Tag Archives: Government spending

National Transit Database, an interactive visualization

An interactive visualization of data over time from the National Transit Database.

Do you wonder how much it costs to run your transit system? The National Transit Database holds data for transit systems in the U.S. I’ve gathered some key statistics and presented them in an interactive visualization.

In the case of Wichita, we see that “OpExp per PMT” for 2015 is $1.02. This is total operating expense per passenger mile traveled. It’s not the cost to move a bus a mile down the street. It’s the cost to move one passenger one mile. And, it is operating cost only, which means the costs of the buses are not included.

Some definitions used in the database:

  • UZA: The name of the urbanized area served primarily by a transit agency.
  • UPT: Unlinked passenger trips.
  • PMT: Passenger miles traveled.
  • Total OpExp: Total operating expense.

The visualization holds three tabs. One is a table of figures. The other two illustrate data for a single transit system or single mode.

Click here to access the visualization.

Example from the visualization for Wichita. Click for larger.

In Wichita, new stadium to be considered

The City of Wichita plans subsidized development of a sports facility as an economic driver.

West Bank Redevelopment District. Click for larger.
This week the Wichita City Council will consider a project plan for a redevelopment district near Downtown Wichita. It is largely financed by Tax Increment Financing and STAR bonds. Both divert future incremental tax revenue to pay for various things within the district.1 2

City documents promise this: “The City plans to substantially rehabilitate or replace Lawrence-Dumont Stadium into a multi-sport athletic complex. The TIF project would allow the City to make investments in Lawrence-Dumont Stadium, construct additional parking in the redevelopment district, initiate improvements to the Delano multi-use path and make additional transportation improvements related to the stadium project area. In addition to the stadium work, the City plans to construct, utilizing STAR bond funds, a sports museum, improvements to the west bank of the Arkansas River and construct a pedestrian bridge connecting the stadium area with the Century II block. The TIF project is part of the overall plan to revitalize the stadium area and Delano Neighborhood within the district.”3

We’ve heard things like this before. Each “opportunity” for the public to invest in downtown Wichita is accompanied by grand promises. But actual progress is difficult to achieve, as evidenced by the example of Block One.4

Trends of business activity in downtown Wichita. Click for larger.
In fact, change in Downtown Wichita — if we’re measuring the count of business firms, jobs, and payroll — is in the wrong direction, despite large public and private investment. 5

Perhaps more pertinent to a sports facility as an economic growth driver is the Intrust Bank Arena. Five years ago the Wichita Eagle noted the lack of growth in the area. 6 Since then, not much has changed. The area surrounding the arena is largely vacant. Except for Commerce Street, that is, and the businesses located there don’t want to pay their share of property taxes. 7

I’m sure the city will remind us that the arena was a Sedgwick County project, not a City of Wichita project, as if that makes a difference. Also, the poor economic performance cited above is for Downtown Wichita as delineated by zip code 67202, while the proposed stadium project lies just outside that area, as if that makes a difference.

By the way, this STAR bonds district is an expansion of an existing district which contains the WaterWalk development. That development has languished, with acres of land having been available for development for many years. We’ve also found that the city was not holding the WaterWalk developer accountable to the terms of the deal that was agreed upon, to the detriment of Wichita taxpayers. 8

Following, selected articles on the economics of public financing of sports stadiums.

The Economics of Subsidizing Sports Stadiums

Scott A. Wolla, “The Economics of Subsidizing Sports Stadiums,” Page One Economics, May 2017. This is a project of the Federal Reserve Bank of St. Louis. Link.
“Building sports stadiums has an impact on local economies. For that reason, many people support the use of government subsidies to help pay for stadiums. However, economists generally oppose such subsidies. They often stress that estimations of the economic impact of sports stadiums are exaggerated because they fail to recognize opportunity costs. Consumers who spend money on sporting events would likely spend the money on other forms of entertainment, which has a similar economic impact. Rather than subsidizing sports stadiums, governments could finance other projects such as infrastructure or education that have the potential to increase productivity and promote economic growth.”

What economists think about public financing for sports stadiums

Jeff Cockrell, Chicago Booth Review, February 01, 2017. Link.
“But do the economic benefits generated by these facilities — via increased tourism, for example — justify the costs to the public? Chicago Booth’s Initiative on Global Markets put that question to its US Economic Experts Panel. Fifty-seven percent of the panel agreed that the costs to taxpayers are likely to outweigh benefits, while only 2 percent disagreed — though several panelists noted that some contributions of local sports teams are difficult to quantify.”

Publicly Financed Sports Stadiums Are a Game That Taxpayers Lose

Jeffrey Dorfman. Forbes, January 31, 2015. Link.
“Once you look at things this way, you see that stadiums can only justify public financing if they will draw most attendees from a long distance on a regular basis. The Super Bowl does that, but the average city’s football, baseball, hockey, or basketball team does not. Since most events held at a stadium will rely heavily on the local fan base, they will never generate enough tax revenue to pay back taxpayers for the cost of the stadium.”

Sports Facilities and Economic Development

Andrew Zimbalist, Government Finance Review, August 2013. Link.
“This article is meant to emphasize the complexity of the factors that must be evaluated in assessing the economic impact of sports facility construction. While prudent planning and negotiating can improve the chances of minimizing any negative impacts or even of promoting a modest positive impact, the basic experience suggests that a city should not expect that a new arena or stadium by itself will provide a boost to the local economy.

Instead, the city should think of the non-pecuniary benefits involved with a new facility, whether they entail bringing a professional team to town, keeping one from leaving, improving the conveniences and amenities at the facility, or providing an existing team with greater resources for competition. Sports are central to cultural life in the United States (and in much of the world). They represent one of the most cogent ways for residents to feel part of and enjoy belonging to a community. The rest of our lives are increasingly isolated by modern technological gadgetry. Sport teams help provide identity to a community, and it is this psychosocial benefit that should be weighed against the sizeable public investments that sports team owners demand.”


Notes

  1. Weeks, Bob. STAR bonds in Kansas. Available at https://wichitaliberty.org/kansas-government/star-bonds-kansas/.
  2. Weeks, Bob. Wichita TIF projects: some background. Available at https://wichitaliberty.org/wichita-government/wichita-tif-projects-background/.
  3. Wichita City Council, agenda packet for July 18, 2017.
  4. Weeks, Bob. Downtown Wichita’s Block One, a beneficiary of tax increment financing. Before forming new tax increment financing districts, Wichita taxpayers ought to ask for progress on current districts. Available at https://wichitaliberty.org/wichita-government/downtown-wichita-block-one-beneficiary-tax-increment-financing/.
  5. Weeks, Bob. Downtown Wichita business trends. Available at https://wichitaliberty.org/wichita-government/downtown-wichita-business-trends/.
  6. “Ten years ago, Elizabeth Stevenson looked out at the neighborhood where a downtown arena would soon be built and told an Eagle reporter that one day it could be the ‘Paris of the Midwest.’ What she and many others envisioned was a pedestrian and bike-friendly neighborhood of quaint shops, chic eateries and an active arts district, supported by tens of thousands of visitors who would be coming downtown for sporting events and concerts. It hasn’t exactly turned out that way. Today, five years after the opening of the Intrust Bank Arena, most of the immediate neighborhood looks much like it did in 2004 when Stevenson was interviewed in The Eagle. With the exception of a small artists’ colony along Commerce Street, it’s still the same mix of light industrial businesses interspersed with numerous boarded-up buildings and vacant lots, dotted with ‘for sale’ and ‘for lease’ signs.” Lefler, Dion. 5 years after Intrust Bank Arena opens, little surrounding development has followed. Wichita Eagle. December 20, 2014. Available at http://www.kansas.com/news/local/article4743402.html.
  7. Riedl, Matt. Has Commerce Street become too cool for its own good? Wichita Eagle. April 8, 2017. http://www.kansas.com/entertainment/ent-columns-blogs/keeper-of-the-plans/article143529404.html.
  8. Weeks, Bob. Wichita WaterWalk agreement not followed. Available at https://wichitaliberty.org/wichita-government/wichita-waterwalk-agreement-not-followed/.

Happy Fiscal New Year, Kansas (not)

A Kansas public policy group celebrates tax increases. But it isn’t enough, and more reform is required.

Kansas Center for Economic Growth has promoted higher taxes in Kansas for many years, and this year it got its wish. Here are a few remarks based on its self-congratulatory article titled “Happy Fiscal New Year, Kansas.”

KCEG wrote: “Kansas is now better positioned to provide great schools”
Wait a moment. I thought Kansas already has great schools. That’s what the Kansas public school establishment tells us.

And I think that the author made a mistake here. Instead of writing about “public schools,” the author mentions — simply — “schools.” Usually the Kansas public school establishment is careful to qualify their plea for more school spending with “public.” To them, spending on private schools or charter schools is money wasted, money that should have gone to public schools. Fortunately, and amazingly, the tax credit scholarship program, a program limited to students currently in low-performing schools, was expanded slightly. 1

If KCEG really wanted to promote great schools in Kansas, it would embrace school programs such as charter schools.

KCEG: “vibrant communities”
Here, KCEG believes that taking more money from the private sector through taxation and letting government spend it is “vibrant.” But how does government work? In a democracy, a majority forces its will on the minority. Or, special interest groups intensely lobby for benefits at the expense of everyone else. Or, a form of the precautionary principle tamps down sparks of innovation in government bureaucracies, like public schools. Government is the opposite of “vibrant,” which the dictionary defines as “full of energy and enthusiasm.”

