Voice For Liberty

Tag: Kansas Policy Institute

  • In Kansas, school choice programs could help the most needy students achieve

    While Kansas schools perform well in comparison to other states, there is much room for improvement, as the country as a whole does not do well in teaching students to their full potential. School choice programs, either through vouchers or tax credit scholarships, would help Kansas students do even better, and would help close the gap between low-performing students and the rest.

    Last week Kansas Policy Institute and The Friedman Foundation for Educational Choice held a press conference discussing school choice and other school reform measures. KPI and FFEC recently launched the “Why Not Kansas” initiative to educate Kansans on the need to reform the state’s K-12 educational system to allow Kansas schools to continue to improve. Due to travel problems, the FFEC representative was not able to attend.

    One of the insights Dave Trabert, KPI President, told the audience is that since rapidly increasing spending hasn’t helped student performance, cutting spending shouldn’t hurt it. Total school funding across Kansas declined 2.6 percent for the 2009 — 2010 school year, and will probably decline by a smaller amount this year and the next.

    Kansas test scores and spendingKansas school spending and NAEP test scores. Since large increases in spending haven’t improved student achievement, smaller cuts should not harm it, says Dave Trabert of Kansas Policy Institute.

    “It maybe isn’t great that we haven’t seen tremendous improvement, but especially because we’re concerned with school finance and how it will impact funding, this is really good news. If we’ve put that much more money — $2.5 billion more into our school system since 1998 — and we haven’t changed the numbers, then we shouldn’t be concerned. We have a problem we have to deal with, but money clearly isn’t the answer. Thank goodness it isn’t, because citizens don’t have billions more to put into this problem.”

    Trabert said there are alternatives with a proven record of raising achievement. He used Florida as an example, noting that state started a series of reforms in 1998. School choice was one of Florida’s earliest reform measures, and one that the “Kansas education industry” consistently opposes.

    School choice implemented through vouchers is one program Florida used. A voucher is a payment from the state made to a school — usually a private school — where a parent chooses to send a child. Today, Florida has a variety of school choice programs focused mostly on children from low income families and special needs children. School choice through tax credit scholarships are also used in Florida. Kansas has neither program.

    Charter schools are also not available in Kansas on a widespread basis. Charter schools are publicly funded, but operate more independently, usually with less regulation. Generally the teachers do not belong to the teachers union.

    In Kansas, the local school district is the only authorizer of charter schools. “Imagine, if you will, if Spangles had to get permission from McDonald’s to open restaurants. We wouldn’t have Spangles today if that was the case.”

    While there are many successful charter schools, Trabert said there are examples of private schools and charter schools that have not worked well. As these schools don’t have a ready market of students forced to attend them by reason of geography, the bad examples usually close.

    One of the benefits of schools choice is the competition it provides. Public schools do better when faced with competition from school choice, Trabert said. Public schools respond to competition and get better, as they don’t want to lose students.

    Another benefit is — perhaps paradoxically — funding, on a per-pupil basis, goes up for public schools: “One of the knocks against school choice is that it would drive money away from school districts, and how could they afford that? In every state I’ve looked at where they have school choice programs, the money that is allowed to follow the student, whether to a charter school or a private school, is set at or below the state aid per pupil. In fact, in a lot of states they’re looking at school choice as a way to reduce costs.”

    School choice and other reforms have helped Florida close the achievement gap, with low-income and minority students making large gains.

    Trabert also said that school choice programs especially benefit low income children. “We have a lot of kids in the state and around the country whose education really depends on how much their parents make. That’s wrong. We shouldn’t accept that.”

    A question from the audience asked why Trabert focused on school choice in Florida, when that state has implemented many reforms, such as merit pay for teachers and alternative certification. Trabert said we in Kansas should be doing these things, too. School choice was one of Florida’s first reforms, and Trabert again pointed to the benefits of competition and its effects on improving all schools.

    I asked a question relating to a school choice bill introduced in Kansas this year that would fund scholarships through tax credits for low income students. Some criticized the bill by saying it would allow private schools to choose only the best students, the ones they wanted in their schools, even though the bill was specifically targeted to low income students. This is a common criticism of private schools and sometimes charter schools, that they “cherry pick” the best students, leaving the public schools to deal with the rest. Trabert said “That’s one of the misconceptions that’s commonly put out. The facts don’t support those assumptions.”

    Another question had to do with the marketplace for private schools, either for special needs students or other students. Critics of school choice say there are currently very few public schools, so there is a lack of capacity to handle a large number of new students seeking admission using vouchers or tax credit scholarships as full or partial payment. Underlying these criticisms is a failure to recognize the dynamic nature of markets. Analyzed statically, the criticism is valid: markets tend towards equilibrium, with supply equal to demand. With private school tuition being what it is, relatively few parents can afford to send their children to these schools. But with the effective cost of a private school reduced dramatically by a voucher or tax credit scholarship, we would expect to see many new schools open.

    Video of the press conference is available here.

  • Kansas and Wichita quick takes: Monday May 9, 2011

    Airfares down in Wichita. A city press release announces: “Wichita Mid-Continent Airport had the country’s 11th largest airline fare decrease since 2000 and now ranks 43rd in average fare of the 100 busiest airports, according to research by the federal Bureau of Transportation Statistics (BTS).” The program’s major source of funding is $5 million per year from the state. Currently, it is not known whether this funding will be in the budget the legislature is working on. … The program is controversial for claims of economic benefit that appear overstated. There is a way to pay for the program that shouldn’t be controversial. When government provides services that benefit everyone, such as police protection, most people agree that taxes to pay for these services should be broad-based. But we can precisely identify the people who benefit from cheap airfares: the people who buy tickets. Wichita could easily add a charge to tickets for this purpose. The mechanism is already in place.

