A former Kansas government official criticizes Kansas Policy Institute.
I wouldn’t normally use a Facebook comment in a public way, but the comment was left in public, to a post on my Facebook profile. Plus, the writer is a former Kansas government official. He’s Gary Sherrer, who has been Lieutenant Governor, Secretary of Commerce, and Chair of the Kansas Board of Regents.
From the author’s Facebook profile, starting December 2, 2016. Click for larger.Sherrer had criticized the truthfulness of Kansas Policy Institute, claiming he “could write an essay” on his criticism of KPI. Upon my suggestion for him to do so, he offered two criticisms.
First, Sherrer wrote this: “They count KAPERS payments that in the past were direct state payments. Now they send them to the school districts and within hours transfer them back to the state yet it shows as increased revenue in the local budget. Same $s just an accounting trick.”
This is a standard argument of Kansas public school spending advocates, which is that because of a change in the way teacher retirement funds (KPERS contributions) are handled, it looks like the state is spending more on schools, when in fact it is not.
In response, Kansas Policy Institute noted this: “According to Dale Dennis, KPERS funding was last sent directly to KPERS in 2004; it has since been sent directly to school districts included in reported school funding totals.”1
Dale Dennis is Deputy Commissioner at Kansas State Department of Education and head of Fiscal and Administrative Services.
Even though Dennis is the state’s top education finance official, we don’t have to rely solely on him to illustrate changes in KPERS payment accounting. Information from the Wichita public school district2 shows the same. Here I’ve plotted the funding sent by the state of Kansas to USD 259 for KPERS contributions. As Dennis indicated, in 2005 the Wichita school district started receiving money from the state for KPERS. Prior to that year it received none.
So if anyone wants to claim that KPERS payment accounting has been changed in order to be deceptive, why don’t we ask former governor Kathleen Sebelius why it happened under her watch?
Additionally, the argument that the KPERS funds are held by school districts for just hours or minutes is trivial. If the state allowed school districts to hold the funds for two days, two weeks, two months — would that make any meaningful difference? Instead, school districts ought to be thankful that the taxpayers of the state of Kansas cover part of employee retirement costs. But we don’t hear those thanks, just complaints.
Sherrer is correct on one thing: There are people in government who may be touting increased KPERS payments as increased school spending. Two things: KPERS spending is school spending. If not that, what is it? Second, these people are not Kansas Policy Institute. KPT takes efforts to separate KPERS spending from other school spending.3
Here’s something else from Sherrer: “Anther example- local property taxes collected for schools was always sent directly to the school district- after all it is local not state tax $s. Now the local sends it to the state, then it is sent to school districts. Again, same dollars but trick accounting to make it look like increased state spending.”
I’ve never seen KPI make the claim that Sherrer makes. Others may make it, but KPI takes steps to adjust figures for this change.4
Finally, Sherrer writes: “When is Kansas Policy going do do research on the financial disaster called the Kansas budget?” Well, KPI has done this, providing a detailed roadmap. In my reporting on KPI’s plan, I wrote:
The State of Kansas has implemented tax reform that reduces the tax burden for Kansans. A remaining challenge that has not yet been tackled is spending reform, that is, aligning Kansas state government spending with a smaller stream of tax revenue. Critics of tax reform say the Kansas budget is a mess or a train wreck, pointing to projections of large deficits before long. Tax increases or service cuts will be required to balance the budget, contend critics.
In a policy brief released today, Kansas Policy Institute presented a plan for bringing the budget in balance while retaining low tax rates (and future reductions) and accommodating projected future spending needs for Medicare and schools.
USD 259 Comprehensive Annual Financial Report for 2015, State Revenue by Source, Governmental Funds, and USD 259 Comprehensive Annual Financial Report for 2007, State Revenue by Source, Governmental Funds. ↩
The writing of Duane Goossen, a former Kansas budget director, requires decoding and explanation. This time, his vehicle is “Rise Up, Kansas.”
