Voice For Liberty

Category: Kansas state government

  • Kansas job loss claims seem not to add up

    kansas-city-star-2013-10-10

    The Kansas City Star carried a story about Kansas jobs and unemployment. The claim was made that “Put another way: Kansas has lost more than 8,800 jobs this year.”

    paul-davis-facebook-2013-10-10

    Kansas Representative Paul Davis, a Democrat who has said he will run for governor next year, linked to the article on his Facebook page and made a statement based on the job loss claim, writing “Kansas has lost nearly 9,000 jobs in 2013.”

    I don’t know what data the Star reporter relied on, or what computations he made. I gathered statistics from the Kansas Department of Labor. I’ve made them available here, and a chart is below.

    Job levels can be seasonally adjusted, or not. Using the seasonal data, total non farm employment in Kansas rose from 1,366,900 in January to 1,372,000 in August, the last month for which data is available.

    Using the not seasonally adjusted data, jobs rose from 1,347,800 in January to 1,361,900 in August.

    Maybe the reporter used a different range of dates. I don’t know. If we use the not seasonally adjusted job count from December 2012, which is 1,376,300, the job count in August is less, but by a number not close to the number in the story. Using the seasonally adjusted number for December 2012 produces a gain of jobs since then.

    kansas-job-levels-2013-10-10

  • Kansas job levels

    visualization-example-smallHere’s an interactive visualization of Kansas statewide job levels. Data is monthly, seasonally adjusted, with numbers in thousands.

    Data is from the Bureau of Labor Statistics of the U.S. Department of Labor. Visualization created by myself using Tableau Public. Use the visualization below, or click here to open it in a new window, which will probably work better in most cases.

  • Anderson, former Kansas budget director, speaks

    Last Friday former Kansas budget director Steve Anderson spoke to members and guests of the Wichita Pachyderm Club. Two videos are available, a highlights version and full version. View below, or to view on YouTube, click here for highlights or here for full version.

    Also, it was announced on Friday that Anderson would be joining Kansas Policy Institute in the role of senior adjunct fiscal policy fellow. For more on this from KPI, see Former state budget director Steve Anderson joins Kansas Policy Institute.

    Highlights video

    Full speech

  • In Kansas, politics may now cure its own harm

    I don’t care who does the electing so long as I do the nominating.
    — William “Boss” Tweed, political boss of Tammany Hall

    Critics of Kansas Governor Sam Brownback point to his nomination of a confidant to the Kansas Court of Appeals as evidence of politics trumping the — purportedly — merit-based selection process formerly in place.

    The previous process, however, was nothing if not political. Its defenders — the state’s legal profession — denied that, but they were in charge of the process.

    In fact, the reason that Caleb Stegall, the current nominee, is not already on the bench is politics.

    Stegall’s recommendation from Felita Kahrs, a member of the Supreme Court Nominating Commission, highlights both his judicial qualifications and the political challenge he may face as a nominee. Ms. Kahrs previously reviewed Stegall’s application for the Kansas Court of Appeals, and her recommendation says that she found that his “outstanding academic background, his excellent writing ability, and the experience he brings to this position, exceeded and in some cases far surpassed the other applicants.” Even though she believed that he “was one of the top candidates that appeared before the Commission,” she explained, “due to politics, his name was not submitted.”

    That’s from National Review Online’s Bench Memos.

    And if you’re wondering why so many will criticize this appointment and the new process, well, “hell hath no fury like a lawyer scorned.”

  • Business tax credits more desired than zero tax rates

    Economic developmentA Kansas business welfare program is more attractive and valuable than elimination of the Kansas corporate income tax, at least for some influential corporations in Kansas. The program is High Performance Incentive Program (HPIP), which grants tax credits in exchange for capital investment.

    In April Dr. Art Hall of the Center for Applied Economics at the Kansas University School of Business delivered a presentation on Kansas tax reform, and he explained the situation (video here):

    There is something called an HPIP investment tax credit. It stands for High Performance Incentive Program. This is a very valuable tax credit to corporations. But, you don’t get it automatically. You have to apply to the state. Only about 100 or 125 of these credits are given out each year. It’s about $50 to $60 million per year. It’s a very large number. Back in 2011, … the plan was to get rid of all of these special deals, especially this one credit, and we’re going to reduce all the rates.