    Wichita City Council this week. A speaker on the public agenda will speak about restoring Joyland. Undoubtedly, the goal of the speaker will be to obtain public funds for this project. … City staff is recommending that the council deny a request for Industrial Revenue Bond financing by Pixius Communications LLC. As always, the benefit of the IRB financing to the applicant is the property tax and possible sales tax abatements that accompany the program. The city does not lend money, and does not guarantee that the applicant will repay the bonds. The reason staff is recommending not to approve the application is that Pixius is a service business, and under current policy, a service business must generate a majority of its revenues from outside the Wichita area. Pixius does not, and is asking the city to waive this policy for their benefit. … Separately, Pixius is applying for low-cost financing of renovations to the same building though the facade improvement program. The city has performed its “gap” analysis and has “determined a financial need for incentives based on the current market rates for economic rents.” This is another example of government investing in money-losing businesses. … Then The Golf Warehouse in northeast Wichita asks for a forgivable loan from the city as part of a larger package of incentives and subsidy. This item will prove to be a test for several council members who campaigned against these loans. … Council members will receive a quarterly financial report and view an “artistic concept” for WaterWalk.

    Joyland topic of British tabloid. The British tabloid newspaper Daily Mail, in its online version, has a story and video about Wichita’s closed Joyland amusement park. For those who remember the park in its heyday, this is a fascinating — if not bittersweet — look at the park’s current condition. The headline of the article (“New images of an abandoned theme park reveal desolation in America’s heartland”) makes a connection between the deterioration of Joyland and the economic condition of America, a false impression which several comment writers corrected. … I don’t think the closing of Joyland has anything to do with public policy. Businesses come and go all the time as tastes and generations change.

    Educational freedom to be discussed in Wichita. This week Kansas Policy Institute and The Friedman Foundation for Educational Choice will be discussing what other states have done to increase student achievement through reforms based on educational freedom and creating a student-centric focus. KPI and FFEC recently launched the “Why Not Kansas” initiative to educate Kansans on the need to reform the state’s K-12 educational system to allow Kansas schools to continue to improve. Speakers at the event will be Dave Trabert, president of Kansas Policy Institute, and Leslie Hiner, vice president of programs and state relations at The Foundation for Educational Choice. The event is Thursday, May 12 at 10:30 am, at the Central Wichita Public Library Auditorium. RSVP is requested by email to James Franko or by calling 316-634-0218.

    Do you want to live in the world of Atlas Shrugged? From LearnLiberty.org, a project of Institute for Humane Studies: “In her masterpiece of fiction, Atlas Shrugged, Ayn Rand emphasizes three key classical liberal themes: individualism, suspicion of centralized power, and the importance of free markets. In this video, Prof. Jennifer Burns shows how Rand’s plot and characters demonstrate these themes, principally through innovative entrepreneurs who are stifled by laws and regulations instituted by their competitors. In the world of Atlas Shrugged, free markets and individual liberty have been traded away for equality and security enforced by the government. Burns ends by reviving Rand’s critical question: do you want to live in this kind of world?” … The video is six minutes in length.

    Who are the real robber barons? In summarizing a chapter from his book How Capitalism Saved America: The Untold History of Our Country, From the Pilgrims to the Present, Thomas J. DiLorenzo explains the false lessons of capitalism and government that we have been taught:

    “The lesson here is that most historians are hopelessly confused about the rise of capitalism in America. They usually fail to adequately appreciate the entrepreneurial genius of men like James J. Hill, John D. Rockefeller, and Cornelius Vanderbilt, and more often than not they lump these men (and other market entrepreneurs) in with genuine “robber barons” or political entrepreneurs.

    Most historians also uncritically repeat the claim that government subsidies were necessary to building America’s transcontinental railroad industry, steamship industry, steel industry, and other industries. But while clinging to this “market failure” argument, they ignore (or at least are unaware of) the fact that market entrepreneurs performed quite well without government subsidies. They also ignore the fact that the subsidies themselves were a great source of inefficiency and business failure, even though they enriched the direct recipients of the subsidies and advanced the political careers of those who dished them out.

    Political entrepreneurs and their governmental patrons are the real villains of American business history and should be portrayed as such. They are the real robber barons.

    At the same time, the market entrepreneurs who practiced genuine capitalism, whose genius and energy fueled extraordinary economic achievement and also brought tremendous benefits to Americans, should be recognized for their achievements rather than demonized, as they so often are. Men like James J. Hill, John D. Rockefeller, and Cornelius Vanderbilt were heroes who improved the lives of millions of consumers; employed thousands and enabled them to support their families and educate their children; created entire cities because of the success of their enterprises (for example, Scranton, Pennsylvania); pioneered efficient management techniques that are still employed today; and donated hundreds of millions of dollars to charities and nonprofit organizations of all kinds, from libraries to hospitals to symphonies, public parks, and zoos. It is absolutely perverse that historians usually look at these men as crooks or cheaters while praising and advocating “business/government partnerships,” which can only lead to corruption and economic decline.

  • Economist: KPERS must undergo serious reform

    This morning in Wichita Barry W. Poulson, retired professor of economics at the University of Colorado, said that Kansas legislators are finally starting to realize the importance of dealing with the unfunded liability in the Kansas Public Employees Retirement System (KPERS), but cautioned that proposals currently in the legislature don’t contain the fundamental cost-saving reforms that are needed and that other states are implementing.

    Poulson’s visit to Wichita was sponsored by the Kansas Policy Institute. Poulson authored the report A Comprehensive Reform of Kansas Public Employees Retirement System for KPI.

    In his introduction of Poulson, KPI President Dave Trabert said that the KPERS deficit that is usually mentioned — $7.6 billion — is too low. The real deficit is at least $12 billion, he said. The difference comes from two sources: first, there are nearly $2 billion in losses that don’t have to be included in the official figures, at least not yet. Then, KPERS uses an assumption of eight percent for its future investment returns to arrive at the $7.6 billion figure. Trabert says that even KPERS understands it will not be able to achieve that rate. Using a rate of seven and one-half percent, the deficit blooms to $12 billion, and even that rate may be too high.

    In his remarks, Poulson said that the Government Accounting Office estimates that state and local governments will incur, over the next half-century, $10 trillion in debt. Most of that is due to unfunded liabilities in pension and retiree health plans for public employees, he said. Some of the debt issued by state governments has been downgraded to “junk” status. 84 municipal governments went bankrupt last year.