KCEG: “It also phases in the restoration of an important tax credit and three deductions that were eliminated in 2012 to pay for tax breaks for the wealthy.”
In 2012 everyone’s taxes were cut. Aside from that, we don’t pay for tax cuts. We pay for the cost of government.

When someone says we must pay for tax cuts, it presumes that tax cuts have a cost. The only way this makes sense is if we believe that the state has first claim on our incomes. The state takes what it says it needs, and we get to keep the rest. If the government is ever persuaded to reduce its claim on our incomes, that has a cost that must be paid in some way.

But for those who believe in self-ownership, this is nonsense. It’s the people who “give” tax money to the government, not the government who “gives” it back in the form of tax cuts. If the government cuts taxes, the government gives us nothing. It simply takes less of what is ours in the first place.

But the attitude of many government officials is the opposite. In 2006 Kansas cut taxes on business equipment and machinery. At the time, the Wichita Eagle reported: “Gov. Kathleen Sebelius, a Democrat, who first proposed the business machinery tax cut, agreed. ‘We’re not giving away money for the sake of giving it away,’ she said. ‘I’m hoping that the economic growth will actually help fund the school plan that we just passed.'” (emphasis added)

(By the way, this sounds like Sebelius was planning for tax cuts to pay for themselves.)

KCEG: “This means looking beyond income tax reforms and rebalancing Kansas’ ‘three-legged stool’ by addressing problems with the state’s sales tax and property tax.”
The three-legged stool is one of the most inappropriate analogies ever coined. If the state of Kansas were to develop an additional source of tax revenue, say by slapping a tariff on Budweiser imported from Missouri or Coors imported from Colorado, we’d hear spending advocates like KCEG speaking of the virtue of a stable four-legged chair. Many states thrive without one of our three legs, the income tax. And if we’re looking for stability, as Hineman mentions, income taxes are quite volatile compared to the other legs. 2

KCEG: “To pay for the Governor’s irresponsible and steep income tax cuts”
Again, we don’t have to pay for tax cuts. But there was irresponsible behavior, that being to continue to spend and avoid serious attempts at spending reform.

KCEG: “In response to the ongoing budget crisis, the sales tax was increased in 2015 to offset lagging state revenue. This affected every Kansan in every county, but especially hurt low-income residents.”
Here, KCEG is correct. The state should not have raised the sales tax, and the state needs to work on lowering the sales tax rate on groceries. For more on this topic, see Wichita sales tax hike would hit low income families hardest and Kansas sales tax has disproportionate harmful effects.

(Actually, KCEG is not totally correct. The sentence should have ended with “… to continue to pay for wasteful state spending because the governor and legislature would not seriously consider spending reform.”)

KCEG: “And because of the gamble with income tax cuts”
There was no gamble with income tax cuts, the governor’s boastful claims notwithstanding. 3 The tax cuts did what tax cuts should do: Leave more money in the hands of the people it belongs to.

KCEG: “As a result, property taxes shot up as communities struggled to keep up with the demand for basic services.”
If taxation was shifted from the state level to local levels, that in itself is not bad. In fact, it keeps taxing and spending more closely controlled at the local level, without communities having to fight in Topeka for a share of the state budget pie.

KCEG: “If we want to fully recover from the past five years, tax reform must address sales and property tax problems in addition to income tax issues.”
KCEG doesn’t say what are the problems with sales and property taxes. But I think I know what they believe: These two forms of taxation are too low. They don’t raise enough money from the right people.


Notes

  1. “On and after July 1, 2018, the bill amends the definition of “public school” within the TCLISS Program Act to mean a school identified by KSBE as one of the lowest 100 performing schools with respect to student achievement. It also amends the definition of “qualified school” to require accreditation on and after July 1, 2020. Accreditation must be by KSBE or a KSBE-recognized national or regional accrediting agency. Additionally, the bill expands eligibility for the tax credit to individuals and places an annual cap of $500,000 on contributions.” Kansas Legislature. SB 19: Creating the Kansas school equity and enhancement act, summary. Available at http://www.kslegislature.org/li/b2017_18/measures/sb19/.
  2. Federal Reserve Bank of St. Louis, Gary C. Cornia & Ray D. Nelson. State Tax Revenue Growth and Volatility. 6 Regional Economic Development, 23-58 (2010). Available at https://files.stlouisfed.org/files/htdocs/publications/red/2010/01/Cornia.pdf.
  3. Weeks, Bob. The yardstick for the Kansas experiment. Available at https://wichitaliberty.org/kansas-government/yardstick-kansas-experiment/.

Deconstructing Don Hineman

Another Kansas legislator explains why raising taxes was necessary. So he says.

Many members of the Kansas Legislature are writing pieces defending their decision to vote for higher taxes. Don Hineman is one. His explanation merits more than average attention, as he is the Majority Leader of the Kansas House of Representatives. This week the Topeka Capital-Journal published his op-ed Rep. Don Hineman: Why tax reform was necessary. It deserves comment.

Hineman wrote: “This return to common sense tax policy resulted from legislators listening to their constituents and fulfilling the promises they made during 2016 campaigns.”
There may have been some candidates who campaigned on a platform of higher taxes. But most used more subtle language, such as Hineman’s use of the phrase “common-sense tax policy.” Does anyone know what that means? Does it mean the same thing to everyone? Besides, raising taxes was just one issue for most candidates and campaigns. And, voters must vote for candidates, not specific policies. As Justice Antonin Scalia told us, “Campaign promises are, by long democratic tradition, the least binding form of human commitment.” An example comes from Hineman’s web page, which states one of his four core values is “Respect for private property rights.” He has respect for your property, unless that property happens to be your money. Then he wants more.

Hineman: “… restore our state to firmer fiscal ground.”
This could have been done with spending cuts, too.

Hineman: “… a group of 88 representatives and 27 senators from across the political spectrum voted to override the governor’s veto.”
Here, Hineman refers to the coalition of Republicans and Democrats that passed the tax bill notwithstanding the governor’s veto. Because members of both major parties voted the same way, it’s described as nonpartisan. It’s meant as a good thing. But most of the Republicans who voted for higher taxes qualify as Democrats in many ways. They dismiss the Republican Party platform and embrace most aspects of the Democratic Party and progressive goals. There is no “spectrum.” Regarding taxation and the size of government, they’re pretty much the same color. Kansas Policy Institute confirms: “The Freedom Index published by Kansas Policy Institute has repeatedly shown the legislative political division to not be about Democrats and Republicans but about legislators’ view of the role of government, and the above June 2 update of 2017 Freedom Index certainly bears that out. With a score of 50 percent being considered neutral, there are 13 Senators at the top of the list with positive scores and 13 Senators at the bottom of the list — and every one of them is a Republican.” 1

Hineman: “Brownback’s tax plan abandoned the ‘three-legged stool’ approach to funding government, which had served Kansas well for decades by relying on a stable balance of income, sales and property.”
The three-legged stool is one of the most inappropriate analogies ever coined. If the state of Kansas were to develop an additional source of tax revenue, say by slapping a tariff on Budweiser imported from Missouri or Coors from Colorado, we’d hear spenders like Hineman speaking of the virtue of a stable four-legged chair. Many states thrive without one of our three legs, the income tax. And if we’re looking for stability, as Hineman mentions, income taxes are quite volatile compared to the other legs. 2

As far as serving Kansas well: There are a variety of ways to look at the progress of Kansas compared to the nation, but here’s a startling fact: For the 73rd Congress (1933 to 1935) Kansas had seven members in the U.S. House of Representatives. (It had eight in the previous session.) Until 1992 Kansas had five. Today Kansas has four members, and may be on the verge of losing one after the next census. This is an indication of the growth of Kansas in comparison to the nation.

” … sweep from the highway fund … rejected the governor’s short-term fixes as being neither responsible nor conservative …”
In this (heavily edited) sentence, Hineman complains about sweeping money from the state’s highway fund. But: Even after raising taxes, the budget just passed by the legislature continues sweeps from the highway fund in the amount of $288,297,663 in fiscal year 2018. For fiscal year 2018, the total of the quarterly sweeps is $293,126,335. 3

Hineman: “The fiscal strain created by the 2012 tax cuts caused public schools to suffer, increasing class sizes and reducing program offerings.”

Kansas school spending. See article for notes about 2015. Click for larger.
The nearby chart shows Kansas school spending, per pupil, adjusted for inflation. It’s easy to see that since 2011, spending has been remarkable level. There was a change in 2015 that shifted the way some school funding was credited, but in total, not much changed.

Kansas school employment. Click for larger.

Kansas school employment ratios. Click for larger.
Some people will dismiss spending figures for a variety of reasons. They may say that inflation affects schools differently from everything else, or that these figures don’t include KPERS, or that they do include the cost of facilities. So let’s look at something else: The number of employees compared to the number of students. When we do this, we find that igures released by the Kansas State Department of Education show the number of certified employees rose slightly for the 2016-2017 school year.

The number of Pre-K through grade 12 teachers rose to 30,431 from 30,413, an increase of 0.06 percent. Certified employees rose to 41,459 from 41,405, or by 0.13 percent.4 These are not the only employees of school districts.5

Enrollment fell from 463,504 to 460,491, or 0.61 percent. As a result, the ratios of teachers to students and certified employees to students fell. The pupil-teacher ratio fell from 15.2 pupils per teacher to 15.1. The certified employee-pupil ratio fell from 11.2 to 11.1.

