In this episode of WichitaLiberty.TV: Vice president and policy director of Kansas Policy Institute James Franko joins Karl Peterjohn to discuss Governor Brownback’s State of the State Address for 2018. Topics include schools and Medicaid expansion. Bob Weeks hopes to be back next week. View below, or click here to view at YouTube. Episode 179, broadcast January 13, 2018.
Wichita economic development efforts viewed in context.
Greater Wichita Partnership is the organization with primary responsibility for economic development in the Wichita area. Data provided by GWP shows that since 2004, GWP takes credit for creating an average 1,847 jobs per year through its economic development efforts. 1
To determine whether this is an impressive amount, we need context.
Over the past ten years the labor force for the Wichita MSA has averaged 314,877 each month (in May 2017 it was 306,809), and there were an average of 295,785 people working each month (May 2017 value was 293,763).
So one level of context is that the jobs for which GWP credits itself amount to 1,847 of 295,785 jobs, or 0.6 percent of the number of people working.
Click for larger.Another way to look at this level of job creation is to consider it in relation to the number of hires. Over the past ten years, the national average monthly rate of hires is about 3.4 percent, meaning that each month 3.4 percent of jobs have a new person filling them, or the jobs are newly-created. With an average of 295,785 people working in the Wichita MSA each month, this means that about 10,057 jobs have a new worker, each month. That’s 120,684 per year. With GWP taking credit for 1,847 jobs, this means that GWP’s efforts are responsible for 1.5 percent of the new hires each year.
Another context: Employment in the Wichita MSA reached a peak of 312,100 in July 2008. In June 2017 it was 298,800. To get back to the peak, Wichita needs 13,300 new jobs. At the GWP rate of 1,847 per year, it will take seven more years to recover.
All this shows that the efforts of our economic development machinery are responsible for small proportions of the jobs we need to create. This assumes that the data regarding jobs and investment that GWP provides is correct.
Here’s one example of problems with the data GWP provides. GWP reported that companies made investments of $1.2 billion in 2016 when the average for years before that was $138 million. That looks like an impressive jump. This figure, however, contains over one billion dollars of investment by Spirit Aerosystems projected to occur over the next five years. Not in 2016, but possible over the next five years. Yet GWP presents this investment as through it occurred in 2016.
Furthermore, when Spirit asked the city for authority to issue $280 bonds over five years, it told the city this would result in 349 new jobs over the same time period. That’s creating jobs at the rate of 70 per year. These jobs are welcome, but we need thousands of jobs per year. 2
Does GWP deserve credit? GWP says, “We only incorporate data and dollar amounts from projects which we helped attract, retain or expand; we do not include announcements that we have not assisted with.” 3 “Helped” and “assisted” are not very precise. How much “help” did Spirit need to decide to remain in Wichita, except for hundreds of millions of dollars in forgiven taxes? That is something the people of Wichita pay for, not GWP.
We must also be concerned about the reliability of GWP statistics. Earlier this year GWP was prominently promoting on its website the success of NetApp, a technology company. The problem is that NetApp never met the job creation numbers GWP promoted, and in fact, had been downsizing its Wichita operations. 4
Still, GWP promoted NetApp as a success. An important question is, the NetApp jobs that were announced but never created: Are they included in the jobs and investment totals GWP provides? We don’t know, because GWP will not disclose the data used to build its report.
There are other instances of GWP’s predecessor, Greater Wichita Economic Development Coalition (GWEDC), promoting Wichita as home to companies that had closed their Wichita facilities, or were in the process of closing. 5
GWP also promotes this on its website: “Downtown Wichita is work central, boasting 26,000 daytime workers in the financial, healthcare, education, oil & gas and creative services industries.” This claim of 26,000 workers is based on blatant misuse and misrepresentation of U.S. Census data, and GWP leadership has known of this for several months. 6 Still, the use of incorrect data remains.
Capacity to create
When the Wichita area offered incentives to a company that planned to add 50 jobs, the president of the chamber of commerce told commissioners that staff worked very hard to acquire these jobs. He called it “a great moment” in economic development. 7 But 50 jobs, while welcome, is just a drop in the bucket compared to what Wichita needs.
For Spirit to create 349 jobs over five years, we must let the company escape paying property tax and sales tax on $280 million of property.
For BG Products to add 11 well-paying jobs, we must let them avoid paying $204,280 per year in property taxes and $368,417 in sales tax.
In order to prepare the incentives package for another company, several events took place. There was a visit to the company. Then another visit and tour. Then economic development officials helped the company apply for benefits from the Kansas Department of Commerce. Then these officials worked closely with Wichita city staff on an incentive package. City documents stated that the expansion will create 28 jobs over the next five years. Obtaining these jobs took a lot of effort from Wichita and Kansas economic development machinery. Multiple agencies and fleets of bureaucrats at GWEDC, the City of Wichita, Sedgwick County, and the State of Kansas were involved. Wichita State University had to be involved. All this to create 5.6 jobs per year for five years.