    Poulson said that economists estimate that over the next decade, there is a high probability that pension plans in a dozen states will not be able to meet their obligations. Kansas is one of those states, having one of the worst pension plans, considering its ability to meet its obligations.

    An important point that Kansans should know, Polson said, is that KPERS is in worse shape than has been reported. The “smoothing” actuarial technique used by KPERS means that $1.7 billion in unfunded liabilities are not yet officially recognized. The eight percent return on assets used as an assumption is not realistic, too. Using a return of five percent means the unfunded liabilities are much greater.

    Poulson explained that under current Kansas law, the state is not able to meet the unfunded liabilities of KPERS. Liabilities grow more rapidly than assets. The contribution the state currently makes to KPERS is about nine percent of total payroll. If Kansas wants to satisfy government accounting rules regarding covering the unfunded liability, it would have to increase this rate to about 15 percent. In dollar terms, this is an additional $250 million per year. (To place that in context, the one cent per dollar increase in the statewide sales tax last year was estimated to bring in about $300 million additional revenue per year.)

    This amount is what is needed to just to pay off the unfunded liability, not the total cost of providing KPERS benefits.

    If trends continue, Poulson said that by the 2020s the state would have to contribute 24 percent of payroll to KPERS. Spending at this level would require large cuts to programs or large tax increases.

    Some states have successfully reformed their state pension plans, and Kansas needs to look at these states as models. The most important reform. Poulson said, is to replace the present defined-benefit plan with a defined-contribution plan, commonly known as a 401(k) plan. The private sector has been doing this for the last three decades, he said.

    Part of the problem is that legislators have refused to recognize the problem with state employee pension plans. Poulson recounted how six or seven years ago he told Kansas legislators that they needed to pay attention to KPERS and its problems, and to start addressing the unfunded liability. But legislators assured him that KPERS was fine, and there was no cause for worry. “I couldn’t get anyone to listen to me,” he said. Now, he said legislators in Kansas are finally addressing the problem, although still not properly, he added.

    Critics say that if states offer defined-contribution instead of defined-benefit plans to new employees, they won’t be able to pay off the unfunded liabilities of their defined-benefit plans. Poulson pointed to Michigan as an example of a state that switched to defined-contribution plan, and has improved its ratio of assets to liabilities, meaning the unfunded liability problem is less severe.

    Eight states have a hybrid-contribution plan, which have both defined-benefit and defined-contribution aspects. Utah was in a position similar to Kansas, and after implementing a hybrid plan, is on the track to paying off its unfunded liability.

    Another reform that states, especially Kansas, must consider is that the burden of retiring the unfunded liability must be born not only by taxpayers and new employees. Current employees and retirees must help, too. Employees must increase their contributions. Retirees need to accept less generous cost of living adjustments. The retirement age and the years of service needed to qualify for benefits both need to be raised. The way that final average salary, a component of benefit calculations, needs to be reformed too. Currently workers may use overtime or other techniques to raise their final average salary so that they receive a larger pension benefit.

    Poulson noted that Kansas legislators are finally starting to “get it” as far as realizing the seriousness of the KPERS problem. There are two bills active in the current session of the legislature. The bill passed by the House of Representatives places new employees in a defined-contribution plan, while the Senate bill keeps the present defined-benefit plan. Neither bill, however, includes fundamental cost-reducing reforms mentioned above and that are happening in other states.

  • CAP: Class size reduction not effective

    Last week the Center for American Progress released a report about class size reduction in schools and the false promise it holds for improving student achievement. While I am normally quite cautious about relying on anything CAP — a prominent left-wing think tank — produces, I’ve read the report, which is titled The False Promise of Class-Size Reduction. It’s accurate.

    It’s quite astonishing to see CAP cite evidence from Eric Hanushek of the Hoover Institution and Caroline Hoxby of Stanford and Hoover. These two researchers are usually condemned by the public education establishment and bureaucracy, including teachers unions. These are some of the key constituents CAP usually caters to.

    In a nutshell, class size reduction produces very little benefit for students. (It benefits others greatly. More in a moment.) It’s also very expensive, and there are other things we should be doing instead if we really want to increase student achievement.

    The report summarizes the important studies in class size reduction, and it’s accurate, based on the reading I’ve done over the years. The upshot is that there is only one study showing positive results from class size reduction, and that effect was found only among the early grades. The effect decreased after a few years, even though small class sizes were still used.

    The report also notes that class size reduction is very expensive to implement. Because it is, the report says we should look to other ways to increase student achievement, such as policies relating to teacher effectiveness: “The emerging consensus that teacher effectiveness is the single most important in-school determinant of student achievement suggests that teacher recruitment, retention, and compensation policies ought to rank high on the list.”

    Recently the Kansas Policy Institute sponsored a trip to Wichita by Sandi Jacobs of National Council for Teacher Quality. My reporting of that event and an audio recording is at Kansas ranks low in policies on teacher quality. The importance of teacher quality is this: “In the example she illustrated, third graders who had teachers in the top 20 percent of effectiveness for the next three years went from the 50th percentile in performance to the 90th. For students with teachers in the lowest 20 percent for the same period, their performance dropped from the 50th percentile to the 37th percentile.” Kansas ranks below average among the states in its policies that promote teacher quality.

    Who benefits from class size reduction?

    If class size reduction doesn’t work, why is it so popular? The answer is it benefits many special interest groups. The first group is the parents who send their children to public schools. While class size reduction doesn’t help their children (except in limited circumstances), they think it does. Intuitively, it seems like small class size should help. More individual attention to their kids, the parents are told. And what parent doesn’t want the best for their child? This leads to an effective tactic that school spending supporters use: Any reduction in school funding, no matter how small, will cause class sizes to “explode” or “balloon” out of control, causing student achievement to “plummet.”