If we look at these ratios over time, we see they are remarkably consistent since 2012. These figures, at least on a state-wide basis, are contrary to the usual narrative, which is that school employment has been slashed, and class sizes are rising rapidly. The pupil-teacher ratios published by KSDE are not the same statistic as class sizes. But if the data shows that the ratio of pupils to teachers is largely unchanged for the past five years and class sizes are rising at the same time, we’re left to wonder what school districts are doing with teachers. And, why are programs being eliminated?

(The relative change in enrollment and employment is not the same in every district. To help Kansas learn about employment trends in individual school districts, I’ve gathered the numbers from the Kansas State Department of Education and present them in an interactive visualization. 6 7)

Hineman: “Though raising taxes is never easy …”
No. Spenders love to raise taxes. In fact, some legislators warned that the tax hikes are not enough, and that they’ll be back for more. Indeed, projections show spending outpacing revenue in just a few years.

Hineman: “… it was unfortunately the only responsible option available. State government has been cut to the point where there is no reasonable way to reduce spending enough to balance the budget.”
No. One example: The efficiency study commissioned by the legislature recommended savings in the method of acquiring health insurance for public school employees. This was not adopted. Therefore, $47,200,000 in general fund spending is added over what the governor recommended. 8 9 This was not cutting services or benefits. It was asking school employees to do something differently in order to save money. But, it didn’t happen.

Can Kansas cut spending? There are many states that spend less than Kansas on a per capita basis. 10

Hineman: “Those who parrot the phrase ‘we have a spending problem, not a revenue problem’ have repeatedly failed to offer realistic suggestions for further cuts.”
Hineman is correct in a small way. To balance the budget this year with cuts alone was probably impossible. The lust for spending other people’s money is just too great. But there have been proposals that should have been followed. First, the legislature should have commissioned the efficiency study in 2012 when taxes were cut. That didn’t happen. Then, the legislature should take the efficiency study seriously. But even simple things — like the recommendation of savings through school employee health insurance acquisition reform — are difficult to accomplish, because the spenders don’t want these reforms.

And, in the past there have been responsible plans for reforming spending and the budget. But these plans were not wanted, nor were they realized. 11

Hineman’s criticism shows that it is difficult to cut spending. People become accustomed to other people paying for their stuff. Legislators want to appear to be doing more for their constituents, providing seemingly free stuff while pushing aside the idea of paying for it. And so government grows, at the expense of our liberty and what might have been had the money been left in the productive private sector.


Notes

  1. Trabert, Dave. “Freedom index: Political division is citizens vs. government, not party lines.* Available at https://kansaspolicy.org/freedom-index-political-division-citizens-vs-government-not-party-lines/.
  2. Federal Reserve Bank of St. Louis, Gary C. Cornia & Ray D. Nelson. State Tax Revenue Growth and Volatility. 6 Regional Economic Development, 23-58 (2010). Available at https://files.stlouisfed.org/files/htdocs/publications/red/2010/01/Cornia.pdf.
  3. Weeks, Bob. In Kansas, sweeps to continue. Available at https://wichitaliberty.org/kansas-government/kansas-sweeps-continue/.
  4. According to KSDE, certified employees include Superintendent, Assoc./Asst. Superintendents, Administrative Assistants, Principals, Assistant Principals, Directors/Supervisors Spec. Ed., Directors/Supervisors of Health, Directors/Supervisors Career/Tech Ed, Instructional Coordinators/Supervisors, All Other Directors/Supervisors, Other Curriculum Specialists, Practical Arts/Career/Tech Ed Teachers, Special Ed. Teachers, Prekindergarten Teachers, Kindergarten Teachers, All Other Teachers, Library Media Specialists, School Counselors, Clinical or School Psychologists, Nurses (RN or NP only), Speech Pathologists, Audiologists, School Social Work Services, and Reading Specialists/Teachers. Teachers include Practical Arts/Vocational Education Teachers, Special Education Teachers, Pre-Kindergarten Teachers, Kindergarten Teachers, Other Teachers, and Reading Specialists/Teachers. See Kansas State Department of Education. Certified Personnel. http://www.ksde.org/Portals/0/School%20Finance/reports_and_publications/Personnel/Certified%20Personnel%20Cover_State%20Totals.pdf.
  5. There are also, according to KSDE, non-certified employees, which are Assistant Superintendents, Business Managers, Business Directors/Coordinators/Supervisors, Other Business Personnel, Maintenance and Operation Directors/Coordinators/Supervisors, Other Maintenance and Operation Personnel, Food Service Directors/Coordinators/Supervisors, Other Food Service Personnel, Transportation Directors/Coordinators/Supervisors, Other Transportation Personnel, Technology Director, Other Technology Personnel, Other Directors/Coordinators/Supervisors, Attendance Services Staff, Library Media Aides, LPN Nurses, Security Officers, Social Services Staff, Regular Education Teacher Aides, Coaching Assistant, Central Administration Clerical Staff, School Administration Clerical Staff, Student Services Clerical Staff, Special Education Paraprofessionals, Parents as Teachers, School Resource Officer, and Others. See Kansas State Department of Education. Non-Certified Personnel Report. http://www.ksde.org/Portals/0/School%20Finance/reports_and_publications/Personnel/NonCertPer%20Cov_St%20Totals.pdf.
  6. Weeks, Bob. Kansas school spending, an interactive visualization. Available at https://wichitaliberty.org/wichita-kansas-schools/kansas-school-spending-interactive-visualization/.
  7. Weeks, Bob. Kansas school employment. Available at https://wichitaliberty.org/politics/kansas-school-employment-2/.
  8. “The FY 2018 budget assumes savings of $47.2 million from implementation of Alvarez & Marsal efficiency recommendations to include K-12 health benefit consolidation and sourcing select benefit categories on a statewide basis.” Budget Report, p. 17
  9. “Add $47.2 million, all from the State General Fund, for removing savings associated with A&M recommendations for health insurance and procurement for FY 2018.” Bill Explanation For 2017 Senate Sub. For House Bill 2002, p. 10.
  10. Weeks, Bob. Spending in the states, per capita. https://wichitaliberty.org/economics/spending-states-per-capita-2/.
  11. Kansas Policy Institute. A Five-Year Budget Plan for the State of Kansas: How to balance the budget and have healthy ending balances without tax increases or service reductions. Available at https://kansaspolicy.org/kpi-analysis-5-year-kansas-budget-plan/.

Decoding Duane Goossen

When reading the writings of former Kansas State Budget Director Duane Goossen, it’s useful to have a guide grounded in reality.

In a look back at the Kansas Legislature this year, former state budget director Duane Goossen has a few opinions. Here are a few, as appeared in the Wichita Eagle, and some counter arguments.

“Kansans, we are done being kicked around.”
No, Kansans are just starting to be kicked around even harder. That’s what higher taxes represent.

“We became famous, the poster state for bad tax policy.”
No, Kansas became the poster state for bad spending policy. Our legislature and governor had several years to find ways to reform spending, but there was not the will to do so. One example: The budget for next year contains $47.2 million in spending because the legislature did not adopt a recommended plan to save money on purchasing health insurance for school employees. That number rises to $89.0 million the following year.

“Kansans wanted their government to work, and wanted public education adequately funded.”
But spending on schools, adjusted for inflation, on a per-student basis, varied very little the past six years. 1 Kansas school employment rose slightly for the current school year, and ratios of employees to pupils fell, also slightly. The ratios of teachers to pupils and certified employees to pupils has been nearly constant in recent years. 2

Another constant refrain is that the state was not spending on highway maintenance. But spending on actual road maintenance programs has risen, with a few ups and downs. (This is spending apart from the sweeps of highway funds.) Additionally, while groups claimed that the state could maintain only 200 miles of roads a year, data from KDOT show that the number of miles maintained has risen for three years, and is well above 2,000 miles per year. 3

“…a discredited ‘trickle down’ tax cut ideology.”
“Trickle down” is not a term that economists use. It has no meaning in economics.

“Certainly, kudos should go to the courageous legislators and legislative leaders who voted to override.”
It is not courageous to raise taxes on anyone, wealthy or not. Courage would have been starting to reform spending five years ago.

“Most citizens prefer not to spend their time thinking about budget and tax policy issues.”
Goossen is correct. Politicians and bureaucrats prefer to work out of the spotlight, especially when raising taxes while showing no resolve to reform spending.

“An even higher percentage of voters expressed concern that the state was not investing enough in education.”
The spending establishment does a very good job convincing people that spending on nearly everything, especially schools, is lower than the reality. As a result, surveys of people across the county, and in Kansas, repeatedly show that the average person has little knowledge of the level of spending in schools and whether spending is rising or falling. 4 This reinforces the previous point.

