and the estimated value. A positive number means the actual value was greater than the estimated value.

Running Total Estimates: This is the cumulative sum of the estimate variances, reset to zero at the start of each fiscal year (July 1).

Running Total Change from Prior Year: This is the cumulative sum of the monthly changes from the prior year, reset to zero at the start of each fiscal year (July 1).

Since July 2014, individual income tax collections have been relatively flat. Corporate income tax collections are on a slight downward trajectory.

Retail sales tax and compensating use tax have been mostly rising. A higher sales tax rate took effect on July 1, 2015, with the rate rising from 6.15 percent to 6.50 percent.

Cigarette taxes rose rapidly since July 2015 when higher tax rates on these products took effect. After peaking, collections are declining.

Severance taxes — tax collected on natural gas and oil as it is extracted from the ground — have been on a downward trend since July 2014 as prices for these products have fallen. This is a sizable tax. In June 2014 collections of this tax were running at about $143 million per year. For February 2017, the rate is $32 million annually.

Click here to use the visualization.

Source of data is Kansas Division of the Budget.

Lessons from Kansas tax reform

What can the rest of the nation learn from our experience in Kansas? Come to think of it, why haven’t we learned much?

Economists from American Legislative Exchange Council have looked at Kansas and derived some lessons from our state’s struggle with tax reform. The document is titled Lessons from Kansas: A Behind the Scenes Look at America’s Most Discussed Tax Reform Effort. A few remarks and quotations:

It may be difficult for us in Kansas to see how the rest of the country views our state. But it’s all about the struggle between those who want more government, and those who want more private sector activity: “… it is clear to most observers of state policy at this point Kansas was, and continues to be, a flashpoint in debates about state tax policy. That flashpoint has served as something of a proxy war between big government advocates and those who would prefer to shrink the size and scope of state government.”

While taxes were cut, the state failed to make the other needed reform: “Spending reductions necessary to implement the plan were eschewed in favor of other tax increases, making any honest judgement of the original plan’s success or failure impossible.”

On the 2012 plan, was it all for business pass-throughs, or for everyone? “Enacted an estimated $4.5 billion in tax relief over five years, about 80 percent of which was for individuals and 20 percent for business pass-through income.”

We have to remember the failure of the legislative process in 2012 and the next year: “It is important to note at this point that the revenue increasing offsets included in the 2013 tax plan were nowhere near as comprehensive as the revenue raising offsets in Governor Brownback’s original 2012 tax reform proposal. It was this discrepancy in revenue raising offsets and the failure to rein in state spending that would ultimately lead to revenue problems for Kansas down the road.”

Credit downgrades are a sign of a mismatch between revenues and expenses. Those who want more spending say the downgrades are caused by a lack of revenue, but we could have cured the mismatch by reforming spending, too: “Contrary to this popularly reported narrative, Moody’s cited much more than just recent tax cuts as the rationale for a downgrade, specifically failure to reduce spending to offset tax cuts, pension liabilities and state debt.

The purpose of tax cuts? Let us keep more resources in the productive private sector: “It is certainly true that in the years following the tax reductions, Kansas did experience lower revenue collections, even lower than what had been projected. But, part of the goal of the Kansas tax reform was to reduce the amount of money taken in by state government and enhance the resources available to the private sector. Importantly, however, was the resistance to any meaningful spending reductions. Even as the 2012 tax reductions were projected to let Kansans keep $4.5 billion more of their own money, the state increased spending in 2012 by $432 million.”

Would more taxes help the Kansas economy? “In a late 2012 literature review on this topic, William McBride, former Chief Economist for the Tax Foundation, found that of 26 peer-reviewed academic studies since 1983, only three fail to find a negative effect on economic growth from taxes.”

The 2015 legislative session: “A block of legislators held out for reductions in the cost of government rather than tax increases but they were unable to get a majority. … The final plan that passed both houses and was signed by Governor Brownback included two main tax increases. The state raised the cigarette tax by 50 cents per pack and increased the sales tax rate from 6.15 percent to 6.5 percent. The two tax increase proposals added up to $384 million in new state revenue and were bolstered by $50 million in spending cuts, although there was still a net increase in spending.”

Our legislature failed the people of Kansas: “The first lesson to glean from the Kansas experience is that politics affects policy. The final reforms that passed in 2012 were not the reforms that anybody wanted. Specific tax reform ideas are easily diluted and changed, and without the political will to fix imperfect reforms, unintended consequences can be difficult to avoid.”

Then, politicians should be so boastful. Don’t overpromise. (Ask Barack Obama about that. He said if we don’t pass the ARRA stimulus bill, the unemployment rate would rise above a certain level. Well, the stimulus passed, the unemployment rate went above that level, and it was several years before it fell below. In other words, unemployment was worse with the stimulus than Obama said it would be without the stimulus.) “The second important lesson that can be learned from the Kansas experience is economic growth resulting from bold tax reductions takes time. Governor Brownback’s previous comments about the Kansas tax reforms being ‘a shot of adrenaline’ to the state’s economy continued to hound him throughout the ups and downs of revenue and economic reports. Setting expectations too high or too early can make pushing forward with future reforms nearly impossible, while setting unrealistic expectations can lead to the unwinding of sound economic reforms.”

Finally: “Even though the tax reductions improved economic growth, the lack of commensurate spending reductions led to trouble for the state’s budget. Budget shortfalls and tough negotiations about possible tax increases mean uncertainty for businesses and families, which can hamper some of the positive economic effects of decreasing taxes.”

Kansas manufacturing and oil not recovering

While total employment in Kansas is growing, two industries are the exception.