    Then, there’s the teachers union. Small class size means more teachers and more union members. Fewer students means an easier job for teachers, too, with less papers to grade, etc. The unions also oppose nearly all the policies that would improve teacher quality. For example, this year the Kansas Legislature spent quite a bit of time on a policy where the period before teachers are awarded tenure could be increased from three to five years in certain circumstances. This is what qualifies as “school reform” in Kansas. Remember, Kansas ranks very low in policies that promote teacher quality. Tinkering with the policy on teacher tenure is not going to improve our teacher quality, as tenure is a system that ought to be eliminated. In Kansas the teachers union is Kansas National Education Association (KNEA).

    Public school administrators benefit from class size reduction. With more classrooms and more employees, their budgets and power swell. In Wichita, one of the main reasons USD 259, the Wichita public school district gave for the necessity of passing a bond issue in 2008 was the need for more classrooms to implement class size reduction. Now progress is in a “pause and study” phase, as the district has realized that funding to run the new schools and classrooms on an ongoing basis may not be available. (The bond issue pays for construction, but not operation, of new schools and expansion of existing schools.)

    Architects and construction companies. In my experience sitting in education committee hearing rooms in the Kansas statehouse, whenever there is any proposal that would reduce spending on school construction, a representative of architects is there to offer testimony in opposition. In the campaign for the Wichita school bond in 2008, an architectural firm headed the campaign, and construction companies contributed heavily. They also contribute to the campaign of school board candidates who are in favor of building more classrooms. Most of this is to support class size reduction, which is politically appealing, but we know doesn’t work. But the motivation of architects and construction companies is to build something, whether it is useful or not.

    Politicians — liberals and most conservatives — promote small class sizes. Any politician who promotes policies other than small class size has to overcome the forces listed above. Therefore, most don’t try.

    The rut we’re in

    The perceived desirability of small class sizes by parents and politicians coupled with the powerful motivations of special interests like school administrators, teachers unions, and the construction industry have placed us in a rut. It’s going to be difficult to escape, and it’s refreshing to see the Center for American Progress on the right side of this issue.

    The fact that such a well-known liberal think tank is promoting this issue provides a context other than the typical liberal vs. conservative dichotomy. We are now able to more clearly see the motivations of the special interests that benefit from high school spending and the incorrect evidence they rely on.

    The False Promise of Class-Size Reduction

    By Matthew M. Chingos, Center for American Progress

    Class-size reduction, or CSR, is enormously popular with parents, teachers, and the public in general. The latest poll results indicate that 77 percent of Americans think that additional educational dollars should be spent on smaller classes rather than higher teacher salaries. Many parents believe that their children will benefit from more individualized attention in a smaller class and many teachers find smaller classes easier to manage. The pupil-teacher ratio is an easy statistic for the public to monitor as a measure of educational quality, especially before test-score data became widely available in the last decade. …

    Parents, teachers, and policymakers have all embraced CSR as a strategy to improve the quality of public education. There is surprisingly little high-quality research, however, on the effects of class size on student achievement in the United States. The credible evidence that does exist is not consistent, and there are many low-quality studies with results all over the map.

    Continue reading at The False Promise of Class-Size Reduction.

  • Kansas and Wichita quick takes: Wednesday April 20, 2011

    Regulation as state moneymaker. Often those who propose new regulations will use, as justification for support, the revenue that government will gain from issuing licenses or permits. An example is from today’s Wichita Eagle Opinion Line: “Other parts of the country have leash laws for cats. They kill birds and leave deposits in your garden. A leash law for cats would help with income for the city.” … I would suggest that forcing people to pay in order to enjoy various rights and privileges is not a wise policy. In other words, let’s not use regulation as a revenue source. If the state thinks an activity, such as gambling, should be prohibited, the fact that the state might gain revenue from it shouldn’t change that judgment. Except, that’s the reasoning the state of Kansas used when it decided to allow casino gaming a few years ago.

    Kansas populism to be topic at Pachyderm. This Friday’s meeting (April 22) of the Wichita Pachyderm Club features Friends University Associate Professor of Political Science Russell Arben Fox speaking on the topic “The History and Legacy of Kansas Populism.” Besides his work at Friends, Fox actively blogs at In Media Res. For more information click on Wichita Pachyderm Club. … Upcoming speakers include Wichita State University Political Scientist Ken Ciboski on April 29.

    KPERS to be topic of breakfast meeting. On Wednesday (April 27) Kansas Policy Institute will host a breakfast with Dr. Barry Poulson, who recently wrote a report for KPI titled A Comprehensive Reform of the Kansas Public Employees Retirement System. Writes KPI: “There is a $12 billion elephant lurking in Kansas and it seems no one wants to talk about it. That elephant is the Kansas Public Employees Retirement System (KPERS) and it faces an unfunded liability of $12 billion. … Barry Poulson, Ph.D., is an adjunct fiscal policy fellow at KPI and is a retired professor at the University of Colorado. He has taught economics around the world and works with the Heritage Foundation and Americans For Prosperity.” … The event is at 8:00 am at the Hyatt Regency in Wichita. Cost is $25. RSVP by email to James Franko.

    Wichita-area legislators to meet with public. The fourth and probably final meeting of the South-Central State Legislative Delegation will be this Saturday April 23 at 9:00 am. Writes delegation chair Rep. Jim Ward: “Public comment about the proposed state budget, health care reform, voter eligibility and other major issues will be heard by local legislators at the Wichita State University Metroplex, 29th and Oliver. … Legislators need to hear from the people who are affected by these important issues. Better decisions are made when the public participates in the process.” … For further information, contact Rep. Ward, delegation chairman at 316-210-3609 or jim.ward@house.ks.gov.

  • Kansas fiscal policy is stifling the state’s economy

    Dave Trabert of Kansas Policy Institute explains that Kansas economic policies are leading to the growth of government at the expense of private sector economic activity. Separately, KPI released figures showing that it will be very difficult for the state to meet the revenue projections made for the current fiscal year, which ends on June 30, 2011. Kansas tax collections in March were below projections, meaning even more trouble balancing the current year budget.

    State Fiscal Policy is Stifling the Kansas Economy

    By Dave Trabert, Kansas Policy Institute.

