Voice For Liberty

Category: Kansas state government

  • In Kansas, the war on 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

    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

    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

    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

    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 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/. ↩
  • Understanding job growth and the Kansas tax reforms

    Understanding job growth and the Kansas tax reforms

    Commissioned by Kansas Policy Institute and written by researchers from Arizona State University, a new report looks at the Kansas economy after the tax reforms passed in 2012.

    The full report is available to read at A thousand flowers blooming: Understanding job growth and the Kansas tax reforms. Following, material from its executive summary:

    Much of the discussion over economic growth following the 2012 Kansas tax reforms were enacted is misguided, hobbled by a misunderstanding of what the tax cuts were trying to accomplish and reliance on incomplete data. Additionally, it fails to take into account the fact that most job growth in Kansas has been — and will continue to be — from pass-through businesses (i.e., sole proprietorships, S-corporations, limited liability corporations, and joint partnerships). In fact, the 36,135 jobs created by pass-through entities in Kansas represent 82 percent of all private sector jobs created in 2013 and 2014, the latest data available from the U.S. Census Bureau, and the growth is more than three times as great after tax reform than before.

    Using this Census data and other appropriate private sector data our analysis indicates that the impact of the tax reforms has been positive. Kansas comes out on top or at least shows strong growth in almost every relevant state comparison of the most comprehensive private sector job growth metrics. Kansas also matches up with other states well even when the less-comprehensive data often used to make comparisons is adjusted for the size of the state.

    It is also important to consider the source of job creation data, the structure of a state’s economic make-up, and a state’s population when comparing job numbers. In short, just as it would not be appropriate to compare student achievement for the Kansas City and Blue Valley school districts for obvious demographic differences, it is not appropriate to compare certain states just because of geographic proximity. The monthly employment numbers from the Bureau of Labor Statistics (BLS) use a different methodology to count employment than does a more comprehensive, but less frequent, analysis from the Bureau of Economic Analysis (BEA). For instance, the BLS data estimates that in 2015, Kansas had an employed private-sector workforce of nearly 1.4 million, while the BEA data puts it at 1.9 million. So while the BLS data warrants monthly media coverage this paper puts more emphasis on the BEA analysis as it better captures those employed by proprietorships and in farm employment.

    This study also uses new data from the Kansas Department of Revenue (KDOR) to clearly demonstrate that tax evasion or strategic corporate tax planning has not been widespread. KDOR records also make clear that the total value of the Kansas tax reforms from 2012 was primarily driven by lowering the income tax burden on individual wage earners. This is yet another overlooked aspect of the tax cut, as 71 percent of the overall tax relief went to individual taxpayers and 29 percent went to pass-through businesses through the income tax exemption. A final data point from KDOR also makes clear who is benefitting from the pass-through exemption. Median family income in Kansas is around $52,000 and 88 percent of the filers in 2014 with business income had Kansas adjusted gross income that year of less than $50,000.

    While there is still more analysis to be done and more data to be released over the coming years, we believe the preliminary signs indicate that the Kansas tax reforms have had and, more importantly, will continue to have a positive impact on state job growth.

    Image credit: Flazingo.com.

  • Benefits of tax cuts without raising debt

    Benefits of Tax Cuts Without Raising Debt
    President-elect Donald Trump should learn from Kansas’s mistake on income-tax reduction — don’t reduce revenue and increase spending.

    By Dave Trabert, Kansas Policy Institute

    President-elect Donald Trump should learn from Kansas’s mistake on income-tax reduction: Don’t reduce revenue and increase spending. That’s the real problem with the Kansas budget (“Brownback Sees Kansas Tax Plan as Model for Nation,” U.S. News, Dec 24). There was never an expectation that spending wouldn’t have to be adjusted to accommodate revenue reductions, but Democrats and many Republicans refused to make government more efficient so spending and taxes were increased in 2013 and again in 2015. Kansas spent 27% more per resident in 2015 than the states without an income tax.

    The income-tax exemption on pass-through income for proprietorships, partnerships, Sub-S corporations and LLCs is paying real dividends. U.S. Census data show that pass-through businesses actually created the majority of new jobs in 2013 and 2014 (the most recent data for employment by legal organization). And while Kansas continues its decades-long tradition of trailing the national average on job growth, Kansas is performing closer to the average since taxes were reduced.

    Census data also show employment for pass-through entities is almost at parity with C corporations in the U.S., and cutting the corporate income tax affects only about half of the business employment base. Pass-through business profits are taxable to the individual owners, so individual rates must also be reduced to really help the economy.

    Dave Trabert
    President
    Kansas Policy Institute
    Overland Park, Kan.

    (Originally published in the Wall Street Journal at http://www.wsj.com/articles/benefits-of-tax-cuts-without-raising-debt-1484002119.)

  • From Pachyderm: Legislative Agendas for 2017

    From Pachyderm: Legislative Agendas for 2017

    From the Wichita Pachyderm Club this week: Representatives of local governments presented issues important to them in the upcoming session of the Kansas Legislature. Presenters were:

    • Sheril Logan, board member for Wichita Public Schools. The material she presented to the audience is here.
    • James Clendenin, Wichita City Council. His presentation is here.
    • Jim Howell, Sedgwick County Commission. A link to the county’s legislative agenda is here.