“Kansas will be climbing out of the Brownback experiment for years.”
Here, Goossen is probably referring to delayed KPERS payments and borrowing from the highway fund. Well. When Goossen was state budget director, the KPERS funding ratio fell year after year. 5 The general fund swept from the highway fund during those years, too. That’s at the same time KDOT was also issuing long-term debt, including some bonds that were interest-only payments for many years. 6 (The state still does this.) To top it off, the budget just passed by the legislature continues sweeps from the highway fund in the amount of $288,297,663 in fiscal year 2018. For fiscal year 2018, the total of the quarterly sweeps is $293,126,335. 7


Notes

  1. Weeks, Bob. Kansas school spending, an interactive visualization. Available at https://wichitaliberty.org/wichita-kansas-schools/kansas-school-spending-interactive-visualization/.
  2. Weeks, Bob. Kansas school employment. Available at https://wichitaliberty.org/politics/kansas-school-employment-2/.
  3. Weeks, Bob. Highway budget cuts and sweeps in Kansas. Available at https://wichitaliberty.org/kansas-government/highway-budget-cuts-sweeps-kansas/.
  4. Weeks, Bob. Kansans still uninformed on school spending. Available at https://wichitaliberty.org/wichita-kansas-schools/kansas-uninformed-school-spending/.
  5. Weeks, Bob. This is why we must eliminate defined-benefit public pensions. Available at https://wichitaliberty.org/kansas-government/we-must-eliminate-defined-benefit-public-pensions/.
  6. Weeks, Bob. Kansas transportation bonds economics worse than told. Available at https://wichitaliberty.org/kansas-government/kansas-transportation-bonds-economics-worse-than-told/.
  7. Weeks, Bob. In Kansas, sweeps to continue. Available at https://wichitaliberty.org/kansas-government/kansas-sweeps-continue/.

In Kansas, sweeps to continue

Even though the Kansas Legislature raised taxes, sweeps from the highway fund will continue.

Spending on major road programs in Kansas. Click for larger.
Why did the legislature and governor raise taxes in Kansas? One reason cited by many is the need to stop “robbing the highway fund.” This refers to transferring (“sweeping”) money from a fund in the Kansas Department of Transportation to the state’s general fund, where the money is then spent on things besides highways. There was bipartisan agreement that this practice should stop. Highways were falling apart, it was said, even though spending on major road maintenance programs continued at about the same level. 1

The real danger in transferring money from the highway fund is that KDOT borrows money — a lot of money. And instead of that money being spent on long-lived assets like roads and bridges, that borrowed money is spent on current consumption.

But: Guess what? Transfers from the highway fund to the general fund are scheduled to continue for another two years, based on the budget passed by wide margins in both chambers of the legislature. 2

Language in the budget calls for quarterly sweeps totaling $288,297,663 in fiscal year 2018, with the first sweep on July 1, 2017. 3

For fiscal year 2018, the total of the quarterly sweeps is $293,126,335. 4

Transfers from sales tax to Kansas highway fund. Click for larger.
There are several ways to look at these transfers. We might look at it as reclaiming from the highway fund some of the sales tax the state collects. That amount has grown. In 2006 the transfer of sales tax revenue to the highway fund was $98,914 million. In 2016 it was $517,698 million, an increase of $418,784 million or 423 percent. 5

But if the legislature wanted to alter the transfer of sales tax, it could have done so by altering the law that specifies the rate of transfer. That promotes transparency.

The budget authorizes the transportation department to borrow up to $400 million in each of the next two fiscal years. There will be pressure to issue those bonds.


Notes

  1. Weeks, Bob. Highway budget cuts and sweeps in Kansas. Available at https://wichitaliberty.org/kansas-government/highway-budget-cuts-sweeps-kansas/.
  2. Conference Committee Report for HB 2002. Available at http://www.kslegislature.org/li/b2017_18/measures/hb2002/.
  3. Sec. 163 (i). On July 1, 2017, October 1, 2017, January 1, 2018, and April 1, 2018, or as soon thereafter each such date as moneys are available, the director of accounts and reports shall transfer $72,074,415.75 from the state highway fund (276-00-4100-4100) of the department of transportation to the state general fund: Provided, That the transfer of each such amount shall be in addition to any other transfer from the state highway fund of the department of transportation to the state general fund as prescribed by law: Provided further, That, in addition to other purposes for which transfers and expenditures may be made from the state highway fund during fiscal year 2018 and notwithstanding the provisions of K.S.A. 68-416, and amendments thereto, or any other statute, transfers may be made from the state highway fund to the state general fund under this subsection during fiscal year 2018.
  4. Sec. 164 (i). On July 1, 2018, October 1, 2018, January 1, 2019, and April 1, 2019, or as soon thereafter each such date as moneys are available, the director of accounts and reports shall transfer $73,281,583.75 from the state highway fund (276-00-4100-4100) of the department of transportation to the state general fund: Provided, That the transfer of each such amount shall be in addition to any other transfer from the state highway fund of the department of transportation to the state general fund as prescribed by law: Provided further, That, in addition to other purposes for which transfers and expenditures may be made from the state highway fund during fiscal year 2019 and notwithstanding the provisions of K.S.A. 68-416, and amendments thereto, or any other statute, transfers may be made from the state highway fund to the state general fund under this subsection during fiscal year 2019.
  5. Weeks, Bob. Highway budget cuts and sweeps in Kansas. Available at https://wichitaliberty.org/kansas-government/highway-budget-cuts-sweeps-kansas/.

Kansas bills deserve the veto pen

Kansas Governor Sam Brownback may exercise a line item veto over any item in the just-passed budget and school spending bills. Here are a few ideas that deserve the veto.

A small matter: In his recommended budget, Kansas Governor Sam Brownback recommended moving the Kansas Securities Commissioner to the Insurance Department. That happened. But his recommendation to move the Board of barbering to the Board of Cosmetology was not followed. As a result, $186,384 must be added to spending for FY 2018. This is all funds spending, not general funds. There is a deletion of spending from the Board of Cosmetology that partially offsets this spending, but it is a lost opportunity to save. 1 2

A large matter: The efficiency study commissioned by the legislature recommended savings in the method of acquiring health insurance for public school employees. This was not adopted. Therefore, $47,200,000 in general fund spending is added over what the governor recommended. 3 4

This is the type of spending that needs to be vetoed. Except: There is no line in a bill that designates this spending. Instead, this “spending” in the form of savings not realized. The governor should veto SB 19, the school funding bill, in part or in whole. Such a veto, along with a likely override, would send a message to Kansas taxpayers that the legislature chose to spend this money instead of pursuing needed efficiency.


Notes

  1. “For FY 2018 and FY 2019, the Governor recommends certain consolidations that include moving the Securities Commissioner to the Insurance Department and moving the Board of Barbering to the Board of Cosmetology. The Governor estimates that combining the agencies will create efficiencies and save money over the long-term.” The Governor’s Budget Report for Fiscal 2018, Vol. 1. p. 77
  2. Conference Committee Report for HB 2002, Sec. 12 (a)
  3. “The FY 2018 budget assumes savings of $47.2 million from implementation of Alvarez & Marsal efficiency recommendations to include K-12 health benefit consolidation and sourcing select benefit categories on a statewide basis.” Budget Report, p. 17
  4. “Add $47.2 million, all from the State General Fund, for removing savings associated with A&M recommendations for health insurance and procurement for FY 2018.” Bill Explanation For 2017 Senate Sub. For House Bill 2002, p. 10.

The yardstick for the Kansas experiment

A politician’s boasting should not be the yardstick for policy.

As noted by Ed Flentje in the Wichita Eagle:

As a newly elected governor in 2011 Brownback embraced the discredited, tax-cut dogma of Arthur Laffer in the belief that tax cuts would dramatically stimulate economic growth. He told a friendly audience that cutting income tax rates would generate even more revenue for government. Soon after, the governor elevated the bluster. His tax cuts would give “a shot of adrenaline in the heart of the Kansas economy.” “We’ll have a real live experiment.” “Look out Texas. Here comes Kansas!” “Glide path to zero.”

Despite Professor Flentje’s claim, there is much evidence that higher taxes, especially higher income taxes, mean lower economic growth. 1 2 3 (There’s also the side benefit of leaving more money in the hands of those who earned it, rather than transferring it to the wasteful public sector.) Cutting taxes — or raising taxes, for that matter — is a treatment that influences things in one direction. If other more powerful forces influence things in an opposite direction, it doesn’t mean the original treatment didn’t work.

In the case of Kansas, think how much worse things might be if not for the stimulative effect of the tax cuts.

Still, Governor Brownback should have been more measured in his remarks — or his bluster. He shouldn’t have followed the example of President Barack Obama. He, right after becoming president, promised that the unemployment rate would not top eight percent if his stimulus bill was passed. That plan passed.

In January 2009 two Obama administration officials, including Christina Romer (who would become chair of the Council of Economic Advisers) wrote a paper estimating what the national unemployment rate would be with, and without, the American Recovery and Reinvestment Plan, commonly known as the stimulus. The Romer paper included a graph of projected unemployment rates. The nearby chart from e21 took the Romer chart and added
actual unemployment rates. (The accompanying article is Revisiting unemployment projections. That chart and article were created in 2011. I’ve updated the chart to show the actual unemployment rate since then, as black dots. The data shows that the actual unemployment rate was above the Obama administration projections — with or without the stimulus plan — for the entire period of projections.

The purpose of this is not to defend Brownback by showing how Obama is even worse. (Disclosure: Although I am a Republican, I didn’t vote for Brownback for governor.) Instead, we ought to take away two lessons: First, let’s learn to place an appropriately low value on the promises, boasts, and bluster made by politicians. Then, let’s recognize the weak power government has to manage the economy for positive effect. Indeed, the lesson of the Obama stimulus is that it made the unemployment rate worse than if there had been no stimulus — at least according to the administration projections.

