Voice For Liberty

Category: Kansas state government

  • Kansas Bioscience Authority hearings, day 2

    At the second day of testimony (January 26, 2012) regarding a forensic audit of the Kansas Bioscience Authority, a representative of Kansas Governor Sam Brownback was strongly critical of the audit itself, and also of the Board of Directors of KBA. Kansas Secretary of Agriculture Dale A. Rodman, who oversaw the audit process on behalf of the Brownback Administration, also said that legislators who voted to form the KBA should “feel outraged that a golden opportunity that you helped create was taken away from your efforts.”

    Rodman urged the committee to step back and look at the situation from a distance, saying that many of the issues are “deep and buried.” To him, he said the important issues are first, is the KBA obtaining the performance expected, and second, is the KBA worthy stewards of Kansans’ money?

    Based on his investigation, Rodman listed several measures that troubled him, specifically: “The KBA spent $200,000 per job before Tom Thornton and $700,000 per job after he became the CEO of the KBA.” Thornton is the former CEO who resigned shortly after the audit process started. At yesterday’s hearing, Senator Chris Steineger, a Kansas City Republican, presented figures that estimated a cost of $750,000 per job created, using a slightly different set of data.

    A second troubling measure, Rodman said, is that KBA spent “nearly 40 cents of every dollar invested on overhead expenses.” He said the KBA board must be responsible for these results.

    In a separate letter sent to KBA Board Chairman Dan Watkins, Rodman listed more detailed concerns, including that only 347 jobs are shown by KBA as having been created since 2007. Another concern, he said, is that there appear to be many instances of double counting of invested funds. He said that certain companies were not reporting as required, and some numbers were being “filled in.”

    Rodman said the expenditure of over $18 million for KBA headquarters was excessive, a concern shared by many legislators.

    What amazed Rodman, he said, was when acting KBA CEO David Vranicar told Rodman he was not there to create jobs. This, along with the earlier evidence he cited, showed him that KBA was not fulfilling the mission of the Kansas Economic Growth Act, the legislation that created KBA.

    In follow-up correspondence from KBA, Watkins cited the larger mission statement of KNA, and also that “the longer-term mission is more robust: to build a bioscience infrastructure that will generate high-paying bioscience jobs today and for future generations of Kansans.” Near-term job creation is not the sole focus, the letter added.

    Rodman also spoke about the conflict of interest issues, which were prominent in Wednesday’s hearings. BKD auditors said that KBA board followed policy by disclosing that they had a financial interest in a potential KBA investment or grant, and refraining from voting. But Rodman said that is not enough: “Whether or not it is legal is not the issue. It does not pass the smell test. If it smells bad, it is bad, and you should not do it.”

    Rodman cited the governing Kansas statute, which reads “No part of the funds of the authority shall inure to the benefit of, or be distributed to, its employees, officers or members of the board.” The statute has exceptions which do not apply in this case.

    Rodman, both in his verbal and written testimony, cited the case of KBA board member Bill Sanford. Quoting from the KBA audit, Rodman said “Bill Sanford is the COB and 14% owner of NanoScale, a bioscience company that received four grants totaling $674,996 from KBA.”

    Relating a discussion he had with Sanford, Rodman told the committee: ‘Director Sanford looked at me and said ” If you want to get something done, you have to hire someone like Thornton. If we had hired a laid-back Kansan we would not be where we are at today.’ You know, I have to agree with him, we would not be in this room today. With a good Kansan in charge we would not be having this meeting.”

    The issue of Thorton’s unethical behavior is at the center of this affair, with a related issue being whether Thornton’s departure solves all problems with the KBA, or if there is a deeper problem.

    Also highlighted by Rodman was the issue of missing intellectual property. This refers to the loss of data, along with backups of that data, on the so-called “J-Drive,” a shared and restricted storage location on KBA’s network. Thornton also erased and digitally scrubbed data from his personal laptop computer. Computer forensics experts were not able to recover any of this missing data.

    Rodman told the committee that the KBA board, immediately after learning that Thornton quit to go work for a competing firm (Cleveland Clinic Innovations), should have issued a “cease and desist” order, saying “This will inform the competitor that knowledge the employee has belongs to the former employer, and use of that information will result in legal action.” As he believes the KBA board did not do this, Rodman said he concludes “Kansas has lost intellectual property.”

    Summarizing, Rodman said that “Thornton was a mistake,” and that the KBA board should have recognized this. He urged the committee to fix the problem, as Kansas needs growth in the bioscience industry.

    Senator Susan Wagle, a Wichita Republican who chaired the meeting, noted the statute that Rodman cited regarding conflicts of interest, saying that it prevents board members or employees from receiving a financial benefit based on their position. The BKD audit, she said, cites many such instances of financial benefits, and in every instance the audit concludes that since board members disclosed their conflict was resolved, and that procedures are in place to prevent conflicts of interest.