    This is an audio presentation recorded on January 6, 2017.

  • No one is stealing* from KPERS

    No one is stealing* from KPERS

    No one is stealing from KPERS, the Kansas Public Employees Retirement System. But there are related problems.

    You don’t have to look for long on Facebook before you’ll find comments like these regarding KPERS, the Kansas Public Employees Retirement System:

    “This is BS. Stupid Brownback robbed our pension plan; we have no real confidence that it will ever be paid back. Why don’t we have some kind of safety measure in place to prevent governors like him from stealing from us?”

    “If the governor would keep his greedy hands off of the KPERS money that is there, we might not be having this problem. It was not set up as a lending bank when the Governor’s policies proved to be unworkable. Leave my money alone!!!!!”

    These comments — and many similar posted all over Facebook — accuse Kansas state government, specifically the current governor, of stealing from KPERS. But that is not happening, according to Alan Conroy, KPERS Executive Director. By email, he answered this question posed by Kansas Policy Institute: “Can you please confirm that the Legislature or the Governor cannot and have not borrowed money from funds deposited with KPERS?

    Conroy’s response, in part, was “Once funds are placed in the KPERS Trust Fund they cannot be withdrawn or ‘loaned-out’ to another entity or group. The only way funds come out of the Trust Fund is to pay the promised benefits to the members.”

    That ought to settle the question of whether money is being “robbed” or “stolen” from KPERS.

    But you’ll notice that the title of this article contains an asterisk. That’s because KPERS does have many problems. The most important is its underfunded status, which is a chronic problem. This is because the state has not made the actuarially required contributions. This is “stealing,” in a roundabout way. Who is suffering the loss? Not future KPERS retirees, as it is almost certain they will receive their promised benefits. Instead, it is future Kansas taxpayers who will have to make extra contributions to KPERS to make up for the current and past legislatures not making sufficient contributions.

    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 a solution to the future. Or, legislators are prone to make risky investment decisions as Kansas did in 2015. The state’s action simply replaced KPERS debt with debt the general fund is responsible for. This, of course, is the state selling $1 billion in bonds and transferring the proceeds to KPERS. It makes the KPERS unfunded ratio look better, as the governor and Republican legislative leaders continually boast. But it’s 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 in 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.1 What Poulson warned of happened in Kansas.

    There’s another way that KPERS is stealing from future taxpayers. When performing projections, a key variable is the discount rate, which is to say, the rate that KPERS expects to achieve on its investments, over the long term. Small changes in the discount rate have large impacts. The nearby illustration from the KPERS annual report for 2015 shows that using a discount rate of 8.00 percent, the KPERS unfunded liability is slightly less than $9 billion. Change the discount rate to 7.00 percent, and the unfunded liability rises to almost $12 billion.

    Some authorities believe that state pension funds should use a realistic discount rate, maybe four percent or so. That would cause the unfunded liability to explode. To its credit, KPERS recently adopted a discount rate of 7.75 percent, but that adjustment is not nearly enough.

    Who will have to pay to make up the deficiencies caused by using an unrealistic discount rate? Future Kansas taxpayers, not KPERS retirees.

    There was a time when money was really and truly stolen from KPERS, in a way. Under the leadership of former Kansas Governor John Carlin, it was decided that KPERS would make targeted, or direct, investments in Kansas companies. A scandal erupted, and KPERS lost many millions.2

    Another source described the aftermath as this: “In total KPERS faced losses of at least $138 million from its direct investment program. Moreover more than seven hundred Kansas residents lost their jobs as a result of these failures — a striking contradiction to the stimulus purpose of the Kansas investment program. In hindsight the lack of professional oversight by KPERS of its private investments program was blamed for the failure of the direct investment program.”3 The chair of the KPERS Board of Trustees pleaded no contest to one felony count of aiding and abetting securities fraud regarding a KPERS investment.4

    This sounds like stealing from KPERS. Despite this happening at the urging of Carlin, he now portrays himself as a leader, a senior statesman to whom we should listen.

    —
    Notes

    1. Weeks, Bob. This is why we must eliminate defined-benefit public pensions. https://wichitaliberty.org/kansas-government/we-must-eliminate-defined-benefit-public-pensions/. ↩
    2. “It started as a way to use the state pension fund to boost the Kansas economy, making loans or investing in healthy businesses. But it has mushroomed into the biggest scandal in state history. Although the Kansas Public Employees Retirement System remains financially sound, with a value of about $4.4 billion, known losses exceed $230 million. Experts say total losses could double or triple.” Curran, Tim. Toto, we’re not in Kansas anymore: state pension scandal a nightmare. Associated Press. Oct. 7, 1991. http://www.apnewsarchive.com/1991/Toto-We-re-Not-in-Kansas-Anymore-State-Pension-Scandal-A-Nightmare/id-fe758e81f6b6a821076c829764cb6399. ↩
    3. Cumming, Douglas ed. The Oxford Handbook of Private Equity. Oxford University Press. ↩
    4. Press, A 1992, ‘Former KPERS Chief Sentenced To Probation For Securities Fraud’, Wichita Eagle, The (KS), 25 Jun, p. 4D, (online NewsBank). ↩