Voice For Liberty

Category: Kansas state government

  • Kansas transportation bonds economics worse than told

    Kansas transportation bonds economics worse than told

    The economic details of a semi-secret sale of bonds by the State of Kansas are worse than what’s been reported.

    The late realization last year that the Kansas Department of Transportation had issued $400 million in long-term bonds — largely under the radar — has been met with appropriate levels of indignation by some editorial writers. An example is Dr. Edward Flentje who wrote:

    Right-wing Republican lawmakers have operated under the radar to suspend all statutory limits on highway debt, and that unprecedented authority was recently used to issue record-breaking levels of long-term debt to pay for their reckless income tax cuts this year and next.

    Six lines buried deep in a 700-page appropriation bill last spring gave the Kansas Department of Transportation unlimited authority to issue debt, and in early December, without public disclosure, the agency used that authority to issue $400 million in highway bonds. (H. Edward Flentje: Debt limits suspended to pay for tax cuts, Wichita Eagle, December 18, 2015)

    A few notes: The Secretary of Transportation has, in the past, been given broad — but maybe not “unlimited” — authority to issue bonds and borrow money. The series 2012C bonds were issued with this statement: “The 2010 Act Amendments authorized the Secretary to issue highway revenue bonds so long as the Secretary certifies that, as of the date of issuance of any such bonds, the maximum annual debt service on all Outstanding Bonds and on such bonds proposed to be issued will not exceed 18% of Revenues projected for the then-current or any future Fiscal Year.”

    In 2010 Kansas had a Democrat for a governor, which should caution us to not make this issue too political. As far as borrowing from the “Bank of KDOT,” it’s been done before, as explained in 2015 by KDOT. 1 And, payments on these loans have been deferred or not made.

    Instead of politicizing the issue, let’s concentrate on the facts and merits. And when looking at the Series 2015B bonds, there is plenty to criticize.

    KDOT outstanding bonds, showing interest-only issues. Click for larger version. Does not include Series 2015B bonds.
    KDOT outstanding bonds, showing interest-only issues. Click for larger version. Does not include Series 2015B bonds.
    First, the state will not pay any principal on these bonds until 2026. Until then the state will pay only the interest on the $400 million, which is $20 million per year. Then, starting in 2026, the state will make 11 annual payments of various amounts towards the principal. In all, KDOT’s schedule shows the state will pay $282,494,750 in interest on a loan of $400 million.

    I don’t think that most Kansans would appreciate the state borrowing so much money for such a long time without making any effort at retiring the principal. But before we politicize: The KDOT Series 2010A bonds ($325 million, dated September 1, 2010) don’t require principal payments until 2032. (These bonds are “Buy America Bonds,” a program of the 2009 American Recovery and Reinvestment Act, and the federal government will pay 35 percent of the interest.) The plan, as outlined in KDOT’s official statement, is that starting in 2032 the state will make five annual payments of between $61 million and $69 million, totaling $325 million, and then the bonds will be retired. 2

    There’s even more to criticize about the 2015B bonds. The actual proceeds the state will receive from the bonds (after costs of issuance and the underwriters’ discount) is $488,242,912. How, you may be asking, can the state issue $400 million in bonds but receive $488 million when it sells them? The answer is an “original issue premium” of about $89 million.

    To explain: Bonds similar to these ought to yield in the range of 2.00 percent to maybe 2.75 percent. But, KDOT is paying 5.00 percent interest. Therefore, bond buyers are willing to pay more than the face value (the $400 million) for these bonds, because they will be earning higher-than-market interest. 3 In fact, these bonds were sold at premiums ranging from 119 percent to 126 percent. Meaning that for every $1.00 worth of bonds bought (representing money the state must repay), the state actually received from $1.19 to $1.26. 4

    That sounds like a good deal for the state, but in exchange for the premiums, the state pays much higher interest. There are several different ways of looking at this, but the upshot is that the state is receiving additional money now in exchange for paying a higher interest rate for many years. About $89 million in extra interest, which increases the actual cost of these bonds beyond what we thought.

    (Again, before we politicize, the state under a Democratic governor has done the same.)

    The allure of borrowing large sums and spending now is not limited to transportation bonds. The state is currently using the recent $1 billion in proceeds from KPERS bonds as a rationale to skip KPERS contributions this year, and also suspend a rule that most proceeds from the same of surplus property goes to KPERS. See This is why we must eliminate defined-benefit public pensions.

