Is Kansas Competitive?

Is Kansas Competitive?
Karl Peterjohn, Kansas Taxpayers Network

Is the Kansas economy competitive? State revenues are growing and Governor Sebelius and other state spending proponents are promoting a consultant’s report that ranks Kansas as 10th for “Pro Business States for 2006,” according to Pollina Corporate Real Estate, Inc. consulting service. This was a big jump for Kansas in this rating due to the state scoring a middling 23rd in the first survey released in 2004. This is an important issue as Kansas spending and ultimately tax issues remain unresolved and the blacked robed legislators on the Kansas Supreme Court await an opportunity to issue more spending edicts.

Free market and conservative legislators have been complaining that Kansas is not economically competitive or business friendly. The uncertainty and enhanced risk created by judicial spending edicts certainly hurts this state but is one important criteria that was not considered in the Pollina report.

The conservative legislators have tried to pass a much larger package of tax cuts that go well beyond what the liberal Governor Sebelius wants. April 7 the governor expressed her preference for another dramatic hike in state school expenditures over any tax cuts when she met with statehouse reporters.

However, the key question remains. Does Kansas has a competitive fiscal climate or not? The Tax Foundation’s State Business Tax Climate Index ranked Kansas as 34th in their 2006 report, down two places from last year. Kansas is getting marginally worse here and lags behind all of our neighbors except Nebraska. The Council of State Taxation’s 2006 report issued in March ranked Kansas business taxes at the top of our five state region and well above the U.S. national average.

The Pollina consulting report ranked Kansas on a number of criteria and in only one was Kansas in the top ten. The business tax ranking in this report scored Kansas at 45th (with one being best and 50th worst). Job losses between 2002-04 in this report has Kansas scoring 47th which ironically probably explains one of Kansas’ best scores of 13th on their workforce. This means that Kansas has lots of qualified workers trying to find jobs. Sadly, many of these folks will move to states with more competitive tax climates where the job growth is located. Kansas also scored badly on our unitary taxation of business but that was offset by Kansas not taxing inventories.

Dr. Pollina explained that Kansas scored well because we are one of 22 Right to Work states but that does not explain how Kansas moved up from 2004. “Its not always that the state is doing that much better but that others are doing worse,” Dr. Pollina suggested.

Dr. Pollina also cited the state’s programs for incentives for business as another reason. The more incentives and state programs the higher his rating. Critics of these programs have described many of these special benefits as corporate welfare. However, Dr. Pollina could not explain how Kansas, which was ranked on this criteria as 6th this year, would improve significantly overall when we also ranked 6th on this same criteria in 2004. While having a strong economic development department with programs was an important part of this study’s rating, this cannot explain how Kansas moved up. If you ignored the state incentive programs, Dr. Pollina did say that Kansas would not have moved up to 10th in his survey.

The irony about the variance in these reports is buried in the details. The Pollina survey actually relies upon some of the Tax Foundation data. The Pollina report ranked Kansas as scoring 23rd on infrastructure, including roads, despite this state spending more than our neighbors on a per capita basis for roads and highways. So like school spending, Kansas spends more, taxes more, but gets less bang for the buck. Effectiveness of state spending was not measured.

The Pollina survey actually measured a number of different criteria from the tax and competitiveness comparisons performed by the Tax Foundation and the Council of State Taxation. Pro business when it comes to state subsidies is sometimes in conflict with free market and limited government. Small businesses that are ineligible for many state development programs are ignored in the state Commerce Department’s “elephant hunt” that is focused primarily upon the Fortune 500 corporations.

The Pollina survey actually contains a lot of disturbing data about how poorly Kansas competes that will sadly be ignored by the 10th place rating. These details matter. Lots of state Department of Commerce programs and a glitzy web site will only be a case of putting “lipstick on the pig.” The fact that state revenues in 2005 grew at half the national rate is a warning signal that is being ignored by liberal elected officials in both parties, Governor Sebelius, and her judicial allies wearing the black robes in the Kansas “House of Lords,” who are preparing their next expensive edict within the Kansas Supreme Court.