Governor Brownback was right to cut taxes because Kansas taxes were too high.

Unemployment with and without stimulus through 2014-01

  1. “So what does the academic literature say about the empirical relationship between taxes and economic growth? While there are a variety of methods and data sources, the results consistently point to significant negative effects of taxes on economic growth even after controlling for various other factors such as government spending, business cycle conditions, and monetary policy. 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. Of those studies that distinguish between types of taxes, corporate income taxes are found to be most harmful, followed by personal income taxes, consumption taxes and property taxes.” McBride, William. What Is the Evidence on Taxes and Growth? Tax Foundation. Available at https://taxfoundation.org/what-evidence-taxes-and-growth/.
  2. “Research finds that higher state taxes are generally associated with lower economic performance. There is somewhat weaker evidence that state and local taxes can significantly reduce income growth within a state, particularly when the revenues raised are devoted to transfer payments. More recent research corroborates this finding in relation to net investment and employment. However, when additional tax revenue is used to improve the quality of public goods and services, economic growth may increase. When looking at business activity more broadly, more comprehensive reviews of the literature find higher taxes to be associated with less economic growth. They also find this relationship to be stronger within metropolitan areas than across metropolitan areas, which means that local taxes have a larger effect on economic growth when it is less costly for firms and taxpayers to relocate to avoid the tax.” Mercatus Center. Economic Perspectives: State and Local Tax Policy. Available at https://www.mercatus.org/publication/economic-perspectives-state-and-local-tax-policy.
  3. “Two research papers illustrate the need to maintain low taxes in Kansas, finding that high taxes are associated with reduced income and low economic growth.” Weeks, Bob. Kansas needs low taxes. Available at https://wichitaliberty.org/kansas-government/kansas-needs-low-taxes/.

WichitaLiberty.TV: James Franko, Kansas Policy Institute

In this episode of WichitaLiberty.TV: James Franko of Kansas Policy Institute joins Bob Weeks and Karl Peterjohn. Topics are the new Kansas school finance bill and the new tax bill. View below, or click here to view at YouTube. Episode 153, broadcast June 11, 2017.

Shownotes

Explaining the Kansas budget, in a way

A video explaining the Kansas budget is accurate in many aspects, but portrays a false and harmful myth regarding school spending.

A popular video explaining the Kansas budget deserves scrutiny for some of the data presented. The video is available at the Facebook page of Loud Light.

The presentation makes a few good points. For example, the video is correct in that the sales tax is a regressive tax, affecting low-income households in greater proportion. During the capaign for a Wichita city sales tax in 2014 I analyzed Census Bureau data and found that 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.1 2

The video also rightly notes that Kansas is now, and it has in the past under other legislatures and governors, inadequately funding KPERS, the state employee pension plan.

Interestingly, the video praises Kansas for its early adoption of “progressive economics.” I think the narrator meant “progressive taxation,” as the video shows Kansas adopting an income tax in 1933. How has that worked for Kansas? There are a variety of ways to look at the progress of Kansas compared to the nation, but here’s a startling fact: For the 73rd Congress (1933 to 1935) Kansas had seven members in the U.S. House of Representatives. (It had eight in the previous session.) Today Kansas has four members, and may be on the verge of losing one after the next census. This is an indication of the growth of Kansas in comparison to the nation.

Kansas Department of Transportation Funding, partial. Click for larger.
The narrator states, “Kansas Department of Transportation is mostly funded by restricted revenue like fuel tax.” This was true at one time. But starting in 2011 KDOT has received more funding from sales tax than motor fuel tax.3 The gap is getting wider, as can be seen in the nearby chart. (By the way, there are proposals to increase the motor fuel tax. This tax is just like the sales tax, affecting low-income households greatest.)

School spending

The greatest problem in this video is its explanation of state spending on K through 12 schools. This is important, as the video correctly notes that this spending is half of the general fund budget. In introducing this section, the narrator notes “budget report gamesmanship that’s created a rhetorical paradox,” conceding it is “technically” true that education spending is at record levels.

The video then shows a chart titled “State Aid Per Pupil.” The chart starts with a value a little over $6,000 in 1993, declining to about $4,000 in 2013, then staying at that level. The citation is “Governor’s Budget Report” from the Kansas Division of Budget, and at the end of the video there is the explanation, “All financial data in this video is inflation adjusted to January 2017.”

A more accurate title for the chart is “Base State Aid Per Pupil.” That’s the actual name for the component of school spending that the video displays. This is important because base state aid is only the starting point for determining spending. Actual state aid to schools is much higher.

Kansas school spending, showing base state aid and total state aid. See article for notes about 2015. Click for larger.
Base state aid per pupil — the statistic the video presents — is an important number.4 It’s the starting point for the Kansas school finance formula used before the 2015-2016 (fiscal 2016) school year, and something like it may be used in a new formula. 5

Base state aid, however, is not the only important number. To calculate the funding a school district receives, weightings are added. If students fall into certain categories, weightings for that category are added to determine a weighted enrollment. That is multiplied by base state aid to determine total state aid to the district. 6

While this may seem like a technical discussion that doesn’t make a difference, it’s very important. Some of the weightings are large and have increased by large amounts. The at-risk weighting, intended to cover the additional costs of teaching students from low-income families, started at five percent in 1993. In other words, for every student in this category, a school district received an extra five percent of base state aid. The value of this weighting has risen by a factor of nine, reaching 45.6 percent starting with the 2008-2009 school year.7

So in the nearby chart that I prepared using data adjusted for inflation in 2016, we see base state aid per pupil on a downward trend, just as the video shows. But I also plotted total state aid per pupil, which includes weightings. This number is on a mostly upward trend.

Kansas school spending, showing ratio of total state aid to base state aid. See article for notes about 2015. Click for larger.
Kansas school spending. See article for notes about 2015. Click for larger.
The weightings have a large effect on school funding. For example: During the 2004-2005 school year, base state aid was $3,863 and the at-risk weighting was ten percent. An at-risk student, therefore, generated $4,249 in state funding. (Other weightings might also apply.)

Ten years later base state aid was $3,852 — almost exactly the same — and the at-risk weighting was up to 45.6 percent. This generates funding of $5,609. For a district that qualified for the maximum high-density at-risk weighting, an additional $404 in funding was generated. (These numbers are not adjusted for inflation.)

So even though base state aid remained (almost) unchanged, funding targeted at certain students rose, and by a large amount.

Over time, values for the various weightings grew until by 2014 they added 85 percent to base state aid. A nearby chart shows the growth of total state aid as compared to base state aid. (Starting in fiscal 2015 the state changed the way local tax dollars are counted. That accounts for the large rise for the last year of data in the chart. For school years 2016 and 2017, block grants have replaced the funding formula, so base aid and weightings do not apply in the same way.)

All this determines state aid to schools only. There is also local aid and federal aid.

The questions Kansans should ask are these: Why doesn’t this video explain that “base state aid per pupil” is not the same as “state aid per pupil?” And why not explain that total state aid per pupil is much higher than base state aid, and has been rising over the long term?


Notes

  1. Weeks, Bob. Wichita sales tax hike would hit low income families hardest. Analysis of household expenditure data shows that a proposed sales tax in Wichita affects low income families in greatest proportion, confirming the regressive nature of sales taxes. Available at https://wichitaliberty.org/wichita-government/wichita-sales-tax-hike-hit-low-income-families-hardest/.
  2. Weeks, Bob. Kansas sales tax has disproportionate harmful effects. Kansas legislative and executive leaders must realize that a shift to consumption taxes must be accompanied by relief from its disproportionate harm to low-income households. https://wichitaliberty.org/taxation/kansas-sales-tax-has-disproportionate-harmful-effects/.
  3. Kansas Department of Transportation. Comprehensive Annual Financial Report for 2016.
  4. Weeks, Bob. Kansas school weightings and effects on state aid. In making the case for more Kansas school spending, the focus on base state aid per pupil leaves out important considerations. https://wichitaliberty.org/wichita-kansas-schools/kansas-school-weightings-and-effects-on-state-aid/.
  5. For the fiscal 2016 and 2017 school years, the formula was replaced by block grants.
  6. Amendments to the 1992 School District Finance And Quality Performance Act and the 1992 School District Capital Improvements State Aid Program (Finance Formula Components), Kansas Legislative Research Department, May 20, 2014
    http://ksde.org/Portals/0/School%20Finance/amends_to_sdfandqpa_2015.pdf
  7. There’s also the high-density at-risk weighting. Starting with the 2006-2007 school year districts with a high concentration of at-risk students could receive an extra weighting of four percent or eight percent. Two years later the weightings were raised to six percent and ten percent. (This formula was revised again in 2012 in a way that may have slightly increased the weightings.)

Breaking the statehouse budget deadlock

By Karl Peterjohn

The budget deadlock has begun at the Kansas statehouse. The legislature cannot leave Topeka until they have approved the next biennial state budget that will begin July 1. Usually, this includes the governor’s signature on that legislation. That might not happen this year. That’s the issue.

Governor Brownback is not willing to fund a multi-year, multi-billion spending bill demanded by the liberal legislative majorities in both houses. Earlier this year he vetoed a record-breaking income tax hike scheme. So far, the governor has been successful in having his vetoes sustained.

The pressure is going to be applied for the governor’s fiscally responsible Republican allies opposed to income tax hikes.