Duane Goossen was Kansas budget director from 1998 to 2010.1 He is critical of the administration of Kansas Governor Sam Brownback and recent sessions of the Kansas Legislature. It’s useful to examine his writings so that Kansans may become aware of the ramifications of his recommendations, and how during his years as budget director he was unable to adhere to the principles he now advocates. Following, some language from his recent article Rise Up, Kansas.
Goossen: “This marks the beginning of a hopeful new chapter in the Kansas story. It also presents a desperately needed opening for comprehensive tax reform.”
Comprehensive tax reform. That sounds good, as “reform” has a positive connotation. It means change for the better. But in this case reform means raising taxes, and by a lot. In fact, advocates of tax increases generally won’t say by how much they want to raise taxes.
As an example, in May a coalition of spending groups called for what they termed “Option 4.” It would eliminate all tax cuts enacted since 2012. This action would reinstate the tax on pass-through business income — the so-called “LLC loophole.” But this would also raise income taxes wage income, as those tax rates also were reduced in 2012. For example, income tax rates for a married family earning up to $30,000 would rise to 3.50 percent from the current 2.70 percent. That’s an increase of 30 percent in the income tax rate. For other income levels the increase is greater.2
A spokesperson for the Option 4 coalition argued that rolling back the tax cuts could increase revenue to the state by $1 billion. By the way, the Option 4 coalition did not call for the rollback of the sales tax increase passed in 2015. I should qualify that with apparently, as no handouts explaining Option 4 can be found. In addition, an audio recording of the press conference has been removed.
Members of the Option 4 coalition included Shannon Cotsoradis of Kansas Action for Children, Bob Totten from the Kansas Contractors Association, Rebecca Proctor of the Kansas Organization of State Employees, and Mark Desetti from the Kansas National Education Association.3
With the exception of the pass-through business income tax, failing to be specific about whose taxes will be raised by how much is characteristic of spending groups. In fact, these spending groups generally shy away from using the term tax. Look at these examples of language from Goossen’s article:
damage to state finances
hemorrhage revenue
can’t start healing while still in triage mode
fix our structural revenue imbalance
broaden the tax base
means reviewing our entire tax code
modernizing all revenue sources
get our fiscal house back in order
begin with commonsense basics
new priorities
recover the opportunities we lost
senseless era of crisis
begin restoring those opportunities
rise above the political fray
find courage to make difficult decisions
imagine the possibilities
Commonsense basics. Who could be against that? Yet each of these terms is a call for more and higher taxes.
Goossen: “Three credit rating downgrades”
The Kansas credit rating has declined. In making this decision, Moody’s mentioned “revenue reductions (resulting from tax cuts) which have not been fully offset by recurring spending cuts.4 So Kansas has a decision: Offset revenue reductions with higher taxes or spending cuts. Moody’s doesn’t care which is chosen, but Goossen and the spending coalition does.
Of note, Moody’s mentions another problem: “an underfunded retirement system for which the state is not making actuarially required contributions.” This is an ongoing problem, as the nearby chart illustrates. The funding ratio of the Kansas retirement plan has deteriorated for many years, including the years when Duane Goossen was Kansas budget director. (Recently Kansas has improved the funding ratio of KPERS, but it did that by borrowing funds, which was an unwise decision. Because of the borrowing, Kansas has delayed schedule KPERS contributions, which effectively pays for current spending with long-term debt.5)
Moody’s also mentioned “In recent years the state has appropriated funds from or shifted costs to the State Highway Fund to help balance the general fund budget.” This too, is an ongoing problem.6 “Raiding the Bank of KDOT” has been a problem for many years, including the years when Duane Goossen was Kansas budget director.
Goossen: “It will likely take a generation to fully recover from this horrible experiment.”