Kansas employment, seasonally adjusted, selected series. Click for larger.
Newly revised data from the Bureau of Labor Statistics lets us examine Kansas employment. This data comes from the Current Employment Statistics, which is a monthly survey of employers.1 I’ve gathered this data and have presented it in an interactive visualization. The accompanying charts are derived from that.

The first chart shows the relative change in jobs for each series, using seasonally adjusted values. Total private sector employment is growing. Employment in mining and logging, which is dominated in Kansas by the oil and gas industry, has cratered since its peak in 2014. Manufacturing employment has remained steady since 2010, but at a lower level than in the past.

Kansas manufacturing employment, not seasonally adjusted, selected series. Click for larger.
Looking at manufacturing in more detail, we see that aerospace manufacturing has been on a long downwards trend at the time total manufacturing has remained relatively level. (Aerospace employment is available only as unadjusted data, so it’s shown in a separate chart with unadjusted manufacturing.)

You can access the visualization and create your own examples through the article Kansas employment by industry.


Notes

  1. Bureau of Labor Statistics. Current Employment Statistics data and their contributions as key economic indicators. www.bls.gov/opub/mlr/2016/article/current-employment-statistics-data-and-their-contributions-as-key-economic-indicators.htm.

Kansas employment by industry

An interactive visualization of Kansas employment by industry.

The Bureau of Labor Statistics is an agency of the United States Department of Labor. It describes its mission as: “The Bureau of Labor Statistics of the U.S. Department of Labor is the principal Federal agency responsible for measuring labor market activity, working conditions, and price changes in the economy. Its mission is to collect, analyze, and disseminate essential economic information to support public and private decision-making. As an independent statistical agency, BLS serves its diverse user communities by providing products and services that are objective, timely, accurate, and relevant.”1

BLS provides monthly employment statistics. It has just updated revised numbers for 2016. I’ve gathered these for Kansas and present them in an interactive visualization.

This data comes from the Current Employment Statistics, which is a monthly survey of employers.2

The tabs along the top of the visualization hold different views of the data. Employment figures are in thousands. You may view seasonally adjusted or unadjusted data. Some views display the number of jobs, while others display the change in jobs by industry since the first year or month that is selected. When using the charts that display annual averages, be aware that using a time selection with a partial year will not provide accurate results.

Two “industries” that are closely followed are “Total Nonfarm” and “Total Private.” These, obviously, are not industries in themselves, but are sums of other industries. There are other examples like this.

Click here to access the visualization. The visualization was created by myself using Tableau Public.

Example from the visualization, showing points of control. Click for larger.


Notes

  1. Bureau of Labor statistics. About BLS. https://www.bls.gov/bls/infohome.htm.
  2. Bureau of Labor Statistics. Current Employment Statistics data and their contributions as key economic indicators. www.bls.gov/opub/mlr/2016/article/current-employment-statistics-data-and-their-contributions-as-key-economic-indicators.htm.

For some, the Kansas tax increase wasn’t big enough

Some Kansas Senators were refreshingly honest about a recent tax bill: They’re coming back for more.

On February 17, 2107, the Kansas Senate voted to pass HB 2178, titled “Substitute for HB 2178 – Concerning income taxation; relating to determination of Kansas adjusted gross income, rates, itemized deductions.” The effect of the bill was to increase taxes.

The vote prevailed 22 to 18. Governor Brownback vetoed the bill. The House overrode the veto, but the Senate did not, with 24 senators voting to override the veto. Two-thirds, or 27 votes, were required.

In explanations of the February 17 vote, some Kansas Senators were honest about their beliefs and their future plans. Which are: First, the bill didn’t raise enough money to suit them. Second: Despite the passage of the bill, they’re coming back for more. (These remarks were made before the Governor’s veto.) Here’s Lynn Rogers, joined by two other senators (emphasis added):

Mr Vice President: This bill does not solve Kansas’ budget problem. It is the best start we have seen in 4 years. But it does not address our borrowing from the Bank of KDOT or KPERS, nor does it address our school finance needs. I appreciate adding the 3rd bracket and closing the LLC loophole. However, the weight of the bill is still on the backs of middle class families. Many of us campaigned on a platform of “fixing Topeka.” Kansans overwhelmingly asked us to work together. I was sorely disappointed in yesterday’s behavior. I am willing to support this as the best we have today. But I warn us all, we will have to return to this chamber to readdress our fiscal state. — LYNN ROGERS
Senators Faust-Goudeau and Francisco request the record to show they concur with the “Explanation of Vote” offered by Senator Rogers on Sub HB 2178.

Also, Marci Francisco, again joined by two others (emphasis added):

Mr. Vice President: I initially voted “Pass” but change my vote to “AYE” on Sub HB 2178. I appreciate the work done in the House to craft a tax bill to eliminate the non-wage income “loophole”, repeal the future formulaic income tax reductions, and second tier for married individuals filing jointly and earning over $30,000 at 5.25%, higher than the current rate of 4.6%. It sets the third tier for married individuals earning over $100,000 at 5.45%, only .2% higher and a full percentage point less than it was in 2012, putting more of the burden on low and middle income Kansans. It continues to make our Kansas tax form complicated because it does not reinstate the deductions for mortgage interest and property tax allowed for on the federal tax form. The bill does not raise enough revenue to balance the current budget. None the less, I vote “AYE” to support this as a first step in this legislative session. I also pledge to continue to work on proposals to bring fairness to the Kansas tax structure and an appropriate amount of revenue to the state. — MARCI FRANCISCO
Senators Kelly and Pettey request the record to show they concur with the “Explanation of Vote” offered by Senator Francisco on Sub HB 2178.