The powerful government employee spending lobbies, headed by arguably, the most powerful lobby in this state, the KNEA teachers’ union, that spending priorities for the reliably liberal Democrats in the legislature along with a large number of other self-described, “progressives,” or “moderates,” big spending Republicans now hold sizable majorities in both houses of the Kansas legislature. However, the bi-partisan spending factions are short of the two-thirds majorities required to override Governor Brownback’s repeated vetoes. The spending lobbies have come close, and did override the governor’s pass a record-breaking income tax hike proposal in the Kansas house, but that override effort ultimately failed by three votes in the senate.

The other powerful spending lobbies among the road contractors, hospitals, and the most powerful appointed body: ethically flawed and disciplined Chief Justice of the Kansas Supreme Court, Lawton Nuss, and his fellow band of black-robed lawyers on the Kansas Supreme Court continue to try and force massive state spending hikes. Several members of this court, including Nuss, represented school districts and school finance litigation issues before joining the court.

Massive tax hikes will be required to fund this spending spree. Spending estimates indicate the increases proposed would be $2.25 billion over five years according to State Representative John Whitmer. Expanding Obamacare under the guise of Medicaid expansion could be even more expensive after the first few years.

What is different with earlier Kansas budget battles besides another zero on the cost? In this digital age we are in, everything seems to have moved digitally into a win/lose, up/down, on/off configuration.

The lawyers on Kansas’ top court with their school funding edicts, will all be providing pressure and using the leftstream Kansas news media to try and push a handful of Republican legislators to shift their votes, so everyone can go home with a huge income tax hike. Sadly, this destructive tax hike is unlikely to be successful in funding all of the proposed state spending proposals.

This is the big spenders’ dream scenario for the next state budget.

The scenario for fiscally responsible legislators and Governor Brownback is less clear. In the analog days of the 20th century, when people looked for win-win, instead of zero-sum games where every winner means there must be a loser, compromise was the answer.

To his credit, Governor Brownback has expressed a willingness to compromise. Brownback has supported and signed smaller excise tax hike bills in recent years. He continues to be blasted by liberal media critics in the editorial pages across the state. These tax hikes tried to reach a legislative compromise that allowed a continued growth in state spending. This spending growth was being driven by the perpetual school finance lawsuits.

There is another solution if the legislative deadlock continues, and there is a recent and nearby example for Kansas elected officials to consider: let the people decide. The Kansas Constitution has a provision that, “…all political power in this state is inherent in the people.” This is in the Kansas Constitution’s Bill of Rights.

How would empowering Kansans work?

In 2016, in our neighboring state to the south, Oklahoma, the state spending lobbies convinced the legislature to place a one cent sales tax hike on the statewide ballot. In November 2016 Oklahoma voters decided the fate of this sales tax hike. It was rejected by the voters.

A compromise between Governor Brownback and his fiscally conservative GOP legislative allies on one side could be reached with the larger number of Democrat and Republican tax hike advocates in the legislature using this “let the people decide,“ approach. Kansas taxpayers need to have a say in the massive new spending schemes appearing at the statehouse.

The tax hike advocates can place their proposal for raising state taxes/spending on either the August or preferably the November 2017 election ballot where a statewide referendum could be held. Both sides could make their case to voters. All political power is inherent in the people, and letting the voters decide would certainly be preferable to having appointed lawyers in black robes setting state fiscal policy with big-spending legislators as their willing accomplices.

Karl Peterjohn is a former journalist and served two terms as a Sedgwick County commissioner between 2009-17. He advocated on behalf of Kansas taxpayers as the executive director of the Kansas Taxpayers Network between 1992-2009.

Wichita about to commit to more spending. Bigly.

This week the Wichita City Council considers hiring a consulting firm to develop plans for a new performing arts and convention center.

Options from the City of Wichita.
It’s no secret that many in Wichita want a new performing arts and convention center to replace Century II. Documents produced by the city sketch four possibilities ranging in price from $272 million to $492 million.1 2

The two least expensive scenarios keep the existing Century II structure, while two call for completely new buildings, including the possibility of a performing arts center located a few blocks to the east of the present Century II and proposed convention center site.

Apart from the financial desirability of these projects is the question of how to pay. The traditional approach would be for a city to build, own, and operate the project, paying for it through long-term borrowing. (Governments, including Wichita, often speak of “bonding” projects, a word which seems less foreboding than “borrowing.”)

This week’s business for the city council foreshadows the city using a different method. The firm the city wants to hire, Arup Advisory, Inc., is an advocate of “P3” or public-private partnerships. A report Arup prepared for the City of Los Angeles3 recommended that the city use a method known as Design Build Finance Operate and Maintain (DBFOM), which Arup says is used interchangeably with P3.

In the DBFOM or P3 model as applied to Wichita, a third party — thought to be George Laham — would do all the work of designing, financing, building, and operating a convention center and possibly a performing arts center. Then, the city simply pays a fee each year to use the center. It’s called an “availability payment.” Most people call this rent or lease payments.

The Los Angeles document explains the potential benefits of using DBFOM or P3:

Here, the City as asset owner hires a developer team to take on the full project development responsibility (design, build, finance, operate, maintain) and pays them an annual service fee for the availability of the functioning capital asset (i.e. infrastructure as a service). The service fee is called an “availability payment” in the P3 industry; it is a contractually scheduled pay-for-performance arrangement where the private partner is paid to design, build, and finance a turnkey capital asset and then is responsible for the operation and maintenance of the asset according to performance standards set by the City. The availability payments are fixed at the time the P3 contract is signed and are only subject to indexation to an agreed inflation index (e.g., US or Los Angeles region CPI) and deductions for non-performance against the contractually defined performance standards. The availability payments, which are the only form of compensation by the owner to the P3 developer, start only when the P3 developer has satisfied all the conditions stipulated in the contract for successful completion of construction and start of operations. These features provide substantial incentives for the P3 developer to achieve on-schedule and on-budget construction, as well as optimized life-cycle maintenance over the long term that meets the owner’s needs.

A common strategy recommended by Arup is to “cross-subsidize” with real estate. This is vaguely defined as to “unlock significant land value” in city-owned real estate near the convention center. Specific to Wichita, the proposal from Arup to the city includes, “Assess potential revenue from the monetization of city’s owned land located in proximity to the Century II facility and determine the size of the cross subsidy to the project expansion design schemes 1 and 3.”4

What are the benefits to the city of pursuing the DBFOM/P3 path? The Los Angeles document gives these: “No impact on debt capacity; significantly reduced cost to the General Fund, structured as an obligation to pay a service fee (i.e. availability payment) to the private partner where the value of the service fee is less than the sum of all the relevant LACC costs [for other options].”

To emphasize, again from the Los Angeles document: “… the City’s budgetary obligation is in the form of a service fee (i.e. availability payment) to the private partner, recorded as a contractual liability on the City’s balance sheet, as opposed to a debt obligation, which does not impact the City’s debt capacity.”

In other words, the city can make a decades-long financial committment without appearing to take on debt. Yes, the city’s committment — the “availabity payments” — will be characterized as payments that need be made only if the convention center facility is kept up to certain standards. If, not, then the city can stop paying. But then Wichita would have no cenvention center, and no performing arts center. Instead, the city would have one or two big, hulking, empty buildings in downtown.

Should Wichita do this?

Convention business is on a long downward trend. The Arup report for Los Angeles recognizes this:

Over the last two decades, most large and medium size American cities have experienced a spur in convention center development. According to the Brookings Institution (2005), exhibit hall space in the US grew from 40 million square feet in 1990 to 85 million in 2014 distributed among 400+ facilities. There is a sense in the Convention business that the supply may be exceeding demand.

(For more on convention center trends, see Should Wichita expand its convention facilities? The Brookings report by Heywood Sanders is available at Space Available: The Realities of Convention Centers as Economic Development Strategy.)

A commitment of this size needs public input in the form of a vote. The “availability payments” the city may commit to will be characterized in various ways, but they represent a long-term commitment by the city that it can’t escape. If promised revenues from expanded convention trade don’t cover these payments, taxpayers will have to pay. The city, unfortunately, doesn’t have a good record of honesty with citizens:

  • In 2014 the city told citizens that $250 million in new sales tax revenue was required to provide drought protection. After the vote on the tax failed, the city found less expensive ways to provide the same protection.5
  • Subsidized city projects have not delivered promised benefits.6
  • The city is not truthful in reporting the number of people working in downtown Wichita.7
  • Despite much investment in downtown Wichita, both public and private, business activity is declining.8
  • Despite much investment in downtown Wichita, both public and private, total property valuation is declining.9
  • While touting transparency, the city fails in many basic ways, even though the city communications staff has been expanded.10 11 12

Citizens and taxpayers should insist the city address these issues before committing to any new project, much less one the size of a renovated or new performing arts and convention center.

And — most importantly — the people need to vote up or down on this project.

Update: On May 9 the city council decided to hire this firm.