    —
    Notes:

    1. FY 2002 Loan to State General Fund. The 2002 Legislature borrowed $94.6 million from the State Highway Fund for the State General Fund and directed that the funds were to be repaid to the State Highway Fund by June 30, 2003. The 2003 Legislature deferred the repayment of the $94.6 million loan into four equal annual installments beginning prior to June 30, 2007. In addition, the 2003 Legislature directed that the State Highway Fund transfer to the State General Fund $30.6 million for activities of the State Highway Patrol and the 2003 Legislature directed that this transfer also be repaid in four equal annual installments beginning prior to June 30, 2007. The first repayment installment was made in June 2007 and the second in June 2008. The 2009 Legislature delayed the June 2009 repayment to June 2011 and the 2010 Legislature eliminated the language authorizing the June 2011 repayment. At this time, there is no authorization for the final two repayments. The Department’s projections included in this Official Statement do not include receiving the final two repayments. ↩
    2. EMMA (Electronic Municipal Market Access), $325,000,000 State of Kansas Department of Transportation Taxable Highway Revenue Bonds, Series 2010A at emma.msrb.org/EA407275-EA318568-EA714328.pdf. ↩
    3. A bond will trade at a premium when it offers a coupon rate that is higher than prevailing interest rates. Investopedia at www.investopedia.com/terms/p/premiumbond.asp. ↩
    4. EMMA (Electronic Municipal Market Access), $400,000,000 State of Kansas Department of Transportation Highway Revenue Bonds Series 2015B at emma.msrb.org/IssueView/IssueDetails.aspx?id=EP369775. ↩
  • This is why we must eliminate defined-benefit public pensions

    This is why we must eliminate defined-benefit public pensions

    Actions considered by the Kansas Legislature demonstrate — again — that governments are not capable of managing defined-benefit pension plans.

    The Kansas Legislature is considering a bill that will allow Governor Sam Brownback to defer making payments to KPERS, the state’s defined-benefit pension system for public employees. The deferred payments would be made up in future years, although there is really no mechanism to enforce this.

    Also, the bill considers eliminating the requirement that when the state sells surplus property, that 80 percent must be used to reduce the unfunded actuarial pension liability of KPERS. There is also a moratorium on employer contribution to KPERS Death and Disability fund, which is much smaller than the retirement fund.

    KPERS funded ratio through 2014That unfunded liability is a big problem. It refers to the difference between what KPERS expects to pay compared to the revenue it expects to receive. In recent years the Kansas pension fund has been among the worst in the country, based on the funded ratio. The nearby charts shows the trend of this funded ratio through 2014, the latest date for KPERS valuation reports.

    Last year the state issued $1 billion in bonds to address a portion of the unfunded liability. While this helps KPERS, it simply means that the state owes another billion dollars on a different balance sheet. But it’s the same taxpayers that will eventually pay.

    Barry Poulson, Ph.D., Emeritus Professor at the University of Colorado — Boulder has written on the danger of borrowing to shore up state pension funds. As explained below, there is the “lack of nexus between the investment of the bond proceeds and payments for unfunded liabilities in the plan.” This means that the borrowed funds may be used for current spending rather than for correcting the KPERS unfunded liability.

    He further explains: “If legislators see that additional funds are available to pay off unfunded liabilities in the pension plan they may choose to allocate less general fund money to meet these pension obligations.”

    This is what is happening in Kansas. The borrowing of a billion dollars has let legislators and the governor feel — incorrectly — that there is breathing room, and that the state can slack off making the contributions it should be making this year. This is highly irresponsible and reckless.

    Following, from Dr. Paulson:

    A major flaw in the proposed issuance of pension obligation bonds is the lack of nexus between the investment of the bond proceeds and payments for unfunded liabilities in the plan. The experience in other states is that sometimes bond proceeds are earmarked for other state expenditures. The most egregious example of this problem is the state of Illinois which issued $10 billion in pension obligation bonds and then used the proceeds to meet current expenditures rather than to pay off unfunded liabilities in the pension plan.

    Even if the state of Kansas would not commit this form of fraud on the taxpayers the fungible nature of state funding makes it impossible to guarantee the nexus between bond proceeds and the payment for unfunded liabilities in the pension plan. If legislators see that additional funds are available to pay off unfunded liabilities in the pension plan they may choose to allocate less general fund money to meet these pension obligations. The state has not allocated the annual required contribution (ARC) to KPERS for several decades and is not projected to do so for the foreseeable future. Legislators continue to promise pension benefits without allocating the funds required to meet these obligations. We should expect this moral hazard to be even greater with the issuance of pension obligation bonds.

    Even if the proceeds of pension obligation bonds could be set aside in a lock box and earmarked to pay off unfunded liabilities in the pension plan the state must still address the accumulation of unfunded liabilities in the defined benefit plan. Without fundamental structural change, including shifting public employees to some form of defined contribution pension plan, these unfunded liabilities will continue to accumulate. Legislators should not be diverted from this difficult task by non-reforms, such as the issuance of pension obligation bonds.