    The corporate sector — some very influential people in the corporate sector — did not want that at all. They went to the mat, hard. … The point is, there was an effort to reduce corporate income tax. The corporations, at least a very strong constituent sector, didn’t want it. They wanted their credit.

    In other words, the business welfare benefits these corporations — many thought to be in the aerospace industry — receive from the state is greater than the Kansas income tax they pay. That’s the only conclusion we can draw from their choice of favoring the HPIP credits over elimination of their Kansas income tax.

    A table from Hall’s paper Embracing Dynamism: The Next Phase in Kansas Economic Development Policy holds calculations that reveal this effect.

    hpip-credits-example-2013-07

    The 11.92% that is highlighted in yellow shows the deformation of the business investment and tax landscape that causes some corporations to prefer HPIP tax credits over zero tax rates. Each row in the table represents a different scenario, one being retaining the HPIP credit. Columns represent various amounts of investment. It is in the column for the largest amount of investment that HPIP is most valuable, based on expected rate of return for the investment. HPIP is also more valuable than the strategy in any other row, considering the large investment column. HPIP, we can see, favors large corporations over small, as it is most valuable when making large investments.

    A problem, as Hall told the audience in the video, is that the HPIP is not given automatically to all companies that make capital investments. The credit must be applied for, various conditions must be met, and approval received.

    This system of selecting which companies receive targeted economic development investment in Kansas is contrary to market principals. The state, rather than markets, is making investment decisions. It’s also contrary to Hall’s economic dynamism concept explained in the paper referenced above. In this idea, the goal of the state is to encourage a large number of business startups each year, and then nurture conditions where all have a chance to thrive. Many will not survive, but some will. We don’t know which firms will thrive, so it’s important to treat all firms equally and give all a chance.

    Programs like HPIP are contrary to this philosophy, and instead concentrate the state’s investments in existing, often large, companies — the companies that make the large capital investments for which HPIP returns the most favorable financial results. This is also an illustration of the difference between a business-friendly environment and capitalism.

  • Sedgwick is a red county in a pink state

    Translation: Sedgwick County is bleeding income.

    This is according to IRS and U.S. Census Bureau data examined by Travis Brown and presented online at HowMoneyWalks.com. This is a website that is companion to the book How Money Walks — How $2 Trillion Moved Between the States, and Why It Matters.

    According to the publisher:

    Between 1995 and 2010, millions of Americans moved between the states, taking with them over $2 trillion in adjusted gross incomes. Two trillion dollars is equivalent to the GDP of California, the ninth largest in the world. It’s a lot of money. Some states, like Florida, saw tremendous gains ($86.4 billion), while others, like New York, experienced massive losses ($58.6 billion). People moved, and they took their working wealth with them. The question is, why? Why did Americans move so much of their income from state to state? Which states benefited and which states suffered? And why does it matter? Using official statistics from the IRS, How Money Walks explores the hows, whys, and impact of this massive movement of American working wealth.

    sedgwick-county-money walks-2013-07

    Kansas, as a state, lost $3.15 billion in income during the period covered by the book. That colors Kansas a moderate shade of pink on a map of all states. Pink, or red, in this case, means like it does in accounting: A loss of money.

    Looking at a map of Kansas counties, we see that Sedgwick County is a bright shade of red. From 1992 to 2010, Sedgwick County lost $1.12 billion in annual AGI (adjusted gross income).

    To put these numbers in perspective, in 2009 AGI in Kansas was $61.7 billion, and in Sedgwick County, $10.6 billion. So Sedgwick County has lost some ten percent of its income. And that’s on an annual basis.

  • How to grow the Kansas economy

    In this 14 minute video from April, Art Hall, who is Director of Center for Applied Economics at Kansas University, talks about how to grow the Kansas economy.

    An important takeaway is that our targeted economic development strategies can’t handle the volume needed to create a lot of jobs in Kansas. We need policies that apply uniformly, so that we can generate as many business start-ups as possible. Of these start-ups, some will grow rapidly, but we don’t know the identities of these companies in advance.

    For more about these ideas, see Hall’s paper Embracing Dynamism: The Next Phase in Kansas Economic Development Policy.

  • Westar rate increase contains business welfare

    electric-metersThe rate increase that Westar Energy has applied for contains a large dose of discretionary business welfare spending. Westar, in conjunction with out current economic development machinery, will be allowed to grant discounts on electricity to new businesses. A current program exists, but Westar says it doesn’t offer the flexibility Westar needs.