Spending in Kansas. Click for larger.Goossen is not specific as to the nature of the damage. Generally, a claim of slashed state spending is made. But it’s difficult to see the purported decline. Some programs may have been cut, but overall, spending is level or climbing, as can be seen in the nearby chart.7 Additionally, in comparison to other states Kansas spends a lot, and continues to.8
Goossen: “lifting the burden the Brownback plan forced onto our lowest-earning Kansans.”
Yes, we should sharply reduce or eliminate the sales tax on groceries. It affects low-income households most severly.9
Goossen: “And it means establishing a responsible state savings account.”
Kansas General Funding ending balance. Click for larger.Kansas doesn’t have what some states have, which is a true rainy day fund that is governed by statute as to when contributions must be made and when the fund may be used. Instead, Kansas has a simple requirement for an ending balance of 7.5 percent, which the state has regularly ignored for decades. Low ending balances are a hallmark of Kansas government, including the years when Duane Goossen was Kansas budget director. In fact, in one year his budget had a negative ending balance.10
The merit system of judicial selection in Kansas has sprung a leak, finds the United States Supreme Court.
One of the purported benefits of the merit system of judicial selection in Kansas is that it produces quality jurists who rule on the law, not on their personal beliefs or ideologies.
But a recent case shows otherwise. Following, a selection of dialog between Kansas Attorney General Derek Schmidt and United States Supreme Court Justice Antonin Scalia:1
JUSTICE SCALIA: Did the Kansas Supreme Court read these cases?
MR. SCHMIDT: Perhaps I ought not answer that, Justice Scalia, but —
JUSTICE SCALIA: How can you explain it if — if indeed our prior cases are so clear on the point?
MR. SCHMIDT: Justice Scalia, I, of course, don’t —
JUSTICE SCALIA: They don’t like the death penalty.
Here, in one exchange, Scalia exposes the legal incompetence of the Kansas Supreme Court because they rule based on their policy preferences, not the law. “Did the Kansas Supreme Court read these cases?” That’s a question a law school professor asks a lazy student. It shouldn’t need to be asked of justices on the highest court in Kansas.
But the United States Supreme Court found it necessary to ask if Kansas judges were reading their cases. This is precisely what the merit system is supposed to avoid.
For more on this see this video from Joseph Ashby.
Candidates in Kansas who promise more spending ought to explain just how higher taxes will — purportedly — help the Kansas economy.
Are low taxes important to an economy, especially a state economy? When the Tax Foundation looked at the issue, it concluded this: “In this review of the literature, I find twenty-six such studies going back to 1983, and all but three of those studies, and every study in the last fifteen years, find a negative effect of taxes on growth.”1
Per-capita tax collections, Kansas and nearby states. Click for larger.Many of these studies concerned the national economy and taxes, but some looked at state taxes. When we look at Kansas, we see that Kansas already taxes and spends quite a lot, compared to other states. Nearby is a chart showing per-capita state tax collections in Kansas and Colorado.2
State and Local Government Employee and Payroll. Click for larger.Looking at other data, I found that considering all state and local government employees in proportion to population, Kansas has many, compared to other states, and especially so in education.3
State and local government employment and costs, selected states. Click for larger.From another source of data, I found this: “In the visualization, you can see that Kansas spends quite a bit more than nearby states. Of special interest is Minnesota, which is often used as an example of a high-tax state, and a state with excellent schools and services. But Minnesota spends barely more than Kansas, on a per-person basis. What about Colorado? It seems that Kansans often look to Colorado as a state full of bounty. But Kansas outspends Colorado. Same for New Mexico, Wisconsin, Texas, and — especially — Missouri.”4
Please don’t argue that the economic health of a state is determined by its budget, that is, whether it is balanced or not. And if you want to argue that Kansas has borrowed money through the highway fund and spent it in the general fund: That’s true, and we should not do that. But that action allowed Kansas to keep spending, much like borrowing allows the federal government to keep spending more that it raises through taxes.