Vote-switching in the Kansas House of Representatives

A look at voting behavior in the Kansas House of Representatives regarding an important tax bill.

Recently the Kansas House of Representatives held a series of votes on HB 2178, titled “Substitute for HB 2178 – Concerning income taxation; relating to determination of Kansas adjusted gross income, rates, itemized deductions.” The effect of the bill was to increase taxes.

There were three recorded votes on this bill. On February 15, 2017, the House, acting as Committee of the Whole, passed the bill on a vote of 83 to 39. 63 votes are required for passage. This is one step a bill takes as it becomes law.

On the next day, February 16, the House passed the bill on final action by a vote of 76 to 48. This is the final step the House needs to take to pass a bill into law. (On the next day, the Senate also passed the bill, sending it to the governor.)

The governor vetoed the bill. On February 22, the House considered a motion to pass the bill notwithstanding the governor’s veto. A two-thirds majority — 84 votes — are required to override a veto. This motion passed by a vote of 85 to 40, thereby overriding the governor’s veto. (The Senate also considered an override motion, but it did not pass, so the veto was upheld and this bill did not become law.)

Of interest is the vote-switching in the House as the bill passed through three rounds of votes. In all cases a vote of “Yea” was a vote in favor of making the bill into law. (This is not always the case.) In the nearby table, I’ve shaded the instances where members switched votes.

Kansas general fund

Data and charts regarding the Kansas general fund.

“The State General Fund receives the most attention in the budget because it is the largest source of the uncommitted revenue available to the state. It is also the fund to which most general tax receipts are credited. The Legislature may spend State General Fund dollars for any governmental purpose.”1

There is a requirement that the general fund have an ending balance of at least 7.5 percent. “Legislation was enacted by the 1990 Legislature to establish minimum ending balances to ensure financial solvency and fiscal responsibility. The legislation requires an ending balance of at least 7.5 percent of total expenditures and demand transfers and requires that the Governor’s budget recommendations and the legislative-approved budget for the coming year adhere to this standard. Often the Legislature suspends this requirement and allows for lower ending balances.”2

“The budget is based on an estimate of annual receipts and the Governor’s recommendation for total expenditures over the course of a fiscal year. However, within any fiscal year, the amount of receipts to the State General Fund varies widely from month to month, and an agency may spend any or all of its appropriation at any time during the fiscal year. In particular, the state must make large expenditures early in the fiscal year for school districts, while meeting the demands for periodic Medicaid reimbursements to providers, as well as making payroll. This makes for an imbalance when compared to when much of the state’s tax revenues are received, such as income tax, mostly recorded in the final quarter of the fiscal year.”3

“Estimates for the State General Fund are developed using a consensus process that involves the Division of the Budget, the Legislative Research Department, the Department of Revenue, and consulting economists from state universities.”4

The sources of data for the following charts and tables are Kansas Budget Reports and Comparison Reports for various years. Figures for fiscal years greater than 2016 are estimates from the Kansas Division of the Budget. Click charts for larger versions.

__
Notes

  1. Kansas Division of the Budget. The Governor’s Budget Report Volume 1, Fiscal Year 2018. http://budget.ks.gov/.
  2. ibid.
  3. ibid.
  4. ibid.

Expanding Medicaid in Kansas

Expanding Medicaid in Kansas would be costly, undoubtedly more costly than estimated, has an uncertain future, and doesn’t provide very good results for those it covers.

Providing testimony to the Kansas House Committee on Health and Social Services, Michael Tanner advised legislators, “Medicaid expansion, however, is a risky gamble, that is almost certain to cost more than you are currently budgeting, while providing surprisingly little to the poor in terms of improved access to health care.”

Tanner is Senior Fellow at Cato Institute. The bill in question is HB 2064, titled “Establishing the KanCare bridge to a healthy Kansas program.” It would expand Medicaid eligibility to more people in Kansas. These quoted remarks are from Tanner’s written testimony, which may be read at Should Kansas Expand Its Medicaid Coverage.

As to the cost of Medicaid expansion, Tanner wrote: “Second, while such estimates are concerning enough in themselves, and would almost certainly require a substantial tax hike to finance, there is ample reason to believe that they understate the actual cost. For example, actual enrollments following expansion have exceeded estimates in every state that has expanded Medicaid under the ACA, in most cases by double digits and in some cases by more than 100 percent. In neighboring Colorado, the maximum projected enrollment was 187,000 and as of October of last year enrollment had exceeded 446,000. … In addition, the per enrollee cost has risen faster than predicted.”

Then, there’s the woodwork effect, which costs are covered only at the regular Medicaid reimbursement rate, not the 94 percent citizens might be tempted to believe: “Third, while it may be tempting to focus on the 94 percent FMAP [Federal Medical Assistance Percentage] for newly eligible adults, you should keep in mind that many of those who enroll under expansion will not fall into this category. Rather, they will be previously eligible individuals or families that are lured into the system through the publicity and outreach efforts surrounding expansion. The Robert Wood Johnson Foundation and the Urban Institute have dubbed this the ‘woodwork effect.’ Woodwork enrollees are not eligible for the enhanced FMAP. Instead, Kansas will have to pay 43.79 percent. In states that have expanded Medicaid under ACA, as much as half or more of those who signed up have fallen into this woodwork category.”

Tanner also noted the uncertainty over the future of the Affordable Care Act, or Obamacare, under the Trump Administration, warning legislators, “You may well be locking yourselves into future spending based on hopes for federal dollars that may never materialize.”

He also noted the studies that have found that being on Medicaid does not result in very good health outcomes, most notable in the Oregon study.