    Following is an excerpt from testimony Westar submitted to the Kansas Corporation Commission. I’ve added emphasis:

    Q. HOW WILL THE FIRST COMPONENT OF PROMOTE KANSAS WORK?
    A. The economic development portion of the proposal would permit Westar, at its option, to provide economic development assistance in the form of discounted electric service to new customers and existing customers with planned expansions if three conditions are met: (1) the customer adds new jobs to its work force, (2) the customer brings new capital equipment and plant to a new or expanded facility and (3) the economic development effort is supported and backed by a state organization such as the Kansas Department of Commerce or a local economic development organization.

    Q. HOW WILL PROMOTE KANSAS PROVIDE WESTAR WITH FLEXIBILITY TO ADDRESS ECONOMIC DEVELOPMENT NEEDS ON A CASE-BY-CASE BASIS?
    A. If approved, Promote Kansas will allow Westar to adjust the economic incentive — in the form of reduced electric rates — provided to a customer based on the circumstances involved. This is a change from Westar’s existing EDR, which provides for a fixed percentage discount of 25 percent to the customer’s electric bill in the first year. The incentive credit declines by five percent per year over a mandatory five year period. After the fifth year of service, the customer pays the full cost of their electric service. Westar has no flexibility to adjust the amount of the incentive credit level or duration under the current EDA.

    We believe that the fixed percentage under the existing EDA is too rigid. In some situations, the customer may not require the entire 25 percent reduction in its electric bill, or a full five years of reduced electric rates, in order to move forward with an expansion or relocation to Kansas. In these cases, the rigidity of the existing EDA tariff results in either contributing more than needed to attract the new customer or encourage the expansion, or not offering the incentive at all. The current EDA tariff was developed over a quarter century ago, tailored to specific circumstances that no longer exist. It was based on past exigencies, and it is time to revise it to meet today’s priorities and business environment.

    Promote Kansas would contain a variable incentive credit. If Westar decides to provide the incentive credit to a customer, it would range from five percent to 25 percent the first year and would then decline over no more than a five-year period. This will allow Westar flexibility to determine how much incentive is necessary to attract the new customer or the expansion. Westar will be able to actively participate in negotiations with potential new businesses along with other economic development organizations in order to develop the best package of benefits for the customer’s specific situation.

    We need to be concerned with this part of Westar’s application. This language — at its option … based on the circumstances involved … variable incentive credit … this will allow Westar flexibility — gives huge discretion to Westar to decide how much customers will pay for electricity.

    Westar is not a government agency, but as a tightly regulated entity, it’s almost like government. It exercises the type of monopoly power that few outside of government do: It holds a near-monopoly on the delivery of a product that almost everyone wants and needs. With few exceptions, households and business firms can’t negotiate with Westar on their electric rates.

    Therefore, when Westar offers — at its discretion — lower electric rates to some customers, others must necessarily pay more. Testimony to this effect was offered by Westar.

    If we could be certain that the goals of this program would be realized, that would be one thing. But as a quasi-governmental entity, Westar suffers from the same knowledge problem as does government, especially regarding targeted investment programs like that proposed in this new rate structure. These actors believe that they have the ability to select which companies are worthy of public investment, and which are not. Really, it’s even a larger decision, as all other Westar customers have to pay for the investment decisions that will be made.

    This rate plan implements a form of centralized planning by the state that shapes the future direction of the Kansas economy. We have to decide who is in the best position to make these decisions: Regulators and utility company executives, or the diverse market where thousands of business firms freely compete for voluntary investments to be made.

    Arnold Kling has written about the ability of government experts to decide what investments should be made with public funds. There’s a problem with knowledge and power:

    As Hayek pointed out, knowledge that is important in the economy is dispersed. Consumers understand their own wants and business managers understand their technological opportunities and constraints to a greater degree than they can articulate and to a far greater degree than experts can understand and absorb.

    When knowledge is dispersed but power is concentrated, I call this the knowledge-power discrepancy. Such discrepancies can arise in large firms, where CEOs can fail to appreciate the significance of what is known by some of their subordinates. … With government experts, the knowledge-power discrepancy is particularly acute.

    Despite this knowledge problem, the Kansas Corporation Commission is considering giving Westar the very type of power that ought to be left to markets. For this reason, KCC should reject Westar’s rate increase application until this program, and the program it is intended to replace, are eliminated.