Notes

  1. City of Wichita. Grand Vision: Wichita Performing Arts & Convention Center: ‘Millenials Place.’ Available at https://wichitaliberty.org/wp-content/uploads/2017/05/Century-2-Vision.pdf.
  2. City of Wichita. The Heart of Downtown: Catalyst to a 21st Century Riverfront. Available at https://wichitaliberty.org/wp-content/uploads/2017/05/Analysis-of-century-2.pdf.
  3. City of Los Angeles, Office Of The City Administrative Officer. Public-private Financing Options For The Los Angeles Convention Center Expansion Project. Available at http://cao.lacity.org/Reports/20151223%20CAO%20LACC%20Alternative%20Financing.pdf.
  4. City of Wichita. Agenda Packet for May 9, 2017.
  5. Weeks, Bob. In Wichita, the phased approach to water supply can save a bundle. In 2014 the City of Wichita recommended voters spend $250 million on a new water supply. But since voters rejected the tax to support that spending, the cost of providing adequate water has dropped, and dropped a lot. Available at https://wichitaliberty.org/wichita-government/wichita-phased-approach-water-supply-can-save-bundle/.
  6. Weeks, Bob. Downtown Wichita’s Block One, a beneficiary of tax increment financing. Before forming new tax increment financing districts, Wichita taxpayers ought to ask for progress on current districts. Available at https://wichitaliberty.org/wichita-government/downtown-wichita-block-one-beneficiary-tax-increment-financing/.
    Also: Ken-Mar TIF district, the bailouts. Available at https://wichitaliberty.org/wichita-government/ken-mar-tif-district-the-bailouts/. Since the bailout, the situation at the former Ken-Mar center has worsened.
    Also: Wichita TIF district disbands; taxpayers on the hook. Available at https://wichitaliberty.org/wichita-government/wichita-tif-district-disbands-taxpayers-hook/.
    Also: Wistrom, Brent. Warren bailout poses dilemma — city loan, vacant theater both carry risks. Wichita Eagle. Available at https://brentwistrom.wordpress.com/clips/eagle-exposes-lost-taxdollars-in-downtown-theater-loan/.
  7. Weeks, Bob. Downtown Wichita jobs, sort of. The claim of 26,000 workers in downtown Wichita is based on misuse of data so blatant it can be described only as malpractice. Available at https://wichitaliberty.org/wichita-government/downtown-wichita-jobs/.
  8. Weeks, Bob. Downtown Wichita business trends. There has been much investment in Downtown Wichita, both public and private. What has been the trend in business activity during this time? https://wichitaliberty.org/wichita-government/downtown-wichita-business-trends/.
  9. Weeks, Bob. Downtown Wichita tax base is not growing. There’s been much investment in downtown Wichita, we’re told, but the assessed value of property isn’t rising. Available at https://wichitaliberty.org/wichita-government/downtown-wichita-tax-base-not-growing/.
  10. Weeks, Bob. Wichita check register. A records request to the City of Wichita results in data as well as insight into the city’s attitude towards empowering citizens with data. Available at https://wichitaliberty.org/wichita-government/wichita-check-register-2016/.
  11. Weeks, Bob. Wichita doesn’t have this. A small Kansas city provides an example of what Wichita should do. Available at https://wichitaliberty.org/wichita-government/wichita-does-not-have-this/.
  12. Weeks, Bob. During Sunshine Week, here are a few things Wichita could do. The City of Wichita says it values open and transparent government, but the city lags far behind in providing information and records to citizens. Available at https://wichitaliberty.org/open-records/sunshine-week-wichita/.

WichitaLiberty.TV Sedgwick County Commissioner Richard Ranzau

In this episode of WichitaLiberty.TV. Sedgwick County Commissioner Richard Ranzau joins Bob Weeks and Karl Peterjohn to discuss current issues in Sedgwick County government. View below, or click here to view at YouTube. Episode 150, broadcast May 7, 2017.

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WichitaLiberty.TV: Kansas Policy Institute President Dave Trabert

In this episode of WichitaLiberty.TV: Kansas Policy Institute Dave Trabert joins Bob Weeks and Karl Peterjohn to discuss the Kansas economy, budget, and schools. View below, or click here to view at YouTube. Episode 149, broadcast April 30, 2017.

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Shocking News about Kansas Education!

By Paul Waggoner. This column first appeared in the Hutchinson News.

Listening too often to Topeka politicians and administrators can leave a normal person feeling rather jaded, even used. Or maybe it’s the reporting, sometimes I just don’t know.

Such was the case Tuesday reading the News report of Kansas Dept of Education Deputy commissioner Dale Dennis speech to the local Rotary club (Hutchinson News, April 18, “Ed Official: Fund Gap numbers shocking”). His talk was filled with boilerplate and themes typical of the education establishment.

Mr. Dennis made multiple comparisons and statements of fact to prove his points. In the article by the News own Mary Clarkin, Mr. Dennis set up a paradigm of school under-funding by noting that “in 1992 base state aid per pupil was $3,600”, while now it is only $ 3,852. If the amount had just been adjusted for inflation “it would be $6001.12”. Those cheapskate legislators!

These disheartening numbers for funding over the last 25 years, Mr. Dennis told the crowd, “are shocking, shocking”. Then he went on to tout House Bill 2410 that would raise base state aid to $4,006 next year and $4,800 per pupil by 2021. The total cost of this bill would come to $750 million. Which, Ms. Clarkin summarizes, would get us “back to where the state should have been in 2015-16”’.

I am not an educator, but I am a business person and I am conversant with state budget and spending numbers. Mr. Dennis, I hope to show, should be embarrassed by his comments; but even more, the News should be embarrassed by their article.

The data on Kansas K-12 spending is easily accessible at the Kansas Dept of Education website ksde.org. Going back 20 years to Gov. Graves and 1997 you see total state funding of $1,815 million, rising to $3,950 million in 2016, a 117 percent increase! But the inflation rate during this period was only 47 percent, and the student count was up just three percent. Surprised?

Total spending (state/federal/local) is the best indicator of overall education financing. Plus you avoid disputes over how KPERS should be counted (whether state or local) and you get a genuine bottom dollar cost.

Many News readers need to let these numbers sink in. This is not spin, this is official data, Total spending went from $6,828 to $12,188 per pupil in barely 10 years.

Now Mr. Dennis was giving you a “fact” on base state aid, but he avoided telling our esteemed Rotarians that in the 1990s “base state aid” was 90 percent of the money Kansas provided our schools, but by 2005 it was only 65 percent of Kansas school funding, and in 2015 it was barely 50 percent. The ksde.org website listed over 25 different avenues state money now flows to local schools.

Ms. Clarkin of the News is an intelligent women and if some Department of Commerce representative came touting “shocking” job growth numbers in Kansas she surely would have noted evidence or context to the contrary. But Mr. Dennis utter factual inaccuracies go unchallenged.

Many seem to think it is “anti-education” to point out the real spending numbers. But to ignore the context of the 12 years prior to Brownback and the 80% increase in state K-12 spending is insane. Does any genuine public servant think that spending trajectory was sustainable?

The actual K-12 spending information is just a few clicks away from us for any school district or the state as a whole. The Rotarians of 2017 are a sensible group and will (I trust) rotate their minds with the actual data and judge accordingly.

But I, for one, am forever shocked (shocked!) by how disingenuous Topeka bureaucrats and our Kansas news media continue to be. And in that I expect I will have plenty of company as this legislative year moves forward.

Paul Waggoner is a Hutchinson resident and business owner. He can be reached with comments at [email protected]

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.

Which Kansas governor?

In Kansas, a governor is proud of savings and efficiencies.

Can you guess which Kansas governor and administration did these things?

  • Looked for future highway projects “where it seemed the amount of money set aside exceeded the need, or where the scope of individual projects had changed,” and took credit for $278 million in savings.

  • Took credit for saving $67 million by adjusting the inflation rates used in estimating future project costs.

  • Took credit for $306 million in savings by spending reserve funds, deciding that money wasn’t needed just “sitting in the bank.”

  • Refinanced bonds so that payments would be lower for a few years, but higher afterwards.

If you guessed Kathleen Sebelius, you’re correct.

Sources are: Hanna, John. $1 billion claim falls on KDOT — Analysis: Governors’ savings often readjustments. Topeka Capital-Journal, January 30, 2006. Available at http://cjonline.com/stories/013006/kan_onebil.shtml#.WP4Z__krLWW.
Moon, Chris. New ad claims huge savings — $1 billion a focal point of Sebelius’ re-election bid despite skeptics. Topeka Capital-Journal, August 07, 2006. Available at http://cjonline.com/stories/080706/leg_govad.shtml#.WP4bvvkrLWU.

Fake government spawns fake news

Discussions of public policy need to start from a common base of facts and information. An episode shows that both our state government and news media are not helping.

A recent Hutchinson News article1 started with this:

Once you wake up to where Kansas was in 1992 at funding schools and what it needs to do to get caught up, said the Kansas Department of Education’s Deputy Commissioner Dale Dennis, it’s a shocker.

In 1992, base state aid per pupil was $3,600. That amount, taking into account the Consumer Price Index, would be the equivalent of $6,001.12 in 2013. Base state aid, however, has been frozen at $3,852 since 2014-15.

“The numbers are shocking, shocking,” Dennis told the Hutchinson Rotary Club at its Monday luncheon meeting at the Hutchinson Town Club.

Why is a speech by a government bureaucrat, as covered in a major newspaper, important? It illustrates two problems we face in understanding, discussing, and debating important matters of public policy.

First, can government be truthful and accurate? Dale Dennis — the state’s top official on school finance — certainly knows that the numbers he presented do not accurately characterize the totality of school spending in Kansas. But the problem is even worse than that. To use base state aid as the indicator of state spending on schools is deceptive. It’s deceptive in that, after adjusting for inflation, base state aid has declined. But total state aid to school districts has increased.