    Of the BKD audit generally, Rodman said the document is complex, and “probably deliberately so.” Wagle, who has been concerned that the audit is “sanitized” and doesn’t present the full scope of issues and problems, asked “Could that be sanitizing conclusions?” Rodman demurred, answering “There was a lot of work on the report.”

    Senator Ty Masterson, a Republican from Andover, asked Rodman what needed to be changed at the KBA. Rodman said he wasn’t ready to answer that now, despite having thought about it. He did say there had to be some dramatic changes in the system.

    Masterson also asked about the costs of the audit: Did Thornton’s action in deleting data increase the cost of the BKD audit? Rodman said we should go after Thornton for possible increased costs of the audit.

    A question from Representative Les Osterman, a Wichita Republican, framed the issue this way: Do we need different or better rules and laws, or does the problem lie with the composition of the KBA board? Rodman answered that If the KBA board had done their job, we wouldn’t be here today. He repeated that there is a statute to take care of conflicts of interest, but there is a problem with the governance of the KBA board.

    Follow-up by Republican Senator Ray Merrick expressed concern that since Thornton, who he labeled a “bad apple,” is gone, the problem is over. But the same board is in place, the same people are in charge, and that he was not satisfied going forward.

    But not all members of the committee shared these concerns. Tom Holland, a Democratic Senator from Baldwin City, pressed Rodman as to whether intellectual property had actually been stolen from KBA due to the loss of data from the J-Drive and Thornton’s computer, or was there only the potential for that? Rodman said yes, intellectual property was taken, although that was not stated in the audit.

    Holland repeated his questions from yesterday: Does KBA have appropriate management procedures, policies, and controls in place? And does KBA follow these consistently? Snyder, the BKD auditor, had answered yes to both of these questions, although with one exception. Today, Holland pressed Rodman if he took “ownership” of the BKD audit. Eventually Rodman said he did. Holland then asked if the audit was “an accurate summary of life at the KBA.” Rodman said yes, but with qualifications, and Wagle expressed her concern, also.

    There is a factor not brought up in testimony, nor in my reading of the BKD audit report, that complicates the KBA governance and may be a source of problems. The KBA has an independent source of revenue that is not dependent on appropriations from the legislature. This source is the incremental growth in tax withholding from employees of Kansas bioscience companies and research institutions. I asked both Wagle and a spokesperson for Governor Brownback if this was a factor or a problem. Both said this is a question for the KBA.

  • For Kansas, spending is the other part of the equation

    Those who oppose tax reform in Kansas say we can’t compare Kansas to states like Texas and Florida, two states which have no state income tax. They point to special advantages these states purportedly have, such as oil or tourism revenue. Kansas has nothing like this, they say.

    But Kansas Policy Institute has released analysis indicating that there’s another reason why these states have zero income tax: they simply spend less.

    According to the KPI analysis (a one-page document available at Controlling Spending is the Secret to Low Taxes), “The secret to having a low tax burden is to control spending, and that’s exactly what [no income tax] states do.”

    Continuing, the study finds: “According to the National Association of State Budget Officers, the states with no income tax spent an average of $2,444 per resident (total state funds) in 2010; the rest of the country spent $3,572 per resident, or 46% more. Kansas spent $3,216 per resident, or 32% more than the states with no income tax.” In this context, “total state funds” excludes federal funds and expenditures from the sale of bonds.

    These findings parallel my research, which examined state spending using a different measure — total state spending, including federal funds. I concluded “… states with low or no income tax generally spend much less than Kansas. Using figures I compiled for 2010, Kansas state spending per person is $4,923, which ranks it 35th among the states. Only 15 states spend more than Kansas, on a per person basis. Texas, with no income tax, spends $3,703 per person. Florida, another state with no income tax, spends $3,300 per person.” (See Kansas spending is the problem.)

    Generally states that spend less tax less, and vice versa. Low state spending and taxing means that a state leaves more resources in the hands of the productive private sector, instead of burdening its citizens with an expensive and inefficient state government.

    For this year, Kansas Governor Sam Brownback has proposed only a slight reduction in general fund spending. Last year the Kansas Legislature lost three opportunities to reduce the cost of state government. Three bills, each with this goal, were passed by the House of Representatives, but each failed to make through the Senate, or had its contents stripped and replaced with different legislation. See In Kansas Legislature this year, opportunities for saving were lost.

  • Kansas Bioscience Authority

    The release of a forensics audit of the Kansas Bioscience Authority coupled with two days of joint committee hearings revealed an independent government agency out of control, an audit that draws conclusions described as sanitized of important details, and an agency and legislative supporters who believe that now, all is well at the KBA.

    Defenders and supporters of KBA rely on two facts: First, the source of many problems — former CEO Tom Thornton — is no longer at KBA. He has been criticized for overspending and his managerial style, and the audit found that he deliberately deleted and scrubbed data from his personal laptop computer. Data is also missing from a protected section of a KBA server.

    Second, the audit finds no major problems with KBA’s board of directors or its business policies, procedures, and controls.