Kansans say no to more taxes

A statewide poll finds little support for raising taxes as a way to balance the Kansas budget.

Kansas Policy Institute has commissioned another public opinion poll gauging the preferences of Kansans. The poll released this week asked questions about how to balance the budget in the current year and next year, raising the gasoline tax, schools, paying for Medicaid, and voting on local tax increases.

In a press release announcing poll results, KPI president Dave Trabert noted, “Once again, scientific public opinion surveys show that special interests pushing for enormous, record-setting tax increases are completely out of step with the general public. Kansans expect government and school districts to make efficient use of their tax dollars. They don’t want their income taxes or gasoline taxes increased. The question is whether legislators will listen to citizens or special interests that want higher taxes for more spending.”

The poll with the text of all questions, results, and methodology may be viewed at Results of SurveyUSA Mkt Research Study #23415.

Some may recognize a discrepancy between the results of this poll with last year’s elections for the Kansas House and Senate. Those elections have been widely interpreted as a referendum against an unpopular governor and his policies. This poll, however, finds little support for raising the taxes that the governor and legislature cut.

A possible explanation is that in elections for office, voters are selecting people to serve in office. Voters must choose candidate A or candidate B (or maybe C or D). Voters must take the entire package of positions associated with a candidate. It isn’t possible to select some positions from candidate A, and others from candidate B.

But in a poll with specific and narrow questions, voters can express their preferences with more precision.

There’s a difference between voting for politicians and voting for — or expressing preference for — specific policies and issues. When given a chance, Wichitans have often voted contrary to the wishes of the city council, city hall bureaucrats, and Wichita’s political class. Whether a special tax giveaway to a hotel, a general sales tax increase, reduction of penalties for marijuana possession, or fluoridation of water: Wichitans voted in opposition to the policies that were supported by the people they voted to place in office.

Analysis of proposed tax changes in Kansas

Proposed changes in the Kansas motor fuel tax and sales tax on groceries affects households in different ways.

As part of a revision to the tax regime in Kansas, a bill proposes to raise the motor fuel tax and reduce the sales tax on most types of groceries. (Restaurant meals would not be affected.) The bill is HB 2237.1 It implements most or all of the elements of a plan called “The Path Forward.”2

Excise taxes (the motor fuel tax) and sales taxes are usually regressive, meaning that their impact is felt most severely by lower-income households.3 Data shows that as income rises, so too does spending on motor fuel and food at home. But the rise in spending is not proportional to income. For example, data from BLS (see below for references) tells us that households in the lowest quintile of income spent an average of $939 per year on motor fuel and oil in 2015. For the highest quintile of households, spending was $3,226.

But when we look at this spending as a percent of household income after taxes, for the lowest quintile spending on motor fuel and oil represents 8.2 percent of income. For the highest quintile, it is 2.3 percent. A similar pattern holds for purchases of food for home consumption.

Because of this relationship, taxes on the sale of gasoline and food affect lower-income households proportionally more. What I have done is to estimate the additional cost, as a percent of after-tax income, of the proposed motor fuel tax. As can be seen in the nearby chart, the additional cost ranges from 0.39 percent of income for the lowest-income households to 0.11 percent for upper-income households. This difference, a factor of 3.5, illustrates the regressive nature of sales taxes, and the gasoline tax is just that — a sales tax.

HB 2237 Additional Tax Cost as Percent of Income After Taxes. Click for larger.
The bill proposing the increase in gasoline tax also proposes a reduction in the food sales tax rate from 6.5 percent to five percent. That tax is also regressive. In 2014, as Wichita was considering adding one cent per dollar to the sales tax already paid, my analysis of spending found this: “The lowest income class of families experience an increase nearly four times the magnitude as do the highest income families, as a percentage of after-tax income. This is the regressive nature of sales taxes illustrated in numbers.”4

HB 2237 Sales Tax Savings as Percent of Income After Taxes. Click for larger.
A nearby chart shows that the savings from the proposed lower food sales tax ranges from 0.07 percent for high-income households to 0.33 percent for low-income households. This is consistent with the regressive nature of sales taxes: They affect low-income households greatest — when raised, and also when lowered.

HB 2237 Net Cost as Percent of Income After Taxes. Click for larger.
Another chart shows the summative effect of the higher fuel tax and lower food sales tax. Of interest, the net effect is highest for the middle 20 percent of households. Note that considering these two taxes, the effect of the proposed bill is to raise taxes for everyone.

Show the math

The Bureau of Labor Statistics, a unit of the U.S. Department of Labor,5 has data for household expenditures on gasoline and oil. This data is available for five intervals, or quintiles, of income.6

Then the U.S. Energy Information Administration, the statistical and analytical agency within the U.S. Department of Energy,7 has gasoline prices. It doesn’t have them for Kansas, but it does for the Midwest.8

From these two values, we can calculate the number of gallons of gasoline purchased for each income level. Here, we lose a bit of validity, as the BLS data is for purchases of gasoline and oil. But it’s the data we have, and purchases of gasoline surely dominate purchases of motor oil.

Once we have the number of gallons of gasoline purchased, we multiply by the proposed eleven cents per gallon additional tax. This produces the extra gasoline sales tax cost per household. This is a static calculation and assumes no change in the number of gallons purchased due to the higher cost from the tax, or from any change in gasoline prices for any reason.

Then, the BLS Consumer Expenditure Survey also holds income after taxes for the five income levels. Simple division gives us the percent of household income that the additional tax represents.