Base state aid is a false indicator of total spending on schools by the state. It’s fake — fake government. And for a newspaper to uncritically present this as news illustrates the second problem we face.

Background on base state aid and school spending

Kansas school spending, showing base state aid and total state aid. See article for notes about 2015. Click for larger.
Base state aid per pupil — the statistic Dennis presented — is an important number.2 It’s the starting point for the Kansas school finance formula used before the 2015-2016 (fiscal 2016) school year, and something like it may be used in a new formula.3

Base state aid, however, is not the only important number. To calculate the funding a school district receives, weightings are added. If students fall into certain categories, weightings for that category are added to determine a weighted enrollment. That is multiplied by base state aid to determine total state aid to the district. 4

While this may seem like a technical discussion that doesn’t make a difference, it’s very important, because some of the weightings are large. The at-risk weighting, intended to cover the additional costs of teaching students from low-income families, started at five percent in 1993. In other words, for every student in this category, a school district received an extra five percent of base state aid. The value of this weighting has risen by a factor of nine, reaching 45.6 percent starting with the 2008-2009 school year.

There’s also the high-density at-risk weighting. Starting with the 2006-2007 school year districts with a high concentration of at-risk students could receive an extra weighting of four percent or eight percent. Two years later the weightings were raised to six percent and ten percent. (This formula was revised again in 2012 in a way that may have slightly increased the weightings.)

Kansas school spending, showing ratio of total state aid to base state aid. See article for notes about 2015. Click for larger.
Kansas school spending. See article for notes about 2015. Click for larger.
The weightings have a large effect on school funding. For example: During the 2004-2005 school year, base state aid was $3,863 and the at-risk weighting was ten percent. An at-risk student, therefore, generated $4,249 in state funding. (Other weightings might also apply.)

Ten years later base state aid was $3,852 — almost exactly the same — and the at-risk weighting was up to 45.6 percent. This generates funding of $5,609. For a district that qualified for the maximum high-density at-risk weighting, an additional $404 in funding was generated. (These numbers are not adjusted for inflation.)

So even though base state aid remained (almost) unchanged, funding targeted at certain students rose, and by a large amount.

Over time, values for the various weightings grew until by 2014 they added 85 percent to base state aid. A nearby chart shows the growth of total state aid as compared to base state aid. (Starting in fiscal 2015 the state changed the way local tax dollars are counted. That accounts for the large rise for the last year of data in the chart. For school years 2016 and 2017, block grants have replaced the funding formula, so base aid and weightings do not apply in the same way.)

What have we learned?

We’re left wondering a few things:

  • Did Deputy Superintendent Dale Dennis tell the audience that base state aid is just part of the school funding landscape, and not reflective of the big picture? Did he tell the audience that total state aid to schools has increased, and increased substantially? If so, why wasn’t it mentioned in the article?
  • If Dale Dennis did not tell the audience these things, what conclusions should we draw about his truthfulness?
  • Why didn’t the Hutchinson News article explain to readers that base state aid is not an accurate or total indicator of total state spending on schools?
  • What is the duty of reporters and editors? We’re told that experienced journalists add background and context to the news — things that the average reader may not know. (This article is designated as “Editor’s Pick” by the Hutchinson News.)

By the way, the Wichita Eagle, on its opinion page, cited in a positive and uncritical manner the Hutchinson News article.5 This is notable as the writer of the Eagle piece, opinion editor Phillip Brownlee, was a certified public accountant in a previous career. This is someone we should be able to trust to delve into numbers and tell us what they mean. But that isn’t the case.

Whatever your opinion on the level and trend of school spending, we need to start the discussion from a common base of facts and information. From this episode, we see that both our state government and news media are not helping.

For another take on the problems with this episode, see Paul Waggoner’s column in the Hutchinson News.6 (If not able to access that link, try Shocking News about Kansas Education!)


Notes

  1. Clarkin, Mary. Department of Education’s Dennis: Shocking number when looking at funding gap. Hutchinson News. April 17, 2017. http://www.hutchnews.com/news/local_state_news/department-of-education-s-dennis-shocking-number-when-looking-at/article_4abe359e-8421-53f9-a8d7-1eaa56e95423.html.
  2. Weeks, Bob. Kansas school weightings and effects on state aid. In making the case for more Kansas school spending, the focus on base state aid per pupil leaves out important considerations. https://wichitaliberty.org/wichita-kansas-schools/kansas-school-weightings-and-effects-on-state-aid/.
  3. For the fiscal 2016 and 2017 school years, the formula was replaced by block grants.
  4. AMENDMENTS TO THE 1992 SCHOOL DISTRICT FINANCE AND QUALITY PERFORMANCE ACT AND THE 1992 SCHOOL DISTRICT CAPITAL IMPROVEMENTS STATE AID PROGRAM (FINANCE FORMULA COMPONENTS), Kansas Legislative Research Department, May 20, 2014
    http://ksde.org/Portals/0/School%20Finance/amends_to_sdfandqpa_2015.pdf
  5. Brownlee, Philip. School funding numbers are ‘shocking.’ Wichita Eagle. April 22, 2017. http://www.kansas.com/opinion/opn-columns-blogs/now-consider-this/article146084839.html.
  6. Waggoner, Paul. Shocking news about Kansas education. Hutchinson News. April 21, 2017. http://www.hutchnews.com/opinion/columnists/shocking-news-about-kansas-education/article_2ebea7d3-6659-51fc-b3b5-409d5b0aa243.html. Or, see https://wichitaliberty.org/kansas-government/shocking-news-kansas-education/.

WichitaLiberty.TV: Kansas Senator Ty Masterson

In this episode of WichitaLiberty.TV: Kansas Senator Ty Masterson joins Bob Weeks and Karl Peterjohn to discuss legislative issues and politics. View below, or click here to view at YouTube. Episode 147, broadcast April 16, 2017.

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Sedgwick County to consider raising debt limit

Tomorrow the Sedgwick County Commission will consider raising its limit on borrowing for reasons which need to be revealed, and then carefully examined.

Update: By vote of three to two, the commission adopted the second item in the following list, implementing a higher debt limit.

There are three proposals for a policy regarding a debt limit for Sedgwick County government, according to information from the county’s finance office:

  • 2017 cap in current policy (debt service payments as % of budgeted expenditures): 9% = $126,341,621
  • 2017 cap included in March 22 agenda item (debt service payments as % of budgeted expenditures): 10% = $155,303,346
  • 2017 cap using Commissioner Howell’s comments from the bench on March 22 (% of assessed value): 3% = $135,944,585

The third option has intuitive appeal as it pegs the borrowing limit to the county’s primary source of income to pay debt, which is property tax. In any case, taxpayers might wonder why the county is considering any proposal to raise the amount it can borrow.

Why borrow more?

Personal correspondence from Sedgwick County Commissioner Richard Ranzau last month explains the changes the Commission is scheduled to hear tomorrow:

In 2016, the Board of County Commissioners modified the debt policy by limiting the annual debt service obligations (the amount we pay in principal and interest on a yearly basis) to 9% of budgeted expenditures until January 1, 2019, at which time the maximum will decrease to 8%. The previous maximum had been 20% with the County’s annual debt service hovering around 10% of budgeted expenditures. The policy was amended in an effort to place meaningful yet reasonable limits out the County’s borrowing capacity so as to avoid unnecessary habitual borrowing and excessive spending on projects “just because we can.”

The County’s current annual debt service is 8.22% and will fall below 8% in 2018.

No reason or project has been given as to why this change is needed. The county currently has no plans to issue debt for anything in 2017.

A nearby table summarizes and compares the present policy with debt limits that would exist under the new policy, according to the Sedgwick County Financial Office. (There is an alternative interpretation of policy that if used, would limit borrowing in 2019 to $73,218,639.)

Ranzau’s correspondence says there have been no reasons given for the need to change the debt limit, and that there is no plan to issue debt in 2017.

But that’s the county’s public position. Internally, there is consideration of borrowing and bonding in 2017. Some is for projects already completed and paid for.

Borrowing against the Ronald Reagan Building at 271 W. Third St. is being considered in the amount of $4.0 million. That’s $2.1 million of renovations already completed, plus $1.9 million in planned renovations already paid for.

Borrowing against the Downtown Tag Office at 2525 W. Douglas is considered at $2.3 million. This project has been paid for.

Additionally, the county may borrow to pay for the new Law Enforcement Training Center, in the amount of $5.5 million. This building is under construction, but the county has already transferred cash to the capital improvement fund that is designated to pay for this building.

Why would these buildings — some paid for, another for which cash is already set aside — be under consideration for bond issues?

An analogy is in personal finance, where a family might — after many years — pay off the mortgage on their house. Or maybe they saved and purchased the house outright without borrowing.

But then, the family takes out a mortgage — a new loan — on the house to have additional money for current spending. And more current spending is likely what some Commission members have in mind, as there is no need to take out a mortgage on property owned free and clear unless one wants to spend on something else.

Further, there are more projects the county may consider starting in years through 2021, using borrowing through bonds as payment. These total to $59.4 million, which is within the $61.6 million of borrowing allowed just through 2019. (That limit rises each year.)

This seems to contradict the need for a higher debt limit.

Before approving a higher borrowing limit, Sedgwick County Commissioners need to explain the need for the higher limit, and let taxpayers know if they’re about to be saddled with new mortgages on properties we thought we owned outright.