    Kansas’ fiscal policy has stifled the state’s economy for more than a decade and the effects are now being severely felt. Policy debates are often thought of in terms of party identification but the dividing line in Kansas is about the size and role of government; specifically, limited government versus large, expanding government. Most major policy debates really come down to whether government or taxpayer interests take precedent.

    For example, last year’s 19 percent sales tax increase was designed to allow government spending to increase by more than $200 million. Efforts to instead have government operate more efficiently were rebuffed by the demand for higher revenues, even though both academic studies of the proposed sales tax increase concluded it would cost thousands of jobs. The February employment report from the Kansas Department of Labor confirms those predictions.

    Kansas employmentKansas employment

    Kansas continues to lose private sector jobs, while government jobs increase. The adjacent table shows a loss of 12,100 private sector jobs over the last year; you have to go back to 1997 to find fewer jobs in February. To fairly compare February employment to the July implementation of the sales tax, we have to use seasonally adjusted data from the U.S. Department of Labor. On that basis, there are 23,200 fewer private sector jobs since the sales tax increase.

    There’s been talk of repealing the sales tax but opponents say it would make it harder to balance the state budget. That’s true, but it can be done by having government operate more efficiently, eliminating programs no longer deemed effective, and treating government employees the same as all other taxpayers. Others oppose repealing the sales tax because they’d rather retain it and use the revenue to begin reducing income tax rates. The March to Economic Growth Act (MEGA) would restrict the growth in state revenue and ease the tax burden but opponents are concerned about the impact on government. Never mind that Kansas has one of the highest state and local tax burdens in the country (number 19 according to the Tax Foundation and getting worse) and that jobs and population are migrating to states with lower tax burdens.

    Last year’s smoking ban was another fine example of putting government interests first, with state-owned casinos getting an exemption. Opponents of an effort to remove that exemption say it would cost state-owned casinos millions of dollars in lost revenue and reduce state tax revenues. Bar owners said the same thing last year but their concerns were dismissed.

    And then there’s the Kansas Public Employees Retirement System (KPERS). The debate over resolving a KPERS deficit of at least $9.3 billion is perhaps the most egregious example of fiscal policy favoring government growth. KPERS is one of the worst funded plans in the country and provides benefits many times greater than received by most private sector workers. Fully funding it will have catastrophic impact on taxpayers and the economy, but even minor benefit reductions are vehemently opposed. Even a proposal to reduce benefits for employees not yet hired can’t get off the ground.

    Continuing to strip taxpayers of their economic freedom so that we can sustain and grow government will eventually cause the state’s economy to implode, as governments in California, Illinois and many nations are currently experiencing. This isn’t theory, it’s history — and we should avoid repeating it.

  • KPERS problems must be confronted

    This week the Kansas Legislature may work on the problems facing the Kansas Public Employee Retirement System, or KPERS. Past legislatures have failed to enact reforms necessary to put this system on a sound financial footing, and the legislature has shown itself incapable of managing a system where it’s easy to pass on the problem to future generations. Now Kansas faces an unfunded liability of some $9.3 billion in KPERS. The most important thing the state can do is to stop enrolling new employees in this failing system.

    When confronted with the realities of the finances of KPERS, the response of state government employee representatives is first, attack the messenger. This is taking place now in response to a report released by the Kansas Policy Institute (A Comprehensive Reform of Kansas Public Employees Retirement System). It also happened in 2009 when Art Hall and Barry Poulson released their research in The Funding Crisis in the Kansas Public Employee Retirement System.

    The second response of state government employee representatives is to attack the only solution (short of massive tax increases) to providing for workers’ retirements: the defined-contribution plan. These plans, often called 401(k)-style plans, allow workers to contribute into a special type of tax-advantaged retirement account. Usually employers, in this case the State of Kansas, make additional contributions on employees’ behalf. Employees generally have a variety of investments to choose from. Employees also own their retirement accounts and their assets. The value of the account — and therefore the benefits available to retirees — depends on the performance of the investments.

    KPERS is a defined-benefit plan, sometimes called a traditional pension plan. When employees retire, they are paid a benefit based on their final average salary, number of years of service, and a multiplier. KPERS funding relies on employee contributions, employer contributions (these are the state’s taxpayers), and investment returns.

    The main problem is that the legislature has not provided enough funding to KPERS to keep it in balance. That’s easy to do, as retirement systems like KPERS operate on time horizons of decades, and it’s easy to say let’s deal with the problem next year. It’s also easy for legislators to promise and write into law a higher level of benefits than they’re willing to fund. Problems with lack of funding may not show up until long after the legislators who voted for them are out of office. With defined-contribution plans this isn’t possible. Each party — worker and employer — funds the plan each pay period, and that is the extent of the obligation of each party.

    Misinformation spread

    In its message to its followers, Kansas National Education Association (KNEA, the teachers union) wrote this about the problem with defined-contribution plans: “First, they claim that a DC plan gives the employee control over their own retirement. And if you have lots to invest and have the time and knowledge to do so effectively, that might be true. Of course, even if you do, you can end up like the folks who found Enron to be a great investment or trusted Mr. Madoff. The fact is most of us are not prepared to do our own analysis and investment.”

    There’s quite a bit of misinformation here. But before that, a huge irony is that this information is aimed at Kansas schoolteachers, and their union assumes they are not intelligent enough to plan for their own retirement.

    In fact, planning for retirement is quite easy and simple. All one needs to do is select low-cost index stock and bond mutual funds, of which there are many. These funds, over the long time horizon appropriate for retirement investing, beat the performance of all managed funds, meaning funds managed by professionals who attempt to analyze markets and earn greater than average returns through an active trading strategy. This is not disputed by anyone except by those who sell actively-managed mutual funds.

    “The evidence is clear. Low-cost index funds regularly outperform two-thirds of actively managed funds, and the one-third of actively managed funds that outperform changes from period to period. Even the very few professional investors who have beaten the market over long periods of time — Berkshire Hathaway’s Warren Buffett and Yale University’s David Swensen, for instance — are quick to advise that investors are likely to be much better off with simple low-cost index funds than with expensive actively managed funds.” (Burton G. Malkiel, ‘Buy and Hold’ Is Still a Winner. Also, see the author’s book The random walk guide to investing: ten rules for financial success.)

