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.
Kansas Division of the Budget. The Governor’s Budget Report Volume 1, Fiscal Year 2018.http://budget.ks.gov/. ↩
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.
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.”
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.
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.
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
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.
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.
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/. ↩
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.
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.
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:
The seller of the house received cash for her property through a mutually agreed upon transaction without coercion (no eminent domain) involved.
I rehabilitated the house and sold it to a young couple for their first home.
The builder who purchased the 3 vacant lots built three new houses that he sold to owner occupant homeowners.
The builder provided construction jobs and purchased building materials from local vendors.
The Orchard neighborhood saw immediate improvement and felt the benefits of economic uplift.
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.
I paid Federal and state taxes on the profit I made in the transaction and I suspect the builder did too.
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.
The vacant green rectangles are dozens of vacant lots where houses once stood that were bulldozed by the city.
The owners of these houses were paid $0 for the houses that were taken by the city’s bulldozer
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)
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.
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.
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.
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.
They want the power to seize unoccupied houses without compensating the owners anything for their property.
They want to empower non-profit (non-taxpaying) organizations of their choice to seize unoccupied houses without compensating the owners for their property.
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.
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!
John R. Todd
A Kansas Citizen
The exhibits referred to are available in pdf form. Click here.
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.
Those who want to be informed of the happenings of the Kansas Legislature have these resources available.
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.
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 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.
A look at actual spending on Kansas highways, apart from transfers.
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.
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
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.
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.
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.
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.
Kansas Policy Institute
Overland Park, Kan.
“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.
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.
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
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
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.”
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 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
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
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
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.
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
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.
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?