Some argue that if the state taxes more, it can spend more, and therefore the economy expands. But: The money taken from Kansans is money that they can’t spend. And if one wants to argue that government spends more carefully and efficiently than do private individuals spending their own money — well, give it a try. Empirically, not many people believe this.
And isn’t government spending the purpose of taxation? Nearby are figures showing Kansas general fund spending. You can see that for two years Kansas spent much more than it collected in revenue, using a large ending balance as the source of funds. If one believes in the Keynesian theory of fiscal effects — which most liberals and progressives do — this “deficit” spending spared spending cuts and therefore boosted the Kansas economy.
Kansas General Fund spending, showing large deficits of revenue compared to spending in 2014 and 2015.
Regarding the spending cuts that some claim: Have there been severe spending cuts in Kansas? While some programs have been trimmed, overall state spending continues on a largely upward trend (for all funds spending) or remains mostly flat (for general fund spending), after accounting for population and inflation.5
Kansas revenue estimate errors. Click for larger.We also hear that the Kansas economy is in bad shape because tax revenue has fallen short of estimates. This is not a good indicator of economic health. Instead, it illustrates the difficulty of economic forecasting. Moreover, the negative estimate variances — revenue shortfalls, in other words — in 2002 to 2003 and 2009 to 2010 were generally much larger in magnitude than those of recent years.6 Remember how the Obama administration told us that without the 2009 stimulus package unemployment would rise to a certain level? Well, the stimulus bill passed, we spent the money, and unemployment was higher than what the administration said it would be without the stimulus. And for a long time, too.7
We also hear that transfers from KDOT — the highway fund — have hurt Kansas, especially in construction jobs. Our state’s two largest newspapers recently editorialized on this matter.8 They correctly reported that Kansas construction jobs were down. But it wasn’t highway construction jobs that caused the loss of jobs, except for a very small portion.
KDOT spending on major road programs. Click for larger version.Furthermore, the state has continued to spend on highway programs, without regard to transfers from the highway fund. When we look at actual spending on roads, we see something different from what is often told. KDOT’s Comprehensive Annual Financial Report shows spending in the categories “Preservation” and “Expansion and Enhancement” has grown rapidly over the past five years. Spending in the category “Maintenance” has been level, while spending on “Modernization” has declined. For these four categories — which represent the major share of KDOT spending on roads — spending in fiscal 2015 totaled $932,666 million, up from a low of $698,770 in fiscal 2010.
We should not borrow money, place it in the highway fund, and then transfer the funds to the general fund, as the state has done for many years. But actual spending on highways has risen, nonetheless.
So: Just how will higher taxes help the Kansas economy?
Kansas Democrats (and some Republicans) are campaigning on some very expensive programs, and they’re aren’t adding it up for us.
A sampling of campaign literature from Kansas Democratic candidates in south and west Wichita for the Kansas Legislature1 reveals several common threads:
Few will identify themselves as Democrats.
Eliminating the LLC loophole is popular.
Eliminating or reducing sales tax on food is popular.
Eliminating the 2015 sales tax increase is popular.
Fully funding schools is popular.
None of these show the cost of these ideas, nor do they offer ideas on how to pay for these things, except for eliminating the LLC loophole.
What will these things cost? Here’s some figures.
LLC loophole and food sales tax: This year a bill was proposed in the Kansas Legislature to restore taxation of non-wage business income, that is, to eliminate the so-called “LLC loophole.” It would also reduce the sales tax on food from 6.5 percent to 2.6 percent. The fiscal note for this bill estimated an increase in tax revenue to the state of $260.9 million from the non-wage business income, and a loss of revenue to the state of $234.1 million for the sales tax reduction.2
Extrapolating the food sales tax figures implies that eliminating the sales tax on food would mean a loss of revenue to the state of $435 million, assuming no change in consumer behavior.