    Regarding Thornton, Kansas Secretary of Agriculture Dale A. Rodman, who oversaw the audit process on behalf of the Brownback Administration, was strongly critical of the KBA board’s oversight of Thornton. He told a joint committee that the KBA board had not done its job, and that a “golden opportunity” for Kansas has been lost.

    As to policies and practices, it is apparent that the KBA board violated a Kansas statute governing the KBA that covers conflicts of interest and board members receiving financial benefits on behalf of companies they have ownership interests in. The audit, many times, says that board members may resolve a conflict of interest by disclosure and not voting.

    But the case of KBA board member Bill Sanford is an example to the contrary. Rodman said that a company he partly owns received KBA grants totaling $674,996. There appear to be many similar examples involving other KBA personnel and companies.

    These facts stand in contrast to conclusions drawn in the audit, which was conducted by BKD, LLP Forensics and Valuation Services on behalf of the KBA, although the Brownback administration, through Rodman, had some oversight. Senate Commerce Committee Chair Susan Wagle, a Wichita Republican who has been at the forefront of the KBA issue, has repeatedly described the audit’s conclusions as “sanitized.” I agree.

    Rodman, in his testimony, revealed a troubling attitude towards ethics that we often see in Kansas. He told the committee that former Governor John Carlin told him that KBA could not do business in Kansas with strict ethic rules because everyone in Kansas knows each other. And last year Carlin, as chairman of the board of KBA, appeared before a Senate committee to give a strong defense of CEO Thornton.

    Now we know differently. But Carlin — defender of Thornton, who is now widely recognized as a “bad apple” — still serves on the KBA board. The fact that there has been little turnover in the composition of the KBA board reveals that the board, along with KBA’s supporters, believe that little is left to be fixed, now that Thornton has left the building.

    Kansans deserve something better, however. If KBA is to continue, all board members should resign, and immediately.

    The audit and committee testimony also uncovered troubling facts about the performance of KBA in creating jobs. If we take away KBA’s largest success story, which accounts for half or more of the jobs KBA claims to be responsible for creating and which cost a small amount of KBA funds, we are left with the realization that the other jobs KBA created cost over $700,000 each.

    KBA defends itself by noting that it focuses on long-term nurturing of the bioscience industry in Kansas, and less on creating jobs in the near term. Long-term goals, however, are not the forte of government, and that may be why KBA was created as an independent agency with its own revenue stream not subject to annual legislative or executive branch appropriations.

    But that leads to another problem: Arrogance and indomitability. That is much in evidence at KBA. Furthermore, we can’t really say that KBA “invests,” as it is not subject to the same constraints that govern when businesses or individuals invest. These private actors can’t conscript their capital from the people of Kansas, as does KBA. Neither does KBA have to accept responsibility for losses.

    It would not be surprising to see legislation emerge to provide legislative or executive branch oversight and control over KBA. While that may improve KBA, we will still be left with the issue of the incompatible roles of government and private sector.

  • Kansas committee asks if KBA audit did enough to expose problems

    By Bob Weeks, Special to KansasWatchdog.org

    Members of the joint Commerce and Economic Development Committees expressed concern that a forensic audit of the Kansas Bioscience Authority was not broad enough and that deliberate deletion of data from a KBA computer left questions unanswered.

    On Wedesday James Snyder, managing partner for BKD’s Forensics and Valuation Services, told the committee that while his firm was hired and paid by KBA, Kansas Governor Sam Brownback’s administration was heavily involved. Secretary of Agriculture Dale Rodman served as the main contact for the Brownback Administration, although Caleb Stegall, the governor’s chief lawyer, and Steve Anderson, the Budget Director, also participated.

    Snyder told the committee the audit process was designed to avoid a situation where after the final report was released, people would ask why certain facts were not considered or covered. “This process was specifically designed to avoid that, and it worked pretty well,” he said.

    The Kansas Legislature created the KBA in 2004 and gave it $581 million to bring bioscience research and jobs to Kansas. KBA has been under fire for expenses and salaries paid to top executives and for giving grants to fund projects out of state.

    Any disputes about the report’s contents were ironed out by January, but on Sunday, the day before the report was to be released, Rodman raised a difference of opinion over a possible conflict of interest involving former KBA board member Angela Kreps. Snyder characterized this as the only difference of opinion, and that it was a narrow and minor one.

    Committee chair, Sen. Susan Wagle, a Wichita Republican, recognized that BKD’s position was “difficult,” as the firm was hired and paid by KBA, but it was also in frequent communication with the Brownback Administration. Snyder said the administration was involved in an oversight role, and also in defining the scope of the audit.

    Senator Ty Masterson, an Andover Republican, expressed concern over possible deletion of computer files and that BKD could only “dive into that which you had, that you were provided.” BKD’s timeline of the audit showed that KBA leadership was apprised of an audit on March 10th, 2011. The next day CEO Tom Thornton accessed a computer hard drive on KBA’s network. The drive was accessible to only four people and held personnel records and confidential company information.