  • ACU rates the Kansas Legislature

    ACU rates the Kansas Legislature

    The American Conservative Union has released its ratings for the 2015 Kansas Legislature.

    In a press release, ACU said “This year’s ratings of the 2015 Kansas legislature by the American Conservative Union Foundation revealed that a little over a quarter of all Republican legislators are willing to do what it takes to defend the freedom of everyday Kansans. After an analysis of their voting records, ACU will recognize 36 members for their effort to work towards enacting conservative solutions.”

    ACU Ratings Kansas Legislature 2015 coverThe chair of ACU is Matt Schlapp, a former Wichitan and son of former Wichita City Council Member Sue Schlapp.

    According to ACU, the ratings are based on constitutional principles: “Like our Congressional ratings, ACU’s State Ratings reflect how elected officials view the role of government in an individual’s life. Kansas legislators with the strongest scores consistently voted with the ideals articulated in our U.S. Constitution.”

    ACU says these members will receive a 2015 ACU Ratings Award:

    Representatives: BRUNK, B. CARPENTER, CLAEYS, CORBET, COUTURE-LOVELADY, DeGRAAF, GARBER, GOICO, GROSSERODE, HIGHLAND, HILDABRAND, HOUSER, K. JONES, KELLEY, LUNN, MACHEERS, MASON, McPHERSON, POWELL, RHOADES, SCHWAB, SUTTON, THIMESCH, TODD, and WHITMER

    Senators: BAUMGARDNER, DENNING, LYNN, MELCHER, O’DONNELL, PILCHER-COOK, POWELL, PYLE, and SMITH

    The ACU press release is here, and the full report with vote explanations and rakings for all members is here.

  • Simple tasks for Kansas Legislature

    Simple tasks for Kansas Legislature

    In this excerpt from WichitaLiberty.TV: There are things simple and noncontroversial that the Kansas Legislature should do in its upcoming session. View below, or click here to view at YouTube. Originally broadcast January 3, 2016.

    (more…)

  • Spending and taxing in Kansas

    Spending and taxing in Kansas

    Difficulty balancing the Kansas budget is different from, and has not caused, widespread spending cuts.

    Across the state Kansas newspapers declare Governor Sam Brownback’s tax cuts a failure. There are two prongs of criticism. One is that the budget is not balanced; that is, the state is spending more than it has received in revenue. That has been true, especially for fiscal years 2014 and 2015. That problem can be fixed by either collecting more revenue, or by cutting spending. Last year the Governor and the Legislature decided to balance the budget by relying, almost entirely, on collecting more revenue. Raising taxes, in other words.

    The second prong of attack on the tax cuts is to hold them responsible for spending cuts. This is what really upsets the state’s liberals and moderates. Here’s an example. Former Kansas State Budget Director Duane Goossen recently wrote “The Brownback tax cuts brought the revenue stream down so significantly that truly damaging expense cuts coupled with a sales tax increase have not repaired the budgetary mess.” (emphasis added) (I will agree with Goossen that we have a problem with the budget, a problem that could be fixed with relatively small reforms in spending. But Goossen wants more revenue.)

    But have there been severe spending cuts in Kansas? “Truly damaging” cuts? While some programs have been trimmed, overall state spending continues on a largely upward trend (for all funds spending) or remains mostly flat (for general fund spending).

    Kansas General Fund spending, showing large deficits of revenue compared to spending in 2014 and 2015.
    Kansas General Fund spending, showing large deficits of revenue compared to spending in 2014 and 2015.

    So why are Kansas liberals and moderates upset? It is the spending of money by government that is important when considering how well the state is providing the services liberals and moderates (conservatives, too) look for government to provide. Taxation is merely one way to pay for government spending. And spending isn’t declining.

    Is this an important distinction?

    For the years when Kansas was spending down its bank balance, the state was experiencing the benefit of Washington-style deficit spending. That is, the state was spending more than it collected in revenue. The difference is that Kansas made up the revenue deficit by using savings rather than debt. (At least mostly so.)

    (Another difference between Kansas and federal spending is that Kansas can’t continue to borrow to support spending unless it engages in extraordinary measures, some of which may have happened. The federal budget, however, has been in a permanent state of deficit spending since 2000 and appears to remain in deficit for as far as anyone can project.)

    The takeaway is that problems with balancing the budget is not the same as spending cuts. We’ve had the former, but not the latter, when considering the entire budget.

    Nearby charts show Kansas government spending, from both the general fund and all funds spending. One chart shows total dollars spent, and one shows per-capita spending. Both are adjusted for inflation. On these charts it’s difficult to see where total spending has been cut or slashed in recent years. All funds spending continues its upward trend, with a few exceptions. General fund spending remains level or trending slightly upwards.

