Rich States, Poor States, 2107 edition

In Rich States, Poor States, Kansas improves its middle-of-the-pack performance, but continues with a mediocre forward-looking forecast.

In the 2017 edition of Rich States, Poor States, Utah continues its streak at the top of Economic Outlook Ranking, meaning that the state is poised for growth and prosperity. Kansas continues with middle-of-the-pack performance rankings, and after falling sharply in the forward-looking forecast, continues at the same level.

Rich States, Poor States is produced by American Legislative Exchange Council. The authors are economist Dr. Arthur B. Laffer, Stephen Moore, who is Distinguished Visiting Fellow, Project for Economic Growth at The Heritage Foundation, and Jonathan Williams, who is vice president for the Center for State Fiscal Reform at ALEC.

In addition to the printed and pdf versions of Rich States, Poor States there is now an interactive web site at www.richstatespoorstates.org.

Rich States, Poor States computes two measures for each state. The first is the Economic Performance Ranking, described as “a backward-looking measure based on a state’s performance on three important variables: State Gross Domestic Product, Absolute Domestic Migration, and Non-Farm Payroll Employment — all of which are highly influenced by state policy.” The process looks at the past ten years.

Looking forward, there is the Economic Outlook Ranking, “a forecast based on a state’s current standing in 15 state policy variables. Each of these factors is influenced directly by state lawmakers through the legislative process. Generally speaking, states that spend less — especially on income transfer programs, and states that tax less — particularly on productive activities such as working or investing — experience higher growth rates than states that tax and spend more.”

Economic outlook ranking for Kansas and nearby states. Click for larger.
For economic performance (the backward-looking measure), Kansas ranks twentieth. That’s up from twenty-seventh last year.

In this year’s compilation for economic outlook, Kansas ranks twenty-sixth, up one position from the previous year, but down from eighteenth and fifteenth the years before. In 2008, the first year for this measure, Kansas was twenty-ninth.

Kansas compared to other states

A nearby chart shows the Economic Outlook Ranking for Kansas and some nearby states, shown as a trend over time since 2008. The peak of Kansas in 2013 is evident, as is the decline since then.

Why Kansas fell

Kansas fell in the Economic Outlook Ranking from 2013 to 2016 and moved by just one position in 2017. To investigate why, I gathered data for Kansas from 2008 to 2017. The nearby table shows the results for 2017 and the rank among the states, with the trend since 2008 shown. A rank of one is the best ranking. For the trend lines, an upward slope means a decline in ranking, meaning the state is performing worse.

There are several areas that account for the difference.

The most notable change is in the measure “Recently Legislated Tax Changes (per $1,000 of personal income)” Kansas fell four positions in rank. By this measure, Kansas added $2.66 in taxes per $1,000 of personal income, which ranked forty-sixth among the states. This is a large change in a negative direction, as Kansas had ranked seventh two years before.

For the state liability system, Kansas ranks nineteenth, when it was fifth two years ago.

Kansas remains one of the states with the most public employees, with 669.8 full-time equivalent employees per 10,000 population. This ranks forty-eighth among the states.

Kansas has no tax and spending limits, which is a disadvantage compared to other states. These limitations could be in the form of an expenditure limit, laws requiring voter approval of tax increases, or supermajority requirements in the legislature to pass tax increases.

How valuable is the ranking?

Correlation of ALEC-Laffer state policy ranks and state economic performance
Correlation of ALEC-Laffer state policy ranks and state economic performance
After the 2012 rankings were computed, ALEC looked retrospectively at rankings compared to actual performance. The nearby chart shows the correlation of ALEC-Laffer state policy ranks and state economic performance. In its discussion, ALEC concluded:

There is a distinctly positive relationship between the Rich States, Poor States’ economic outlook rankings and current and subsequent state economic health.

The formal correlation is not perfect (i.e., it is not equal to 100 percent) because there are other factors that affect a state’s economic prospects. All economists would concede this obvious point. However, the ALEC-Laffer rankings alone have a 25 to 40 percent correlation with state performance rankings. This is a very high percentage for a single variable considering the multiplicity of idiosyncratic factors that affect growth in each state — resource endowments, access to transportation, ports and other marketplaces, etc.

Rich States, Poor States compilation for Kansas. Click for larger version.

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