    BKD was hired on April 11th, a fact Masterson said he found “fascinating” because KBA used a 30-day rolling backup scheme that would not have retained files deleted on or before March 10. The time lag from March 11th to April 11th means that if information was deleted from the J-Drive, it was not available to the BKD audit team.

    The timing of this is “highly suspect,” Masterson said.

    Snyder said the audit team had access to much information and that BKD received everything they asked for, but Masterson pointed out that we don’t know what might have been missing. Thornton’s personal laptop computer was erased or “wiped” days after the audit was called for in a way that made it impossible for the computer forensic team to recover the deleted data.

    Snyder said that the committee should have high confidence in the audit’s findings and that the number of people and computers the team had access to was in many cases “extraordinary.” He also said that core KBA business records had integrity and there was no reason to suspect these systems had been compromised.

    Masterson quoted from page 133 of the audit report: “Our analysis found 301 payments without a contract, including 102 payments that violated KBA’s Contract Policy. The total contract cost involved totaled $1,219,271.81 in payments without a contract, including $571,828.20 in payments which violated Contract Policy.”

    Masterson noted that there’s no indication anything was technically illegal, but that the purview of the committee went beyond that. “Why do we put policies in place? It’s so that we can show best practice, best stewardship. You have shown over 300 violations of policy … I don’t know how we can paint this in the light that this is instilling confidence, and that it is clearing the air.”

    Masterson also said that the best case seems to be that there was unethical management combined with inadequate oversight. He said there is the possibility of a coordinated cover up of behavior that could potentially be illegal.

    Snyder answered that over time they observed “increasing sophistication” of board participation and compliance with procedures and that there had also been changes initiated by the board that offered protection.

    Wagle said she received faxes from KBA employees expressing concern that the Senate Commerce Committee received altered documents. “It became very apparent that we could not rely on the information we were receiving,” she said. She asked Snyder if it was possible that documents were altered or erased so BKD did not see them.

    Snyder said that although one expense report was altered, there was no indication of a “systematic issue” of alterations or erasures.

    Wagle and Snyder disagreed over the extent of BKD’s contact with Wagle contending that it did not constitute an “interview” as claimed in the audit report.

    Democratic Senator Tom Holland asked Snyder two questions relating to whether KBA has business policies and procedures in place to effectively run the organization, and has KBA consistently followed these? Snyder answered yes, with very few exceptions. “We found a very high level of compliance.”

    Republican Senator Chris Steineger of Kansas City asked a series of questions regarding the mission of the KBA, which is, according to KBA “advancing Kansas’ leadership in bioscience” as well as creating investment and jobs in Kansas. Steineger expressed concern that much of KBA’s funding is spent on overhead, such as lawyers, architects, office buildings, travel, and dining.

    Steineger distributed a series of calculations based on KBA data in the audit that he said reveals that KBA made $265 million in commitments resulting in 1,347 jobs for a cost of $196,808 per job created.

    Steineger showed that removing the largest company from the mix — Quintiles, which created 1,000 jobs for a KBA contribution of $3.5 million — the remaining jobs cost more than $750,000 each.

    Senator Jeff Longbine, an Emporia Republican, mentioned that there had been criticism of the KBA for insider activities among board members, conflicts of interest, cronyism, and fraud and asked Snyder if these accusations were true. Snyder said these generalized accusations were not true, although there was one instance where there was “some technical violation of a conflict of interest rule.” He said that KBA is not “fraught with fraud or self-dealing.”

    The audit report also noted that KBA made regular use of executive sessions not open to the public and that, “No notes or recordings are made of Executive Sessions. This is a common business practice. Therefore, information discussed in Executive Session was not available for BKD’s review and could not be considered with regard to the findings of this report.”

    In response to another question, Snyder said that no changes were recommended to the Kansas Economic Growth Act, the legislation that created the KBA. There were some recommendations to KBA board policies and procedures.

    Wagle also noted that conflict of interest rules don’t really resolve conflicts. Generally, if KBA board members disclose that they have a conflict of interest — such as a company they have financial ties to getting a grant — they can refrain from voting to satisfy the rules. “To me, I don’t know if it’s okay with the people of Kansas,” Wagle said.

    The joint hearing will continue tomorrow with a presentation from Rodman.

    This article originally appeared on Kansas Watchdog.

  • Guide to Kansas legislative documents

    Following are some observations and links to documents and websites that help Kansans understand the activity of our Legislature.

    The Legislature’s Site

    The Kansas Legislature’s website at kslegislature.org was redone last year, and while there were many problems at that time, the site appears to be stable now, but some features are missing, and much data is missing.

    The Legislature’s site has rosters of members, lists of committees, lists of bills, journals (the daily record of proceedings in each chamber), calendars (the plan for the day, along with topics for upcoming committee meetings). Also: Audio broadcasts, which have surprisingly good sound quality.