The BLS Consumer Expenditure Survey also holds data for spending on food at home for the five income levels. From that, we can multiply by 1.5 percent to estimate the amount saved if sales tax on food falls to five percent from 6.5 percent. As with purchases of gasoline, this is a static calculation and assumes no change in behavior from reduced sales tax on groceries. Simple division gives us the percent of household income that the tax savings represents.

Then, we can subtract the food sales tax savings from the additional gasoline tax costs to produce a net calculation.


Notes

  1. Kansas House of Representatives, Committee on Taxation. HB 2237, Concerning taxation; relating to income tax, rates, determination of income, tax credits; motor fuels tax, rates, trip permits, distribution; sales and compensating use tax, food and food ingredients. http://www.kslegislature.org/li/b2017_18/measures/hb2237/.
  2. Riseupkansas.org. *The Path Forward.” http://riseupkansas.org/the-path-forward/.
  3. “A regressive tax is a tax imposed in such a manner that the tax rate decreases as the amount subject to taxation increases.” Wikipedia. Regressive tax. https://en.wikipedia.org/wiki/Regressive_tax.
  4. Weeks, Bob. Wichita sales tax hike would hit low income families hardest. https://wichitaliberty.org/wichita-government/wichita-sales-tax-hike-hit-low-income-families-hardest/.
  5. Bureau of Labor Statistics. About BLS. https://www.bls.gov/bls/infohome.htm.
  6. Bureau of Labor Statistics. Consumer Expenditure Survey. https://www.bls.gov/cex/.
  7. Energy Information Administration. Mission and Overview. http://www.eia.gov/about/mission_overview.php.
  8. Energy Information Administration. Midwest Regular All Formulations Retail Gasoline Prices (Dollars per Gallon). http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=EMM_EPMR_PTE_R20_DPG&f=A.

Availability of testimony in the Kansas Legislature

It is easy to provide Kansans with written testimony from the Kansas Legislature. At least I think so.

On the Kansas Legislature website, each committee has its own page. On these committee pages there are links for “Committee Agenda,” “Committee Minutes,” and “Testimony.” When I looked at these pages two years ago, I found that in most cases there is no data behind these links.1 I do not know what the statistics would be if I repeated the analysis for this year.

But the written testimony and informational presentations provided to committees are of interest and value to citizens. Most committees — perhaps all — require conferees to supply a pdf or Microsoft Word version of their testimony in advance of the hearing. These electronic documents could be placed online before the committee hearing. Then, anyone with a computer, tablet, or smartphone could have these documents available to them.

As an illustration, a bill from last week, SB31, was of interest to many in Kansas.2 But the page for the committee that heard this bill holds no testimony, for this bill or any other.

I’ve gathered the written testimony on SB31 and present it as a single pdf file for ease of handling. I combined the files and formed an index using PDF Split and Merge Basic, which is free and open source. I shared the file using Google Drive, a free service, or very inexpensive if additional storage is required. I can’t tell you how much time it took to accomplish this task, as I was interrupted several times during the process. If pressed, I’d estimate no more than ten or fifteen minutes.

You may access this document here. I can’t tell you how much time it took to accomplish this task, as I was interrupted several times during the process. If pressed, I’d estimate no more than ten minutes.


Notes

  1. Weeks, Bob. Availability of testimony in the Kansas Legislature. https://wichitaliberty.org/kansas-government/availability-testimony-kansas-legislature/.
  2. Weeks, Bob. In Kansas, the war on blight continues. https://wichitaliberty.org/kansas-government/kansas-war-blight-continues/.

In Kansas, the war on blight continues

Kansas governments are trying — again — to expand their powers to take property to the detriment of one of the fundamental rights of citizens: private property rights.

Empty lots in northeast Wichita. Click for larger version.
Last year cities in Kansas lobbied for a bill that would expand their powers to take property from its lawful owners, all in the name of saving neighborhoods from “blight.” Governor Brownback vetoed that bill, explaining, “The right to private property serves as a central pillar of the American constitutional tradition.”1

The governor further explained: “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.”

The bill introduced this year is SB 31, titled “Rehabilitation of abandoned property by cities.”2 It is a slightly modified version of SB 338, the bill from last year.It deserves opposition for the same multitude of reasons. Last year John Todd summarized the reasons for opposition:

  • 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.

This year’s bill is a “committee bill,” meaning that no legislator was willing to be a named sponsor. We might call this the “Longwell-Meitzner bill,” as these two Wichita City Council members were particularly disappointed that the governor of Kansas blocked their power grab.3

Of note, Todd and I, along with others, had a luncheon meeting with a Kansas Senator who voted for last year’s bill. When we told him of our opposition, he asked questions like, “Well, don’t you want to fight blight? What will cities do to fight blight without this bill?” When we listed and explained the many tools cities already have, he said that he hadn’t been told of these. This is evidence that this bill is not needed. It’s also evidence of the ways cities try to increase their powers at the expense of the rights of people.

Following, John Todd’s testimony opposing SB 31. His exhibits are available via a link at the end of the testimony.4

January 26, 2017

Senator Elaine Bowers, Chair
Senate Ethics, Elections and Local Government

Subject: MY OPPOSITION to Senate Bill No. 31 scheduled for a public hearing in the Senate Ethics, Elections, and Local Government Committee on January 26, 2017

Dear Senator Bowers and members of the Senate Ethics, Elections, and Local Government Committee,

I OPPOSE the passage of Senate Bill No. 31 of 2017 since it is basically a slightly modified and expanded version of the Senate Bill No. 338 of 2016 that Governor Sam Brownback correctly vetoed. I see no new provisions in the 2017 bill that gives citizens any additional private property protection; rather, it strengthens local authorities “unmitigated power in determining which properties should be seized, allowing localities to write their own rules. It also cedes to municipalities the power to select which private organizations receive control of the property.”