    Generally, most investors would select just one or two funds in which to place their contributions. Over time, investors may want to change the balance or characteristics of the funds they invest in. This again is easy to do. In fact, large mutual fund companies like Vanguard have index funds that automatically shift the balance between stocks and bonds as investors move along towards retirement.

    The idea that the teachers union believes that professionals like schoolteachers are not capable of becoming informed and making these decisions is laughable if it weren’t the actual belief of the union. Suggestion: An actually useful and productive role for the teachers unions would be to help their members learn to invest for their retirement.

    The problem cited about Enron and Madoff is that some people placed all or nearly all their investments with these two firms. That’s a bad strategy for anyone to follow with their retirement investments. Using index funds will not expose investors to the risk of losing all their money.

    The claim by the KNEA that “lots to invest” is required is false. The companies that manage defined-contribution retirement plans accept new employees into the plan no matter how little they have to invest, and they accept their periodic contributions each pay period no matter how small. Scale — the amount available to invest — is not an issue, contrary to the assertions of the teachers union.

    One claim made by KNEA is true: defined contribution plans give workers control over their retirement savings. This is a benefit. If a worker has a low tolerance for risk, they can keep their contributions in cash (actually treasury bonds would be the choice for these people). Others who wish to take an active role in the retirement investing can do so, as most plans offer funds that have targeted goals such as real estate, growth stocks, short-term bonds, long-term bonds, etc.

    But in KPERS, all members are invested in the mix of investments that the KPERS trustees decide on. (When Jane Carter of Kansas Organization of State Employees asks “Do you really want to take your retirement security and gamble it on the stock market?” she may not be aware that KPERS is invested in the stock market, and those returns are essential to funding KPERS benefits.) The investments that the trustees choose may not be suitable for each individual member. But KPERS members have no choice.

    By the way, the KPERS investment fund has proven irresistible to politicians seeking to invest in Kansas for various reasons. In the 1980s a series of bad investments were made in Kansas companies. As reported in the Wichita Eagle on October 16, 1989: “For many Kansas legislators, the lure of using KPERS money for economic development was tempting. So KPERS, under considerable legislative pressure, agreed to target nearly 10 percent of its fund for business expansions in Kansas.” Many of these investments lost money, and lawsuits went on for years.

    The point is that the worker is in control, not the KPERS trustees or the legislature. That’s important, as the legislature, over the years, has not made sufficient contributions to KPERS. They keep pushing the decision down the road to future legislatures, and the burden on future taxpayers who will need to make the necessary contributions. But in a defined benefit plan, employees, through their employers, make contributions each pay period. If for some reason the employer fails to make the contribution, it’s easy to notice it before years go by.

    New members needed to prop up existing

    Reading the material put out by KPERS defined-benefit supporters, it becomes clear that KPERS depends on the contributions of new members to pay for the benefits of those already in the system. Here’s a claim made by KNEA, the teachers union: “If all new employees came in under a defined contribution or 401(k) plan, their investments would be essentially personal investments and not used to contribute to benefit payments to current or future defined benefit members. This means that each person who retires will be replaced by someone who is not paying into the defined benefit system.” (emphasis added)

    The KNEA has also written to its members: “The state would have the obligation to continue funding the defined benefit (DB) plan since it depends on new employees contributing to fund at least a portion of the benefits to retirees. (emphasis added)

    This claim was echoed in testimony given by Coalition for Keeping the Kansas Promise, which states: “In fact, the creation of a defined contribution plan for KPERS, which will remove revenues used to reduce the unfunded actuarial liability, will only accelerate the insolvency of the KPERS fund for current KPERS members and retirees from FY 2033 to an uncertain, though more immediate, date in the future, and place the entire KPERS funding obligation upon Kansas taxpayers.”

    There could be no clearer admission that the KPERS contributions of young workers are used to fund the benefits of retirees. Instead of the new members’ contributions being invested and growing to provide for their own retirement, their contributions are needed to pay for current retirees. This is a system that guarantees being perpetually under-funded.

    Who is the employer?

    The Kansas Policy Institute report states: “Employers in the state/school plan currently contribute 9.37 percent of payroll. To fully fund that part of the plan at the market value of assets employers would have to contribute 15.26 percent of payroll. Employer contributions into the state/school plan would have to increase from $393 million to $640 million annually, a 63 percent increase.”

    Now when most people read this and other information about KPERS they probably don’t associate “employer contributions” with what this term means. Since KPERS covers government employees, the employer is the state’s taxpayers.

    That’s right. It is the taxpayers who will be called upon to correct the unfunded KPERS liability. The KPI report is accurate but understates the political reality when it concludes: “Kansas legislators are not likely to find an additional $247 million in the current budget to fully fund the KPERS pension plan; and they are even less likely to find the money to fully fund the plan in future years as unfunded liabilities accumulate, especially if the plan fails to generate the projected 8 percent rate of return on assets.”

    Most Kansans realize that KPERS is part of the cost of having state employees. Citizens pay taxes so that these employees can be paid, and KPERS is part of their package of pay. The problem is that citizens expect that the cost of paying employees be paid each year. But now we learn that the legislature has not been doing this. The legislature has not been paying all that is required into the KPERS system. Essentially, taxpayers will be asked to pay now for payments not made in years past for work that was performed years ago.

    Investors or combatants

    The current system of retirement for state employees creates a situation where there is conflict. We see it right now, where state employees and their lobbying groups insist that the state make good on its promise to its workers. The pushback comes from those who realize that taxpayers are tired of ever-increasing spending. This is especially true when taxpayers are being asked to make up for the deficits of legislatures past. So there’s conflict. One class is trying to extract payment from another. It isn’t pretty, and it’s not productive. It’s the political system at its worst.