    For an example of a missing feature, many of the pages on the site feature a small orange icon that some will recognize as the symbol for an rss feed. If you aren’t familiar with rss, that’s okay, as not many people are. But for those who use it, rss provides a very useful way to receive web content, or to be notified of the availability of new content. But on most of the pages on kslegislature.org, the orange rss icon is dim, meaning that feature is not available on this page. It is available on some pages, however.

    For missing data, there are many examples. For example, each committee has its own page. On these committee pages there are links for “Committee Agenda,” “Committee Minutes,” and “Testimony.” But in almost all cases — I haven’t looked at every committee’s page — there is no data behind these links. (Many committees have minutes available, but from last year.)

    It had been mentioned to me that perhaps this year committees would make available the written testimony provided by conferees. I haven’t seen this happen yet. This would be a relatively easy matter to accomplish and would be a great help to those following the legislature.

    Having committee testimony online would be extremely useful for those who attend hearings. Often there is only a limited number of printed copies of testimony available, so not everyone gets a copy. Since most committees require conferees to supply a certain number of printed copies of their testimony, committees could also require conferees to supply a pdf copy of their testimony in advance of the hearing. These pdf documents could be placed online before the committee hearing. Then, anyone with a computer, tablet (like an Ipad), or smartphone could have these documents available to them.

    This would not be difficult to accomplish. It would cost very little, perhaps nothing.

    Another example of missing data is on a page titled “Bill Reports” there are several reports which would be useful, but all hold data from last year only.

    Some of this information is available in the calendars and journals.

    There are useful features, of course. One is the “Current Happenings” link for both the House and Senate. This has a link to the bills that have seen movement in some way each day. The page for each bill is generally useful, too, with the steps in the bill’s history, along with links to the bill text, fiscal and supplemental notes, and other material. Fiscal notes — prepared by the Division of Budget — estimate the financial impact of a bill, while the supplemental notes — prepared by Kansas Legislative Research Department — contain background and explanatory information. When attempting to understand legislation, I look first to the supplemental note.

    Something else that’s lacking: Many websites have a mobile version that is optimized for handheld devices and tablets. This is especially true for those built on content management systems, as appears is the case for kslegislature.org. But the Kansas site does not have this, despite being only one year old.

    Kansas Legislative Research Department

    Kansas Legislative Research Department (KLRD) has many documents that are useful in understanding state government and the legislature. This agency’s home page is Kansas Legislative Research Department. Of particular interest:

    2012 Kansas Legislative Briefing Book. This book’s audience is legislators, but anyone can benefit. The book has a chapter for major areas of state policy and legislation, giving history, background, and explanations of law. In some years the entire collection of material has been made available as a single pdf file, but not so this year. Contact information for the legislative analysts is made available in each chapter. The direct link is 2012 Legislator Briefing Book — Individual Sections.

    Kansas Fiscal Facts 2011. This book, in 124 pages, provides “basic budgetary facts” to those without budgetary experience. It provides an overview of the budget, and then more information for each of the six branches of Kansas state government. There is a glossary and contact information for the fiscal analysts responsible for different areas of the budget. This document is updated each year, and the direct link to this year’s edition is Kansas Fiscal Facts 2011.

    Legislative Procedure in Kansas. This book of 236 pages holds the rules and explanations of how the Kansas Legislature works. It was last revised in November 2006, but the subject that is the content of this book changes slowly over the years. The direct link is Legislative Procedure in Kansas, November 2006.

    How a Bill Becomes Law. This is a one-page diagram of the legislative steps involved in passing laws. The direct link is How a Bill Becomes Law.

    2011 Summary of Legislation. This document is created each year, and is invaluable in remembering what laws were passed each year. From its introduction: “This publication includes summaries of the legislation enacted by the 2011 Legislature. Not summarized are bills of a limited, local, technical, clarifying, or repealing nature, and bills that were vetoed (sustained). However, these bills are listed beginning on page 178.” 204 pages. The direct link to this year’s version is 2011 Summary of Legislation.

    2011 Legislative Highlights. This is a more compact version of the 2011 Summary of Legislation, providing the essentials of the legislative session in 12 pages. The direct link is 2011 Legislative Highlights.

    Kansas Tax Facts, Eighth Edition. This book of 69 pages provides information on state and local taxes in Kansas. The eighth edition is from December 2010, and needs to be considered by readers along with the 2011 Supplement from December 2011. The direct links are Kansas Tax Facts, Eighth Edition and 2011 Supplement to the Eighth Edition.

    Kansas Statutes. The laws of our state. Click on Kansas Statutes.

    Kansas Legislative Division of Post Audit

    This agency, often referred to as “Post Audit,” provides auditing services to the Legislature of two types: Performance audits look at agencies and investigate their operations from the perspectives of efficiency and effectiveness. Financial audits examine whether accounting and financial systems and controls are working as they should. Some audits from last year included: “State Hiring Practices: Determining Whether Requirements Related to Veterans’ Preferences Are Being Met,” “Affordable Airfares: Reviewing the Benefits Claimed As a Result of State Funding to Lower Airfares,” and “State Agency Information Systems: Reviewing Selected Systems Operation Controls in State Agencies.” Audits generally have an accompanying highlights document that summarizes what may be a lengthy audit report. The link to the agency is Kansas Legislative Division of Post Audit.