    Kansas Spending Adjusted for CPI 2016-01

    Kansas Spending, Per Capita, Adjusted for CPI 2016-01

    Notes for charts:
    Data is from Kansas Fiscal Facts 2015
    2015 through 2017 are approved figures, not actual spending
    2015 and beyond population are my estimates
    CPI is Consumer Price Index – All Urban Consumers, CUUR0000AA0

  • Kansas legislative resources, external

    Besides the official Kansas Legislature resources, there are also these:

    Twitter
    When tweeting about the legislature, most writers will use the hashtag #ksleg. To see these tweets, search for that. You don’t need a twitter account; just browse to twitter.com and use the search feature. To get the most results, click “Live” from the menu that appears.

    OpenStates.org
    OpenStates.org, a project of the Sunlight Foundation, makes legislative data available in a variety of formats.

    Advocacy groups and lobbyists
    Advocacy groups often create and publish much material about the legislature and Kansas government. Often these groups have an ideological stance that may color or influence their material. Some of these groups may report on the daily activity at the Capitol that affects their area of interest. Some leading examples:

    Kansas Policy Institute
    Kansas National Education Association
    Kansas Association of School Boards
    Americans for Prosperity

    Some lobbyists and organizations publish material that may be helpful. Examples include League of Kansas Municipalities and
    the law firm Foulston Siefkin with its weekly newsletter Kansas Legislative Insights (available on this page).

    Legislators
    Many legislators maintain an active presence online. It may be through an active website, email newsletters, Facebook pages, or Twitter feeds. Probably the best way to find these outlets for legislators is to use Google or your favorite search engine. Examples include Amanda Grosserode (sample newsletter here) and Stephanie Clayton (Facebook page here, Twitter feed here).

  • Kansas Attorney General Derek Schmidt

    Kansas Attorney General Derek Schmidt

    Kansas Attorney General Derek Schmidt
    Kansas Attorney General Derek Schmidt
    Kansas Attorney General Derek Schmidt spoke to members and guests of the Wichita Pachyderm Club on January 22, 2106. He addressed cases before the Kansas and United States Supreme Courts, including the Wichita marijuana case and the Carr Brothers appeal. This is an audio presentation.

  • Kansas highway conditions

    Kansas highway conditions

    Has continually “robbing the bank of KDOT” harmed Kansas highways?

    The long-time practice of transferring money from the state’s highway fund to the general fund — known as “robbing the bank of KDOT” — is criticized as being harmful to the condition of the state’s highways.

    Data from Kansas Department of Transportation shows that the condition of Kansas highways improved during the 1980s and 1990s. The highways have remained in a high level of condition since then.

    This is not to argue in favor of transferring highway funds, but to show that Kansas highways are not deteriorating as some alledge.

    Kansas percentage of pavement in good or very good condition 2015

  • Kansas efficiency study released

    Kansas efficiency study released

    An interim version of a report presents possibilities of saving the state $2 billion over five years.

    This week the Kansas Legislature received an interim version of the efficiency report it commissioned last year. Said by its creators to involve a team of more than 40 professionals who devoted over 6,000 hours, it is described as an “in-depth analysis of the operations of [participating state] agencies.”

    The bottom line is this: “This report includes 105 recommendations which cumulatively would provide $2.04 billion in benefits to the State over the next five years.”

    Undoubtedly this report will be the subject of discussion and debate over the next few years. It is through that process we will discover which recommendations are feasible, and more importantly, which are within the realm of political possibilities.

    It’s important to place this report in context. In 2012 the legislature reduced tax rates. While some, perhaps many, do not like the way the tax cuts were distributed, a central fact remains: The cuts were designed to leave more money in the private sector. Therefore, state government needed to shrink in order to match the lower revenue. But that did not happen. The governor and legislature were unwilling to make meaningful spending cuts. Instead, the state used its positive bank balance to support increased spending, and then in 2015 raised taxes.

    The question is this: Why didn’t the legislature initiate this efficiency study in 2012? Why did it wait until 2015? The authors of the study claim there is much savings to be had, more than what was needed to reconcile spending with revenue the past few years. But the last three years are now lost to time. If it’s true that the efficiency study will yield real savings, then the governor and legislature were three years late starting the process. There is no excuse for that, and all parties deserve criticism. The savings could have been used to reduce the burden of the state’s high sales tax on groceries for low-income families. The savings could have been used to tackle the waiting lists for social services. But these opportunities have been squandered.

    More context is that Kansas liberals and moderates almost universally condemn the study and its $2.6 million price tag. But if the study produces real savings, they can be used to fund items like the two mentioned in the previous paragraph, or for other spending programs liberals and moderates want.

    Finding a copy of the report online is not straightforward. Click here to view.