Rollback general sales tax: In 2015 when the legislature voted to raise the statewide sales tax from 6.15 percent to 6.50 percent on July 1, 2015, it was estimated that revenue to the state would increase by 164.2 million. For fiscal year 2017, by 186.7 million.3
(By the way, the tax on cigarettes was increased by an estimated $40.39 million. If we’re rolling back sales tax increases, we should roll back this 50 cent per pack increase, too. I haven’t seen any advocates for this.)
Fully funding schools: Who knows what “full funding” really means? The Kansas Supreme Court believes it — and it alone — has the ability to put a number on this. A consensus seems to be developing at around $450 million per year in additional school funding is what the court may order.
Adding up the costs (using some numbers a few years old): $260.9 million – $435 million – $164.2 million – $450 million equals -$1,310.1 million in changes to annual general fund revenue. ($-1,350.5 million if we want to be fair to smokers.)
This is the proposed change to Kansas general fund revenue that these candidates omit from their campaigns. It is the amount by which taxes must be raised, or spending be cut (or a combination of taxes and cuts). Some of these numbers are estimates that could be off by a lot. There can be some quibbling, such as reducing the food sales tax instead of eliminating it, which will change the numbers. But there’s no doubt that the plans Kansas Democrats propose will cost a lot of money.
Total revenue to the general fund in 2016 was $6,073.4 million. Major sources include:
Income taxes (individual, corporate, financial institution): $2,640.8 million
Excise taxes (sales, compensating use, cigarette, liquor, severance): $2,927.7 million
So if the state wanted to raise spending by, say, $1.310 billion dollars, it would have to raise income taxes by 49.7 percent, or excise taxes by 44.7 percent. Or a combination. Either way, that’s a lot.
When you see candidates for the Kansas Legislature — Democratic and Republican — mention these programs, ask if they know how much they will cost. Ask whose taxes will be raised or whose programs will be cut.
And ask this really important question: Just how will all this make Kansas a better state?
Kansas Governor Sam Brownback addressed a luncheon gathering at the Wichita Pachyderm Club to set the record straight on what he called myths. Recorded on October 14, 2016.
Myths
The Kansas tax plan is failing.
Kansas schools have been cut.
State employee pensions are severely underfunded.
Kansas highways are crumbling.
Welfare numbers are down because we are kicking people off.
A plan to increase visibility of the Kansas Senate is a good start, and needs to go just one or two steps farther.
The Kansas Republican Senatorial Committee has released a plan to make Kansas better. One plank concerns transparency, specifically this: “Under our plan, legislative meetings and Senate proceedings will be public and streamed live online for public viewing.”1
This is a good idea, and one that should have, and could have, been implemented long ago. But it doesn’t go quite far enough. The problem is that many people who might want to watch the proceedings can’t do so at the time the Kansas Senate meets. We need to have archived video.
This would require the Senate to capture the video rather than simply streaming it. Then, the video must be made available somewhere. YouTube is an obvious choice, and it is free.
Then, to make the experience complete, the Senate needs to make documents available to the public as they are made available to legislators. An example is an amendment to a bill that the chamber is debating.
A related matter is the availability of testimony in the Kansas Legislature. Specifically, the written testimony and informational presentations provided to committees would be 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.
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.” But in most cases there is no data behind these links. In February 2015 I investigated and found that only about one-third of standing committees in the Kansas Legislature were providing written testimony online.2
Since then, several committees have used the commercial file-sharing service Dropbox to make testimony and documents available to everyone. This is a reasonable way to accomplish an important goal.
Kansas government spending, starting in 1967. Total spending and per capita spending, adjusted for inflation. Also spending as percent of Kansas GDP.
Sources of data:
* Kansas Fiscal Facts 2016
* 2016 and 2017 are approved figures, not actual spending
* 2015 and beyond population are my estimates
* CPI is Consumer Price Index – All Urban Consumers, CUUR0000AA0
* 2016 and later GDP is estimated