This quote is from an e-mail the Governor’s office issued in announcing his Veto of the 2016 bill (see copy attached). A “Message from the Governor” dated April 11, 2016 provides his excellent reasoning for the Veto, explaining, “The right to private property serves as a central pillar of the American constitutional tradition (see copy attached).

Shortly after starting my career in the real estate business in 1976 I acquired my first rehab house. It was located in the Old Orchard area of Wichita that everyone considered one of the most economically challenged and difficult neighborhoods to work with in town. I paid the seller nearly $20 thousand her dilapidated house that included three vacant single family building lots. It cost me in the range of $10 thousand to rehabilitate the house that included repairing a caved in concrete block basement wall. I sold the rehabilitated house and the lot it was on for the $30 thousand I had invested in the transaction and wound up with the vacant lots free and clear. I sold the three lots to a builder for $9 thousand cash and he subsequently built three new affordable entry level homes on them.

Now let’s take a look at this private sector transaction:

  1. The seller of the house received cash for her property through a mutually agreed upon transaction without coercion (no eminent domain) involved.
  2. I rehabilitated the house and sold it to a young couple for their first home.
  3. The builder who purchased the 3 vacant lots built three new houses that he sold to owner occupant homeowners.
  4. The builder provided construction jobs and purchased building materials from local vendors.
  5. The Orchard neighborhood saw immediate improvement and felt the benefits of economic uplift.
  6. The City, County, and School District tax base was expanded providing with one rehabilitated and three new houses thus providing additional tax revenue to fund fire, police, public safety, and money to educate our children.
  7. I paid Federal and state taxes on the profit I made in the transaction and I suspect the builder did too.
  8. There was no need for government subsidies of any nature for this private sector transaction to work.

Now in contrast, let’s take a look at how our local government has been handling similar neighborhood opportunities. Please take a look at the attached Building Blocks Infill Project Area map to discover what has been happening in a predominantly African American neighborhood community in Wichita.

  1. The vacant green rectangles are dozens of vacant lots where houses once stood that were bulldozed by the city.
  2. The owners of these houses were paid $0 for the houses that were taken by the city’s bulldozer
  3. In my judgment, many if not a majority of these bulldozed houses had economic value and offered the potential for rehabilitation and the creation of low-cost entry level housing. (See exhibit A)
  4. The city charged the property owner $8 – $10 thousand for bulldozing charges leaving the owner with a vacant lot that was left to produce high weeds and collect trash.
  5. Most of the owners let their vacant lots go back for taxes and many were sold for $100 or less and they received $0 for their properties.
  6. Thus the existing and potential tax base was lost as well as the wonderful opportunity for clean low-cost affordable entry level home ownership that is part of the American dream.
  7. Some of the most vulnerable and economically challenged property owners of our city rightly feel helpless in the face of this devastation.

Now local governmental officials are asking you for additional powers through Senate Bill No. 31 to “deal” with this problem.

  1. They want the power to seize unoccupied houses without compensating the owners anything for their property.
  2. They want to empower non-profit (non-taxpaying) organizations of their choice to seize unoccupied houses without compensating the owners for their property.
  3. The non-profits involved in the redevelopment of this neighborhood community with the exception of Habitat for Humanity rely heavily on tax subsidies for wealthy taxpayers and generous Federal subsidies in the range of $50 thousand for each house built and sold.
  4. I hear talk of Tax Increment Financing (TIF) to finance redevelopment in this community. The TIF program is simply a diversion of tax revenue that needs to go to city, county, and school district treasuries and not flow back to developers.

I see nothing in Senate Bill No. 31 that does anything to promote private sector redevelopment.

Is there a private sector solution? I say YES and I see it happening. Private sector investors, contractors and homeowners are stepping up and seizing opportunity (See Exhibit B). This economic uplift is healthy for the neighborhood community, expands the tax base, and offers an opportunity for investor/contractor profit in some cases or low-cost affordable home homeownership in others.

The rehabilitation of existing houses and redevelopment on vacant “infill” is best achieved by the private sector and not by government planners or their favored non-profit entitles.

The taking of property by local government without compensation is wrong. I believe that was what Governor Brownback was saying in his veto message, “Government should defend and protect the property rights of all citizens, ensuring that the less advantaged are not denied the liberty to which ever other citizen is entitled.”

I urge you to OPPOSE passage of Senate Bill No. 31!

Sincerely,
John R. Todd
A Kansas Citizen

The exhibits referred to are available in pdf form. Click here.


Notes

  1. Weeks, Bob. Governor Brownback steps up for property rights. https://wichitaliberty.org/kansas-government/governor-brownback-steps-property-rights/.
  2. SB 31. Rehabilitation of abandoned property by cities. http://www.kslegislature.org/li/b2017_18/measures/sb31/.
  3. Weeks, Bob. In Wichita, revealing discussion of property rights. https://wichitaliberty.org/kansas-government/wichita-revealing-discussion-property-rights/.
  4. Todd, John. Exhibits on Blight in Wichita. https://drive.google.com/file/d/0B97azj3TSm9MMzFYZDQxRTRJb1U/view?usp=sharing.

Kansas civil asset forfeiture

The law of Kansas civil asset forfeiture is among the worst in the nation, and demands reform.

Civil asset forfeiture is a process whereby law enforcements takes and keeps a person’s property merely because they are suspected of a crime. No criminal conviction is required, and the property is often kept without regard to the outcome of the case, if charges are even filed.