    Advocates for state employees say there’s nothing wrong with KPERS that can’t be fixed by funding it properly. In other words, more taxes and more spending: more conflict. We need to find a way out of this trap, and enrolling new state employees in defined-contribution retirement plans is the way.

    The benefit of defined-contribution plans is that people, including state employees, become investors. They own something. They have a rooting interest in the success of the economies of Kansas, America, and the world.

    Kansas state employees have a choice to make. Do they want to become investors in America and own their retirement funds, or do they want to continue to rely on the political system for their retirement?

  • Kansas and Wichita quick takes: Friday March 25, 2011

    Elections coming up. On Tuesday April 5 voters across Kansas will vote in city and school board elections. Voting has been underway for about a week through the advance voting process. For those who haven’t yet decided, here’s the Wichita Eagle voter guide. You can get a list of the candidates, along with their responses to questions, customized for your address.

    Campaign signs. The placement of political campaign signs can be an issue. Here is a City of Wichita letter describing placement rules, and a diagram. … If you live in a neighborhood with covenants prohibiting campaign signs, the covenants don’t apply at election time. See In Kansas, political signs are okay, despite covenants.

    In Kansas, cutting unnecessary spending can avoid service cuts. Following up on Kansas state agency spending, Kansas Policy Institute finds examples of spending on overtime, advertising, cell phones, and dues, memberships and subscriptions totaling $50 million. KPI president Dave Trabert remarked: “Hardly a day goes by that we don’t see some group or state agency saying they will have to cut necessary services if their funding is reduced, but it’s pretty clear that there are lots of other ways to reduce spending. Some degree of spending in these categories is understandable, but the data clearly show that large amounts of taxpayer money are being spent unnecessarily.” Other examples uncovered by KPI: “The Legislature spent $144,408 to join the National Council of State Legislators and also spent $107,022 to join the Council of State Governments. The Governor’s office bought memberships in three governors’ associations: the National Governor’s Association ($83,800), the Western Governors’ Association ($36,000) and the Midwestern Governors’ Association ($10,000).” More is in the KPI press release K-State #1 in Cell Phone Spending: Cutting unnecessary spending can avoid service cuts.

    March to Economic Growth stalled. The Kansas House of Representatives has passed a bill that would gradually reduce Kansas personal and corporate income tax rates. The so-called MEGA bill wold create a mechanism where if revenue flowing to the state increases, income tax rates would be reduced proportionally, after adjusting for inflation. Besides lowering these tax rates, which would make Kansas more attractive to business and jobs, the bill would also decrease the rate of growth of spending. But Senate leadership, namely its president, doesn’t care for the bill, so it appears it is dead this year. Last year Senate President Stephen Morris was strongly in favor of the statewide sales tax increase. Despite being a member of the Republican Party, he is part of the Senate’s liberal wing, according to the Kansas Economic Freedom Index and other legislative ratings.

    Open records under attack. CommonSense with Paul Jacob reports on efforts underway in Utah to reduce citizens’ ability to learn about their government: “House Bill 477 changes the core of the GRAMA law, mandating that citizens must prove they deserve access to records, rather than the previous rule requiring government officials to show cause for why a document should not be released. The legislation also exempts text messages, emails and voicemails from being disclosed, the better to keep lobbyists and special interests out of the limelight.” The Daily Herald wrote: “The principle of open government now would apply only when ‘the public interest favoring access to the record outweighs the interest favoring restriction of access to the record,’ in the opinion of the government.” … This bill actually became law, but so much public opinion was roused that it is likely the Utah legislature will overturn the act, according to reports. … Jacob’s email on this matter was subtitled “Paul Jacob notices nearly absolute power corrupting GOP legislators in Utah.”

    Ignorant or just ill-informed? L. Brent Bozell in Investor’s Business Daily: “Anyone who’s ever seen Jay Leno do one of his ‘Jaywalking’ segments on NBC, locating average Americans and asking them factual questions on street corners, knows there are far too many Americans who know next to nothing about just about everything. They can’t name our first president or don’t know what the phrase ‘Founding Fathers’ means. Ask them to name our current vice president and watch the brain waves flat line. Newsweek magazine recently announced its disgust after it offered the government’s official citizenship test (the one we require immigrants to pass before being naturalized) to 1,000 Americans. Thirty-eight percent of the sample failed. Newsweek worried in its headline: ‘The country’s future is imperiled by our ignorance.’” Locally, I am reminded of the Kansas Policy Institute and its survey of Kansans and their knowledge of school spending. Regarding that, I reported: “When talking about Kansas school spending, few Kansans have accurate information. Those with children in the public school system are even more likely to be uninformed regarding accurate figures.”

    Government spending overrides privates spending. The last two days have featured readings from Robert P. Murphy’s book Lessons for the Young Economist on the importance of profits and loses in guiding investment, and how government is unable to calculate its profit or loss. Today, Murphy explains government spending and the political process: For example, suppose the government decides to build a public library in order to make books and internet access free to the community. Because the government only has a limited budget, it won’t do something ridiculously wasteful such as coating the library with gold, or stocking the shelves with extremely rare first editions of Steinbeck and Hemingway novels. Suppose the government tries to be conscientious, puts out bids to several reputable contractors, and has a modest library constructed for $400,000. Yet even if outside auditors or investigative journalists could find nothing corrupt or shocking about the process, the question would still remain: Was it worth it to spend $400,000 on building this particular library, in this particular location? The crucial point is that we know one thing for certain: No entrepreneur thought that he could earn enough revenues from charging for book borrowing to make such an enterprise worthwhile. We know this because the library didn’t exist until the government used its own funds to build it! One way to think about government expenditures is that they necessarily call forth the creation of goods and services that people in the private sector did not deem worth producing. When the government spends money, it directs resources away from where private spending decisions would have steered them, and into projects that would not be profitable if private entrepreneurs had produced them relying on voluntary funding. Thus the political authorities in an interventionist economy face one-half of the socialist calculation problem. … The government in essence is a giant distributor of charitable donations. Even those citizens who welcome the concept should ask themselves: Why do we need to route our donations through the political process? Why not decentralize the decisions and allow each person to donate his or her funds to the various charities that seem most worthy? … Regardless of its possible benefits, government spending suffers from the calculation problem afflicting socialism. The system allows a select group of political authorities to override the input of private individuals in how (some of) their property should be used to steer resources into various projects. This is a very serious drawback for anyone who favors interventionism as a way to increase the “general welfare,” however defined.