This illustrates a capacity problem. Acquiring these jobs took a lot of bureaucratic effort, which has a cost. It required expensive incentives. Occasionally the city works with a large number of jobs, as in the recent case of Cargill. But those jobs required many expensive incentives, and no jobs were created. The incentives and effort were spent simply to persuade Cargill to remain in Wichita instead of moving elsewhere.
All this assumes, of course, that the incentives are necessary. Either that, or there is a larger problem. If companies can’t afford to make investments in Wichita unless they receive exemptions from paying taxes, we must conclude that taxes are too high. It’s either that, or these companies simply don’t want to participate in paying for the cost of government like most other companies and people do.
Civic leaders say that our economic development policies must be reformed. So far that isn’t happening. Our leaders say that we will no longer use cash incentives. But cash incentives like forgivable loans were a minor part of the incentives Wichita and the State of Kansas used. Furthermore, forgiveness of taxes is just as good as receiving cash. 8
The large amount of bureaucratic effort and cost spent to obtain relatively small numbers of jobs lets us know that we need to do something else to grow our local economy. We need to create a dynamic economy, focusing our efforts on creating an environment where growth can occur organically without management by government. Dr. Art Hall’s paper Embracing Dynamism: The Next Phase in Kansas Economic Development Policy provides much more information on the need for this. 9
In particular, Hall writes: “Embracing dynamism starts with a change in vision. Simply stated, the state government of Kansas should abandon its prevailing policy vision of the State as an active investor in businesses or industries and instead adopt the policy vision of the State as a caretaker of a competitive ‘platform’ — a platform that seeks to induce as much commercial experimentation as possible.” But our economic development policies are that of an “active investor,” and the cost of incentives increases the cost of experimentation.
Another thing we can do to help organically grow our economy and jobs is to reform our local regulatory regime.Kansas Policy Institute released a study of regulation and its impact at the state and local level. This is different from most investigations of regulation, as they usually focus on regulation at the federal level.
The study is titled “Business Perceptions of the Economic Impact of State and Local Government Regulation.” It was conducted by the Hugo Wall School of Public Affairs at Wichita State University. Click here to view the entire document.
Following is an excerpt from the introduction by James Franko, Vice President and Policy Director at Kansas Policy Institute. It points to a path forward.
Surprising to some, the businesses interviewed did not have as much of a problem with the regulations themselves, or the need for regulations, but with their application and enforcement. Across industries and focus group sessions the key themes were clear — give businesses transparency in what regulations are being applied, how they are employed, provide flexibility in meeting those goals, and allow an opportunity for compliance.
Sometimes things can be said so often as to lose their punch and become little more than the platitudes referenced above. The findings from Hugo Wall are clear that businesses will adapt and comply with regulations if they are transparent and accountable. Many in the public can be forgiven for thinking this was already the case. Thankfully, local and state governments can ensure this happens with minimal additional expense.
A transparent and accountable regulatory regime should be considered the “low hanging fruit” of government. Individuals and communities will always land on different places along the continuum of appropriate regulation. And, a give and take will always exist between regulators and the regulated. Those two truisms, however, should do nothing to undermine the need for regulations to be applied equally, based on clear rules and interpretations, and to give each business an opportunity to comply. (emphasis added)
Creating a dynamic economy and a reformed regulatory regime should cost very little. The benefits would apply to all companies — large or small, startup or established, local or relocations, in any industry.
Our civic leaders say that our economic development efforts must be reformed. Will the path forward be a dynamic economy and reformed regulation? Or will it be more bureaucracy, chasing jobs a handful at a time?
—
Notes
Greater Wichita Partnership – 2017 Investment Request. Part of the February 15, 2017 Sedgwick County Commission meeting. Available at https://goo.gl/hk6RHB. ↩
“Spirit is now requesting a new Letter of Intent (LOI) to issues IRBs in an amount not to exceed $280,000,000 for a period of five years. … Spirit projects it will create 349 new jobs over the next five years as a result of these expansions. In addition to the $280,000,000 Spirit expects to invest in facilities over the next five years, it also projects approximately $825,000,000 of capital investment in new machinery and equipment for a total capital investment in excess of $1 billion dollars.” Wichita City Council agenda packet for May 3, 2016. ↩
Personal correspondence from Andrew Nave, GWP executive vice president of economic development. ↩
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. 67)
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. 89 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.
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. ↩
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. ↩
“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 ↩
“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. ↩
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.
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.
In this episode of WichitaLiberty.TV: James Franko of Kansas Policy Institute joins Bob Weeks and Karl Peterjohn to discuss education in Kansas and the state budget. View below, or click here to view at YouTube. Episode 141, broadcast March 5, 2017.
A statewide poll finds little support for raising taxes as a way to balance the Kansas budget.
Kansas Policy Institute has commissioned another public opinion poll gauging the preferences of Kansans. The poll released this week asked questions about how to balance the budget in the current year and next year, raising the gasoline tax, schools, paying for Medicaid, and voting on local tax increases.