The Institute for Justice has a comprehensive report titled Policing for Profit. The report provides this summary of the current law in Kansas:

Kansas has some of the worst civil forfeiture laws in the country, earning a D-. State law requires only a preponderance of the evidence in order to establish a connection between property and a crime, thus making the property forfeitable. Individuals bringing an innocent owner claim bear the burden of proving that they were not involved in any criminal activity to have their seized property returned. Furthermore, Kansas law enforcement agencies keep 100 percent of forfeiture proceeds. Although the Kansas attorney general has ruled that forfeiture funds may only be used for special law enforcement projects and not to meet normal operating expenses, this still provides considerable incentive to seize.

Each Kansas law enforcement agency must deposit its forfeiture proceeds into a special law enforcement trust fund maintained by its budgetary authority — such as a city council or the state Legislature — and make annual reports to that authority. Unfortunately, state law does not require that these reports be standardized or filed with a central entity, meaning that obtaining an accurate picture of all forfeiture activity in the Sunflower State would require submitting a Kansas Open Records Act request to every law enforcement agency or budgetary authority in the state and then compiling those records. This process does not hold law enforcement agencies accountable, nor does it provide the public with any understanding of forfeiture activity in the state.

This is an area of Kansas law that desperately needs reform. Following, testimony I will deliver regarding HB 2018, introduced by Representative Gail Finney of Wichita.

Testimony to House Committee on Judiciary as proponent of House Bill 2018, concerning the Kansas standard asset forfeiture act.

January 24, 2017

Representative Blaine Finch, Chair
House Judiciary Committee

Dear Representative Finch and committee members,

I am concerned that current law regarding civil asset forfeiture in Kansas creates incentives that are contrary to justice. In order to punish citizens, the state should first obtain a conviction of a crime. But the asset forfeiture law in Kansas allows punishment before conviction, and punishment even if no criminal charges are filed or successfully prosecuted. This punishment is the seizing of assets without regard to criminal guilt.

This ability to seize assets without a criminal conviction creates incentives for “policing for profit,” which is the title of an exhaustive report from the Institute for Justice at ij.org. The first recommendation in this report is “Lawmakers should eliminate any financial incentive for law enforcement to seize property.” HB 2018, by requiring a criminal conviction before assets are seized, is a good first step towards reform of this important area of Kansas law.

Respectfully submitted,
Bob Weeks

Kansas legislative resources

Those who want to be informed of the happenings of the Kansas Legislature have these resources available.

Legislative documents
The Legislature’s site at kslegislature.org has rosters of members, lists of committees, lists of bills, journals (the daily record of proceedings in each chamber), and calendars (the plan for the day, along with topics for upcoming committee meetings).

A useful feature is the “Current Happenings” link for both the House and Senate. This has a link to the bills that have seen movement in some way each day. The page for each bill is generally useful, too, with the steps in the bill’s history, along with links to the bill text, fiscal and supplemental notes, and other material. Fiscal notes — prepared by the Division of Budget — estimate the financial impact of a bill, while the supplemental notes — prepared by Kansas Legislative Research Department — contain background and explanatory information. When attempting to understand legislation, the fiscal and supplemental notes are very useful.

New this year is the menu item “Committee Bill Hearings” on the “Committees” tab.

Of note, the Legislature’s site has for several years held an icon promising an RSS feed. But nothing is behind the link. Also, there is still an icon representing a link, but it does nothing.

Audio and video
Both the House and Senate broadcast audio of their proceedings. But you must listen live, as the broadcasts are not made available to the public in any other way. It would be exceedingly simple to make these past broadcasts available to the public, as explained here. But the legislature does not retain audio recordings of sessions.

As of this writing, the Kansas Legislature does not make available video of its proceedings.

Documents
Kansas Legislative Research Department (KLRD) has many documents that are useful in understanding state government and the legislature. This agency’s home page is www.kslegresearch.org. Of particular interest:

Kansas Legislative Briefing Book. This book’s audience is legislators, but anyone can benefit. The book has a chapter for major areas of state policy and legislation, giving history, background, and explanations of law. In some years the entire collection of material has been made available as a single pdf file, but not so this year. Contact information for the legislative analysts is made available in each chapter. The most recent version can be found on the Publications page. The version for 2017 is available here.

Of note, versions of the briefing book from years past are useful. KLRD doesn’t provide links to these old documents, but they are available. The search feature of the page (top right corner) will find these documents. It forms a Google site-specific search which looks like this: “site:www.kslegresearch.org summary of legislation.” The same works for old versions of other KLRD documents.

Kansas Fiscal Facts. This book, in 124 pages, provides “basic budgetary facts” to those without budgetary experience. It provides an overview of the budget, and then more information for each of the six branches of Kansas state government. There is a glossary and contact information for the fiscal analysts responsible for different areas of the budget. This document is updated each year. The most recent version can be found on the Publications page.

Legislative Procedure in Kansas. This book of 236 pages holds the rules and explanations of how the Kansas Legislature works. It was last revised in November 2006, but the subject that is the content of this book changes slowly over the years. The direct link is Legislative Procedure in Kansas, November 2006.

How a Bill Becomes Law. This is a one-page diagram of the legislative steps involved in passing laws. The direct link is How a Bill Becomes Law.

Summary of Legislation. This document is created each year, and is invaluable in remembering what laws were passed each year. From its introduction: “This publication includes summaries of the legislation enacted by the 2016 Legislature. Not summarized are bills of a limited, local, technical, clarifying, or repealing nature, and bills that were vetoed (sustained).” The most recent version can be found on the Publications page. For 2016, this document also summarizes the special session.