    Kansas income is growing. While still lower than its peak in 2008, wage and salary income in Kansas is on the way up, and has been throughout 2010.

    iPhone screen

  • Kansas and Wichita quick takes: Wednesday March 23, 2011

    Health information campaign. What happened to an all-star group that was to promote President Obama’s health care plan? Politico reports: “Democrats are under siege as they mark the first anniversary of health care reform Wednesday — and they won’t get much help from the star-studded, $125 million support group they were once promised. Wal-Mart Watch founder Andrew Grossman unveiled the Health Information Campaign with great fanfare last June. … But nine months later, the Health Information Campaign has all but disappeared.”

    Eisenhower book author to speak in Wichita. At this Friday’s meeting (March 25) of the Wichita Pachyderm Club, David A. Nichols, Ph.D. will speak on his new book Eisenhower 1956: The President’s Year of Crisis — Suez and the Brink of War . Nichols is formerly of Southwestern College in Winfield. Copies of the new book will be available for purchase at the meeting. The public is welcome and encouraged to attend Wichita Pachyderm meetings. For more information click on Wichita Pachyderm Club. … Upcoming speakers include Derrick Sontag of Americans for Prosperity on April 1, Deputy Public Defender Jama Mitchell on April 8, Kansas Senator Chris Steineger on April 15, Friends University Associate Professor of Political Science Russell Arben Fox on April 22, and Wichita State University Political Scientist Ken Ciboski on April 29.

    Kansas agencies mum on travel spending. From Kansas Policy Institute: “State agencies, boards and universities in Kansas claimed they did not have to disclose details on $21.4 million in spending on various forms of travel and entertainment in FY 2010, according to a Kansas Policy Institute (KPI) analysis of the state’s checkbook.” According to KPI president Dave Trabert: “$39 million is a lot to spend on travel in any year, and especially so when some agencies say they are being forced to cut services. Maybe the Kansas Bureau of Investigation needs some discretion when conducting investigations, but the breadth and volume of these confidentiality claims are incomprehensible.” While the Kansas Open Records Act (KORA) has many categories of information that are exempt from disclosure, agencies have discretion as to which information to disclose. None of the exemptions mention travel. Says Trabert: “State checkbook records don’t indicate which exemption from disclosure is invoked on travel spending, but disclosing the names of hotels, airlines and restaurants that received taxpayer money would not be an unwarranted invasion of anyone’s personal privacy. It is, however, an unwarranted invasion of taxpayers’ right to not know how their money is being spent and state law should be changed to eliminate gaping loopholes in KORA.” … I’m really curious to learn more about this finding: “KPI’s review of state travel records also found many examples of the vendor being listed as the agency or university itself rather than the actual vendor that provided the service.” … KPI’s press release is at State Agencies Claim Confidentiality on Travel Spending.

    Kansas wind energy jobs. Again we find that the promise of green energy projects being an economic development driver is overplayed. In “Goal of many more ‘green’ jobs is elusive” (February 14, 2011 Kansas City Star) we find the same skepticism that most now see justified regarding ethanol is applicable to wind power: “‘We need to temper our expectations on wind energy,’ said David Swenson, an Iowa State University economist known for deflating the ethanol industry’s job claims. Now, he says, the same ‘environment of hype’ is developing around wind power.” It’s been good for China, though: “… more than 80 percent of $1 billion in federal stimulus grants for wind projects went to foreign countries. One of the projects, a $1.5 billion wind farm in Texas, expected to collect $450 million in stimulus money — but use wind turbines made in China.” The counting of a job as “green” is highly suspect, as the article notes: “Kansas officials have trumpeted that the state already has 20,000 green jobs — and hopes for 10,000 more, many from manufacturing and assembly work for generating wind power. But so far, most of the jobs in that count by the state Department of Labor have been around for years, including carpenters installing energy-efficient windows and plumbers putting in toilets that don’t use much water. Even maids, if they use green products, are classified as green-collar workers.” … Wichita Mayor Carl Brewer promotes manufacturing of wind power machinery as good for Wichita’s economic development, and Kansas Governor Sam Brownback supports renewable energy standards for Kansas.

    The role of profits and losses. From Robert P. Murphy, Lessons for the Young Economist: Many naïve observers of the market economy dismiss concern with the “bottom line” as a purely arbitrary social convention. To these critics, it seems senseless that a factory producing, say, medicine or shoes for toddlers stops at the point when the owner decides that profit has been maximized. It would certainly be physically possible to produce more bottles of aspirin or more shoes in size 3T, yet the boss doesn’t allow it, because to do so would “lose money.” On the other hand, many apparently superfluous gadgets and unnecessary luxury items are produced every day in a market economy, because they are profitable. Observers who are outraged by this system may adopt the slogan: “Production for people, not profit!” … Such critics do not appreciate the indispensable service that the profit and-loss test provides to members of a market economy. Whatever the social system in place, the regrettable fact is that the material world is one of scarcity — there are not enough resources to produce all the goods and services that people desire. Because of scarcity, every economic decision involves tradeoffs. When scarce resources are devoted to producing more bottles of aspirin, for example, there are necessarily fewer resources available to produce everything else. It’s not enough to ask, “Would the world be a better place if there were more medicine?” The relevant question is, “Would the world be a better place if there were more medicine and less of the other goods and services that would have to be sacrificed to produce more medicine?” … Loosely speaking, the profit and loss system communicates the desires of consumers to the resource owners and entrepreneurs when they are deciding how many resources to send into each potential line of production. … In a market based on the institution of private property, profits occur when an entrepreneur takes resources of a certain market value and transforms them into finished goods (or services) of a higher market value. This is the important sense in which profitable entrepreneurs are providing a definite service to others in the economy.