In a press release announcing poll results, KPI president Dave Trabert noted, “Once again, scientific public opinion surveys show that special interests pushing for enormous, record-setting tax increases are completely out of step with the general public. Kansans expect government and school districts to make efficient use of their tax dollars. They don’t want their income taxes or gasoline taxes increased. The question is whether legislators will listen to citizens or special interests that want higher taxes for more spending.”
Some may recognize a discrepancy between the results of this poll with last year’s elections for the Kansas House and Senate. Those elections have been widely interpreted as a referendum against an unpopular governor and his policies. This poll, however, finds little support for raising the taxes that the governor and legislature cut.
A possible explanation is that in elections for office, voters are selecting people to serve in office. Voters must choose candidate A or candidate B (or maybe C or D). Voters must take the entire package of positions associated with a candidate. It isn’t possible to select some positions from candidate A, and others from candidate B.
But in a poll with specific and narrow questions, voters can express their preferences with more precision.
There’s a difference between voting for politicians and voting for — or expressing preference for — specific policies and issues. When given a chance, Wichitans have often voted contrary to the wishes of the city council, city hall bureaucrats, and Wichita’s political class. Whether a special tax giveaway to a hotel, a general sales tax increase, reduction of penalties for marijuana possession, or fluoridation of water: Wichitans voted in opposition to the policies that were supported by the people they voted to place in office.
The fifth edition of data on public schools in Kansas is available.
Kansas Policy Institute has released a new edition of its Public Education Fact Book. KPI describes this book:
KPI’s fifth annual Public Education Fact Book is a one-stop shop for data on public school information from The Sunflower State. Numerous scientific surveys show that citizens are grossly misinformed on many pertinent facts of public education in Kansas. Aid and spending per-pupil are much higher than many Kansans believe, and student achievement is lower than understood. This fact book series aims to rectify this situation.
This document is available to read online here, or contact KPI for a printed copy.
Commissioned by Kansas Policy Institute and written by researchers from Arizona State University, a new report looks at the Kansas economy after the tax reforms passed in 2012.
Much of the discussion over economic growth following the 2012 Kansas tax reforms were enacted is misguided, hobbled by a misunderstanding of what the tax cuts were trying to accomplish and reliance on incomplete data. Additionally, it fails to take into account the fact that most job growth in Kansas has been — and will continue to be — from pass-through businesses (i.e., sole proprietorships, S-corporations, limited liability corporations, and joint partnerships). In fact, the 36,135 jobs created by pass-through entities in Kansas represent 82 percent of all private sector jobs created in 2013 and 2014, the latest data available from the U.S. Census Bureau, and the growth is more than three times as great after tax reform than before.
Using this Census data and other appropriate private sector data our analysis indicates that the impact of the tax reforms has been positive. Kansas comes out on top or at least shows strong growth in almost every relevant state comparison of the most comprehensive private sector job growth metrics. Kansas also matches up with other states well even when the less-comprehensive data often used to make comparisons is adjusted for the size of the state.
It is also important to consider the source of job creation data, the structure of a state’s economic make-up, and a state’s population when comparing job numbers. In short, just as it would not be appropriate to compare student achievement for the Kansas City and Blue Valley school districts for obvious demographic differences, it is not appropriate to compare certain states just because of geographic proximity. The monthly employment numbers from the Bureau of Labor Statistics (BLS) use a different methodology to count employment than does a more comprehensive, but less frequent, analysis from the Bureau of Economic Analysis (BEA). For instance, the BLS data estimates that in 2015, Kansas had an employed private-sector workforce of nearly 1.4 million, while the BEA data puts it at 1.9 million. So while the BLS data warrants monthly media coverage this paper puts more emphasis on the BEA analysis as it better captures those employed by proprietorships and in farm employment.
This study also uses new data from the Kansas Department of Revenue (KDOR) to clearly demonstrate that tax evasion or strategic corporate tax planning has not been widespread. KDOR records also make clear that the total value of the Kansas tax reforms from 2012 was primarily driven by lowering the income tax burden on individual wage earners. This is yet another overlooked aspect of the tax cut, as 71 percent of the overall tax relief went to individual taxpayers and 29 percent went to pass-through businesses through the income tax exemption. A final data point from KDOR also makes clear who is benefitting from the pass-through exemption. Median family income in Kansas is around $52,000 and 88 percent of the filers in 2014 with business income had Kansas adjusted gross income that year of less than $50,000.
While there is still more analysis to be done and more data to be released over the coming years, we believe the preliminary signs indicate that the Kansas tax reforms have had and, more importantly, will continue to have a positive impact on state job growth.
Greater Wichita Partnership is the organization with primary responsibility for economic development in the Wichita area. Data provided by GWP shows that since 2004, GWP takes credit for creating an average 1,847 jobs per year through its economic development efforts. 1
The study is titled “Business Perceptions of the Economic Impact of State and Local Government Regulation.” It was conducted by the Hugo Wall School of Public Affairs at Wichita State University. Click here to view the entire document.
Kansas Policy Institute has released a new edition of its Public Education Fact Book. KPI describes this book:
