Sales tax revenue and the Kansas highway fund

The effect of a proposed bill to end transfer of Kansas sales tax revenue to the highway fund is distorted by promoters of taxation and spending.

The bill is SB 463. The bill’s fiscal note tells how this bill, if passed, would affect the highway fund: “Beginning in FY 2018, the percentage of state sales tax and compensating use tax distributed to the [State Highway Fund] would be eliminated.” The fiscal note goes on to estimate that the highway fund would receive $553.4 million less sales tax revenue than it would otherwise in fiscal year 2018. (This bill proposed changes to other funds, but here I consider only highways.)

In an email to supporters, Economic Lifelines wrote: “SB 463 would redirect 35% of T-WORKS funding beginning in July of 2017. Passage of this legislation would be a devastating blow to the future of the T-WORKS program.” (Economics Lifelines is a group that lobbies for more spending on highways. Its members are primarily local chambers of commerce, labor unions, construction equipment dealers, and construction material suppliers. In other words, those who benefit from more highway spending, without regard to whether it is needed and wise.)

Former Kansas budget director Duane Goossen was more emphatic, writing: “Watch out! A very dangerous financial bill just surfaced in the Senate Ways and Means Committee, but it was promoted with language that hid the ultimate purpose and effect. Senate Bill 463 permanently transfers more than $500 million annually from the highway fund to the general fund.”¹

Goossen has it backwards, however. The proposed bill would transfer nothing from the highway fund to the general fund. It would, however, stop transfers from the general fund to the highway fund.

There’s a difference, and it’s important. The highway fund has no claim on sales tax revenue other than what the legislature decides to send it. That amount has changed over the years. Kansas law specifies how much sales tax revenue is transferred to the highway fund. Here are some recent rates of transfer and dates they became effective:²

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%

(If SB 463 passes as it stands now, on July 1, 2017 the rate would become 0 percent.)

Nearby is a chart showing how many sales tax dollars were transferred to the highway fund. In 2006 the transfer was $98.914 million, and by 2015 it had grown to $511.586 million, an increase of 417 percent. Inflation rose by 18 percent over the same period.³

(It’s important to note that in some years money has been transferred from the highway fund back to the general fund. Worse, in some years KDOT has borrowed money for the highway fund, but it was transferred to the general fund.⁴)

You’d think that Goossen, a former state budget director, would understand the difference between stopping a flow of funds versus reversing the flow. He claims the latter, and it isn’t surprising to see this mistake. A few sentences in the article let us know Goossen’s ideology, which is that Kansans should be taxed more so that government can continue to spend: “This maneuver does not fix the problem caused by unaffordable income tax cuts, it just makes highways and children pay for it.” First, tax cuts are never unaffordable. It is government that is unaffordable. Tax cuts let people keep more of what is rightly theirs. That is, unless you believe that government has a legitimate claim to your income and assets, as Goossen does. Second, he complains that “recurring revenue does not begin to cover expenses.” That is true. But the proper remedy is to reform and cut spending. Goossen prefers raising taxes.

Economic Lifelines makes the same mistake. We can understand — but not condone — this organization’s motive. It exists for the sole purpose of drumming up support for spending that benefits its members. If its director, who wrote the email cited above, said that Kansas is spending enough or too much on highways, he undoubtedly would be fired.

But what is Duane Goossen’s motivation for twisting the meaning of a bill? That’s a mystery.

To top it off, spending on highways has increased — notwithstanding the transfers from the highway fund — when we look at actual spending on roads. 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.