  • In Kansas, the billion-dollar question

    The following argument in favor of the Fair Tax for Kansas is from Larry Halloran, who is Chairman of the Wichita — South Central KS 912 Group. Also included is a presentation by Earl Long of FairTaxKC. I particularly like his characterization of the Kansas statehouse as the “favor factory.”

    The Billion-Dollar Question

    By Larry Halloran
    Why would the State of Kansas ignore the opportunity to generate a $2.1 billion surplus for fiscal year 2013 in the State General Fund (SGF)?

    On Friday, January 20, a number of us attended the Senate Standing Assessment and Taxation Committee hearing in Topeka. It was both astonishing and obvious, from the questions that were not ask by the committee members, that they (individually or as a committee) had no real interest in considering any alternative to the Governor Sam Brownback’s tax reform proposal or plans they may have individually devoted time to crafting.

    At the turn of the last century, the United States was essentially debt free. Then in 1913, we provided Congress, by constitutional amendment, the authority to tax our income. With the new taxing authority in place, federal lawmakers would no longer need our advice and consent and the march to socialism was on. It would take the better part of the next hundred years to make the million-dollar question obsolete but once government reached the billion dollar spending mark the leap to a trillion dollars occurred in a relative flash. Today, the accumulated annual deficit of the current administration alone exceeds the combined cumulative total deficit of all previous administrations. In less than a decade, we would learn to speak in billions although we really cannot comprehend the quantity.

    Today, the million-dollar question equates to little more than pocket change lost in the couch cushions. Perhaps tomorrow, our children will be perplexed at our inability to comprehend such an insignificant amount as a trillion dollars.

    Unfortunately, Kansas, like most other states, simply mimics the deficit spending habits and taxation policies of the federal government and now finds themselves in the dubious position of operating its own favor mill, selecting winners and losers each year for receipt of the state’s shrinking revenue — a fact easily witnessed by the parade of interest groups present and providing testimony in order to protect their share of the pie. With federal tentacles burrowed deep in their hide, our governor and state legislators lack the fortitude to make a clean break with the federal schemes of taxation.

    Their plan does not mark an end to state sponsored charity but instead simply shifts state funds from one entitlement (the state earned income tax credit (EITC) for instance) to another (Medicaid) for the purpose of attracting more funds from the federal government. Drawn inextricably like a moth to a flame, our governor and legislators fail to appreciate that federal dollars are borrowed dollars that become a liability for future Kansas taxpayers. It is like paying the MasterCard bill with the Visa card. It provides only temporary relief for a chronic if not fatal problem.

    The FairTaxKC Triple Zero + 6.3% plan offers the governor and state legislators the opportunity to cut the shackles and make a clean break with the federal government and from the federal schemes of taxation without cutting a single dime from their current projected expenditures.

    The FairTaxKC Triple Zero + 6.3% plan would replace all current methods of taxing goods, personal and business income with a single rate consumption tax on services and new products at the Point of Sale only, with zero exceptions or exemptions.

    The FairTaxKC Triple Zero + 6.3% plan would provide a prebate (prepayment) monthly to every legal citizen and resident on the registered tax rolls in Kansas for the consumption tax paid up to the poverty level.

    The FairTaxKC Triple Zero + 6.3% plan projects a net positive reserve equal to roughly one third of the current SGF total planned expenditures in the first year, or $2.1 Billion, compounding annually. The governor’s tax proposal can only muster on paper about three quarters of the required statutory 7.5% general fund reserve or $350 Million.

    In 1972, the total federal budget was approximately $230 billion. Today, the federal government will pay approximately $238 billion in interest payments alone this year. Historically, our state budget reflects the same trend in spending and debt (much of which is largely hidden from the public).

    The only common thread in comments of the committee members and those testifying on behalf of their sacred cow was the apparent acknowledgment that significant change in Kansas tax policy was required (even if many hoped it would not affect them).

    The only question remaining for us is: Will Kansas take the bold steps required that would allow the state to operate with billions of whole dollars in reserve?

    Or will Kansas take a half-measured approach to modifying the federal schemes of taxation and leave the state operating on couch cushion change and a greater dependence on a bankrupt federal government?

    Please take the opportunity now to contact the Governor and your legislators asking that they give the FairTaxKC Triple Zero + 6.3% plan fair treatment in their deliberations.

    In Kansas, Triple Zero + 6.3% Fixes It

  • Kansas Speaker: Schools don’t spend all they have

    Based on choices that many school districts have made in response to legislation giving them flexibility to spend fund balances, Speaker of the Kansas House of Representatives Mike O’Neal questions whether a school funding crisis actually exists.