Legislative Highlights. This is a more compact version of the Summary of Legislation, providing the essentials of the legislative session. The most recent version can be found on the Publications page.

Kansas Tax Facts. This book provides information on state and local taxes in Kansas. The most recent version can be found on the Publications page.

Kansas Statutes. The laws of our state. The current statutes can be found at the Revisor of Statutes page.

Kansas Register. From the Kansas Secretary of State: “The Kansas Register is the official state newspaper. This publication provides a wide range of information such as proposed and adopted administrative regulations, new state laws, bond sales and redemptions, notice of open meetings, state contracts offered for bid, attorney general opinions, and many other public notices.” The Register is published each week, and may be found at Kansas Register.

Spending on roads in Kansas

A look at actual spending on Kansas highways, apart from transfers.

Spending on major road programs in Kansas. Click for larger.
When we look at actual spending on Kansas roads and highways, we see something different from what is commonly portrayed. Kansas Department of Transportation publishes a Comprehensive Annual Financial Report that details spending in four categories. These figures represent actual spending on roads and highways, independent of transfers to or from the highway fund.

  • Spending on “Preservation” has been rising, but fell last year.
  • Spending on “Expansion and Enhancement” has been rising.
  • Spending on “Maintenance” has been level, with a small decline.
  • Spending on “Modernization” has declined, then rose.

Total spending on major road programs in Kansas. Click for larger.
For these four categories — which represent the major share of KDOT spending on roads — spending in fiscal 2016 totaled $857.133 million. That’s down from $932.666 million the year before, and up from a low of $698.770 million in fiscal 2010.

Again, these are dollars actually spent on highway programs. A common characterization of the way Kansas government is funded is called “robbing the bank of KDOT.” To the extent that characterization is accurate, there is a separate line item titled “Distributions to other state funds” that holds these values. It appears in the nearby table.

Sales tax revenue to the highway fund

Transfers from sales tax to Kansas highway fund. Click for larger.
Kansas law specifies how much sales tax revenue is transferred to the highway fund. Here are recent rates of transfer and dates they became effective:1

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

A nearby chart shows the dollar amounts transferred to the highway fund from sales tax revenue. In 2006 the transfer was $98.914 million, and by 2016 it had grown to $517.698 million.

Kansas Department of Transportation Spending. Click for larger.


Notes

  1. Kansas Statutes Annotated 79-3620.

Again, KPERS shows why public pension reform is essential

Proposals in the Kansas budget for fiscal year 2018 are more evidence of why defined-benefit pension plans are incompatible with the public sector.

Kansas Governor Sam Brownback has proposed delays in funding KPERS, the Kansas Public Employees Retirement System. The delays are in both directions. The state intends to break a past promise to pay, and also to skip some future payments.

A memo from KPERS summarizes recent history and the proposed changes: “Last fiscal year, the State delayed its fourth quarter payment for School employer contributions with a promise to pay it in Fiscal Year 2018 with interest. The Governor is recommending the State not pay this contribution and skip one quarterly payment each year through FY19. In addition, the Governor recommends extending the time to pay down KPERS’ existing unfunded actuarial liability by 10 years.”1

Many will criticize the proposed reduction in funding KPERS as stealing from KPERS. That really isn’t true. KPERS has plenty of money to pay current retirees their promised benefits. The above memo also says that those near retirement won’t be affected.

But what about younger employees who may not retire for 20 or 30 years? Will they receive their promised benefits?

The answer is yes, almost certainly. Their retirement benefits are in the form of a contract, and it is very unlikely that the state will break those contracts.

So: Is KPERS being robbed? Stolen from?

No. It’s future Kansas taxpayers who will be mugged. They will have to pay the unfunded liabilities accumulated by not only the current governor and legislature, but by past governors and legislatures too. I explain in more detail in my recent article No one is stealing* from KPERS. (The asterisk notes that there is stealing in a way, but from future taxpayers.)

Further: It is entirely foreseeable that this is happening. In 2015 the state issued $1 billion in bonds to address a portion of the KPERS unfunded liability. This made the unfunded liability ratio look better, and the governor and Republicans continually boast of this. But debt has simply been shifted from one balance sheet to another. The same taxpayers that will eventually pay.

This is one of the reasons why government should not offer defined-benefit pension plans. Because of the long time horizons involved, it’s easy to delay and postpone dealing with problems. Or, legislators are prone to make risky investment decisions as Kansas did in 2015 by $1 billion in bonds and transferring the proceeds to KPERS. This was — is — a risky maneuver, and it has led to undesirable behavior that was entirely predictable.

The plan was that the state would borrow $1 billion, and invest it. If the state earned more in investment returns than the interest cost on the bonds, the state wins. 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 Kansas has done. He explained 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.2

Paulson 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.” What Poulson warned of happened in Kansas in 2016. Now, the governor proposes even more: Pushing off KPERS contributions to the future so that more money is available for spending on other stuff now.

In a way, it’s surprising that groups who advocate for public employees are upset with this. (See, for example, here from KNEA.) Instead, they should be grateful. KPERS benefits are unlikely to be cut for any retirees. But underfunding KPERS today means there is more money available for public employees and the agencies that employ them. In reality, these groups simply want higher taxes now.


Notes

  1. Kansas Public Employees Retirement System. Governor’s Budget Proposal & KPERS Shortfall. https://www.kpers.org/pdf/govbudgetproposalmember_statement.pdf.
  2. Weeks, Bob. This is why we must eliminate defined-benefit public pensions. https://wichitaliberty.org/kansas-government/we-must-eliminate-defined-benefit-public-pensions/.