    The full rate application is available at Docket 13-WSEE-629-RTS: Application of Westar Energy and Kansas Gas and Electric Company Charges for Electric Service. A public hearing is scheduled tonight in Wichita; see Westar electricity rate hikes.

  • Kansas bonds downgraded; economic development programs imperiled

    money-bag-struggleMoody’s Investor Service has downgraded the credit rating of a series of bonds that Kansas uses to fund an economic development program. The program is IMPACT (Investments in Major Projects and Comprehensive Training), which provides financial benefits to companies locating to or expanding in Kansas.

    The problem is that the state borrows money to give to companies, and uses the withholding taxes of these companies’ employees to repay the bonds. So what happens if the state reduces — or eliminates — the personal income tax? Moody’s explains:

    Because IMPACT program bonds are backed by a statutory allocation of revenue from income tax withholding, efforts to eliminate the state income tax without defeasing the debt or substituting a new revenue source will expose bondholders to risks greater than previously anticipated. IMPACT debt has historically been supported by steadily growing revenues from a source that was broad-based and important to the state’s continued operations. Last year’s major income tax rate reductions, followed by additional cuts this year, constitute what we expect to be a trend of repeated cuts in the revenues pledged to these bonds. The final maturity on the IMPACT bonds is 2023, by which time Kansas may have fully removed the income tax. So far, there is no assurance the state will allocate revenue from a different source or take other steps protect bondholders. (Moody’s downgrades Kansas Department of Commerce IMPACT bonds to A3 from Aa3)

    I don’t think there’s much likelihood that the state will fail to pay these bonds fully as payments become due. Even though the spending that produced this debt, in my opinion, is ill-considered, it’s still an obligation of the state.

    But in a blog post, the Wichita Eagle editorial board could barely conceal its glee that a State of Kansas program might encounter difficulties during the Brownback regime. That’s because income tax rates have been reduced, and will fall farther. This threatens the government spending that the Eagle editorialists favor over private-sector spending.

    Besides this one Kansas spending program, others will probably also be affected by lower income tax rates. Another economic development program Kansas uses is the Promoting Employment Across Kansas (PEAK) program. Administered by the Kansas Department of Commerce, the program allows qualifying companies to retain 95 percent of the state income withholding taxes their employees pay.

    It’s a roundabout method of distributing corporate welfare that allows companies — and gullible or self-serving politicians — to pretend as though this program has no cost, or that companies are in fact investing their own money.

    What’s interesting is that the money paid to companies is based on the withholding of employee taxes, not actual taxes paid. Withholding is just an estimate. At the end of the year employees file tax returns to compute their actual tax liability. Based on the difference between withholdings and liability, the state may issue a refund (or maybe the employee owes more).

    It’s common for people to receive tax refunds. For employees that work for companies participating in PEAK, their tax withholdings (less five percent) have already been spent by the state in the form of economic development incentives. Their refunds have to be funded in some other way.

    Other government spending programs will be affected, too. Historic preservation tax credits are used to funnel millions to developers in downtown Wichita, for example. These credits have value only as long as someone owes income tax (or similar taxes paid by financial institutions) to the state. If there are no income taxes, these tax credits have no value.

    This is all good. It’s great that tax rates are falling. It’s also good that the state loses some of its tools for dishing out business welfare. With programs like PEAK and tax credits, the legislature authorizes the program by passing a law. After that, the programs function on auto-pilot. Companies apply for the benefits, and then either automatically or at the discretion of the bureaucracy, applications are approved and benefits flow.

    This leads to systems with little accountability. Expenditures are barely noticed. The normal basis for justifying taxation is threatened. Employees that work at PEAK companies might look at the Kansas tax withheld on the paychecks and rationalize “Well, at least it’s going for the kids’ schools or some other beneficial purpose.”

    No. Their withholding taxes are being paid (less five percent) to their employer.

    Without these tax expenditure programs, legislatures would have to pass specific bills to spend taxpayer money. Can you imagine if the State of Kansas passed a bill to give $3.5 million in taxpayer credits to developers of a luxury hotel in downtown Wichita? Citizens would look at things differently. They’d wonder why we’re spending this way. Using semi-mysterious mechanisms like PEAK and tax credits shrouds the true economic transactions taking place.