    O’Neal, a Republican from Hutchinson, addressed members and guests of the Wichita Pachyderm Club at its regular Friday luncheon meeting. He started his talk by giving a quick history of recent Kansas school finances, especially litigation.

    In 2005 there was the Montoy II ruling, which resulted in a special session of the legislature in response to a ruling of the Kansas Supreme Court. O’Neal described this as “nearly a constitutional meltdown,” because the was not a party to the lawsuit, but the Court ordered the Legislature to appropriate a specific amount of money to schools, or schools would close. O’Neal said this was an unconstitutional usurpation of the separation of powers.

    Nonetheless, the Legislature did respond to the Court’s order and agreed to spend as directed.

    O’Neal cited two provisions in the Kansas Constitution that relate to spending and education. One, Article 2, Section 24, states: “No money shall be drawn from the treasury except in pursuance of a specific appropriation made by law.” The other is Article 6, Section 6(b), which reads: “The legislature shall make suitable provision for finance of the educational interests of the state.”

    Before Montoy II, this had been interpreted to require an appropriate and equitable mechanism for distributing available funds be in place. But after Montoy II, the Court interpreted this clause to apply to adequacy, that is, the Court can determine whether enough money is being spent on education.

    O’Neal said there are now two pending amendments to the Kansas Constitution. One would make it clear that the Supreme Court can’t order an appropriation, and the other is a clarification to the “suitable provision” clause. “It’s trying to keep courts out of the business of education and school finance funding, and putting it in the hands of those who are elected and closest to the people,” O’Neal told the audience.

    After this review of school finance litigation, O’Neal switched to the topic of whether schools are underfunded, as is the claim of the education community.

    The claims of the school spending lobby are that the cuts are “devastating,” O’Neal said. But the facts, he said, do not support this contention. Since 2005 schools have enjoyed “a pretty healthy increase in funding.” The cuts that we hear about, he said, are not cuts in the sense that most people would use. Instead, there have been reductions in the amount of annual increases that have been experienced.

    O’Neal said that during the last legislative session he spent a great deal of time investigating the status of school funding. He also said he tried to give schools authority to utilize funds in a way that would help address any funding crisis. He was aided by the Kansas Commissioner of Education, and also the Assistant Commissioner.

    O’Neal said there are about 28 separate funds related to school funding. The Legislature created many of these in an effort to track how appropriated funds are being spent. One — the contingency reserve fund — is generally thought of as the primary reserve fund for schools.

    At the end of 2011, the balance in all funds was $1.7 billion, O’Neal said, emphasizing the “b” in “billion.” He said this is a substantial increase over the prior year. Some of these funds are encumbered or spoken for, he said. In an effort to be fair, an analysis removed items like bond and interest and KPERS obligations. Taking away everything that could be argued as encumbered, O’Neal said there was still $640 million.

    These balances are not distributed evenly across school districts, he added.

    Referring to the 2005 Montoy decision, O’Neal said that the Court said the school finance formula distributed funds equitably, but there was not enough money in the pot. Noting the irony, he said “I would respectfully suggest today, based upon our analysis, that the Court not only got it wrong, but it was completely opposite. Why do we have a situation where some school districts have zero, with very conservative administration and management, and we have other schools districts that are sitting on tons of reserves.”

    Using the Wichita school district as an example, he said the unencumbered balances are $39 million.

    O’Neal asked the Kansas Department of Education this question: “Is this money that should be available to schools, and should they be utilizing that to educate Johnny and Susie?”

    The answer he received was yes: There are funds, other than the contingency reserve fund, that have balances that ought to be available.

    O’Neal said the analysis didn’t consider fund balances only at a particular point in time, but looked at the trend in balances over a period of five years. These balances, he said, are increasing over time, and at a “pretty hefty rate.”

    The balances in some funds — he mentioned special education and at-risk — are growing rapidly. This, he said, is an indication that schools can’t spend all the money the state has sent. “But, it’s a devastating situation nevertheless, according to the education community.”

    In response to recent cuts in Kansas base state aid per pupil funding, O’Neal said in 2011 the Legislature passed a bill giving school districts authority to spend up to $154 million to back-fill losses in base state aid. KNEA — the teachers union — and the Kansas Association of School Boards approved the bill.

    But O’Neal said he was terribly disappointed in the result. Only 77 school districts (Kansas has nearly 300 districts) elected to spend any of the fund balances. The total amount involved was $23.4 million, which O’Neal said was 15 percent of the total authority granted by the Legislature, and a much smaller fraction of the total unencumbered fund balances.

    Based on this, O’Neal questioned whether school funding is really inadequate. He said that schools could use these fund balances to compensate for cuts in base state aid, and could avoid laying off teachers. But many districts chose not to spend fund balances.

    Regarding the ending balances in the Kansas general fund, O’Neal said there will be calls to spend more on education. “My question becomes: If you’re not spending the money you have already, why do you want the state to spend down its reserves, and send you more money that’s likely only to end up increasing some of your ending balances.”

  • Kansas spending is the problem

    While Kansas Governor Sam Brownback has some good ideas in his State of the State address and tax reform plan, there are two important points that need to be made.

    First, the governor has said that tax reform is designed to be revenue neutral. That goal means that if one person pays less, someone else has to pay more. It also means that the state’s thirst for spending is not quenched. It is continued spending that prevents us from dramatically reducing or eliminating income tax rates in Kansas.

    Critics of lowering income tax rates point to the advantages that states with no income tax have. Texas is often mentioned, where it is said that the state’s oil wealth and the taxes it generates make it possible for Texas to have no income tax.

    There are two rebuttals to this argument. First, Kansas may have much new activity in oil and gas in the very near future. With the severance tax and taxes from other economic activity — as many as 25,000 jobs and $5 billion in investment over five years — new revenue may be flowing to the state. Brownback has called for limiting the growth of state spending to two percent annually, with revenue growth above that dedicated towards reducing income tax rates.

    The second rebuttal is that states with low or no income tax generally spend much less than Kansas. Using figures I compiled for 2010, Kansas state spending per person is $4,923, which ranks it 35th among the states. Only 15 states spend more than Kansas, on a per person basis.

    Texas, with no income tax, spends $3,703 per person. Florida, another state with no income tax, spends $3,300 per person.

    Kansas Democrats have called for restoring school spending, and increasing it in the future. They have other plans for state spending, too. That’s why it is important that Kansas implement something that 47 states have, but Kansas does not. Unfortunately, the governor didn’t mention it in his address. That missing ingredient in the Kansas state financial plan is a rainy day fund.

    Rainy day funds operate in different ways in the states that have them, but generally there are strict rules about spending the money in the fund. A rainy day fund would have helped Kansas whether a downturn in revenue without resorting to a tax increase. That’s vitally important, as once tax increases are in place, they are very difficult to remove. We have such an example of this now in Kansas: The increase in the statewide sales tax, promoted to last just three years, is now recommended to be permanent, according to the governor’s plan.

    (Shifting sands: Kansas Senator Carolyn McGinn, who voted for the sales tax increase, now wants it ended a year earlier than originally planned. That was a transparent response to her having to face a conservative challenger in her primary election this year. But now she finds herself opposing the governor on this issue.)

    Kansas has a requirement for a 7.5 percent ending balance in the general fund. That requirement is often waived by the legislature, as it has been for several years in a row. Rainy day fund legislation is often implemented in states’ constitutions, which can’t easily be waived or ignored by spending-happy legislature. The strict requirements as to how and when the fund balances can be spent is much different from a simple ending balance. Kansas Democrats, for example, are calling for spending the year’s ending balance.

  • Kansas senators seen as unfriendly to business

    The Kansas Chamber of Commerce Political Action Committee has made campaign contributions to the primary election opponents of eight Republican members of the Kansas Senate that it sees as impediments to private sector job creation, according to reporting in the Lawrence Journal-World.

    According to its website, the Chamber PAC “supports and endorses incumbent state legislators and other candidates for state office who support the Kansas Chamber’s legislative agenda, promote the tenets of free enterprise and pledge to make Kansas a better place in which to do business.”

    Following is the 2010 Kansas Senate roster with each senator’s score on the Kansas Economic Freedom Index for that year. The names of the senators whose opponents are supported by the Kansas Chamber PAC appear in boldface. You can see that as a group, these senators rank very low in their support of issues important to economic freedom in Kansas.

    (Senator Chris Steineger is now a Republican.)

    SenatorPartyScore
    Holland, TomD0%
    Francisco, MarciD7%
    Kultala, KellyD7%
    McGinn, CarolynR7%
    Morris, StephenR7%
    Brungardt, PeteR13%
    Emler, JayR13%
    Faust-Goudeau, OlethaD13%
    Hensley, AnthonyD13%
    Kelly, LauraD13%
    Lee, JanisD13%
    Reitz, RogerR13%
    Schmidt, VickiR13%
    Schodorf, JeanR18%
    Haley, DavidD20%
    Huntington, TerrieR20%
    Owens, Thomas (Tim)R20%
    Umbarger, DwayneR20%
    Taddiken, MarkR24%
    Teichman, RuthR24%
    Vratil, JohnR27%
    Marshall, BobR31%
    Ostmeyer, RalphR31%
    Steineger, ChrisD58%
    Schmidt, DerekR62%
    Apple, PatR69%
    Barnett, JimR69%
    Colyer, JeffR69%
    Donovan, LesR73%
    Kelsey, DickR73%
    Petersen, MikeR80%
    Wagle, SusanR80%
    Lynn, JuliaR86%
    Abrams, SteveR87%
    Brownlee, KarinR87%
    Bruce, TerryR87%
    Huelskamp, TimR87%
    Masterson, TyR87%
    Pyle, DennisR87%
    Pilcher Cook, MaryR93%