Voice For Liberty

Category: Kansas state government

  • Good news coming for Wichita, says Brownback top aide

    Speaking at the Wichita Pachyderm Club luncheon today, David Kensinger, Chief of Staff for Kansas Governor Sam Brownback, said that Brownback will be in Wichita Tuesday “with a very specific announcement as relates to jobs in the aviation industry.”

    He said that Wichita, as of a week ago, had the best facilities, workforce, and best supply chain for aviation manufacturing. That is still true today, he said. If Boeing doesn’t want to utilize this asset, there are others in the marketplace who will.

    “Kansas will grow, Wichita will grow, Wichita aviation will grow,” he told an appreciative audience.

    Later he told the audience that based on Tuesday’s announcements, and subsequent announcements, “you will see Kansas, and Wichita, and Wichita aviation employment grow.”

    He also said that two companies are preparing to invest $5 billion in Kansas over the next five years to use hydraulic fracturing to produce natural gas and oil. He cited a study that shows that each $1 million spent on energy production produces 1.2 direct jobs and a total of 4.9 jobs when indirect jobs are included. This, he said would result in 25,000 new high-wage jobs.

  • In Wichita, occupiers make presence known at legislative meeting

    At this week’s meeting of the South-Central Kansas Legislative Delegation, the “occupy” crowd — those inspired by the Occupy Wall Street protests — made its presence known as members arrived early to sign up to speak. Below, Paul Soutar of Kansas Watchdog reports on the topics that were important to speakers at the meeting. Refreshingly, the “occupy” supporters followed established procedure and signed up to speak. It has been the practice of various “occupy” groups — even in Wichita — to disrupt events, demanding their first amendment rights to speak, often using the “mic check” method of communication.

    Legislative Forum Foretells Challenging 2012 Lawmaking Session

    By Paul Soutar of Kansas Watchdog, a project of the Franklin Center for Government and Public Integrity.

    Comments from 53 speakers at a forum in Wichita signal a busy and contentious legislative session is just ahead. About 200 showed up for the South-central Kansas Legislative Forum at the Sedgwick County Courthouse Tuesday night.

    A total of 22 state senators and representatives attended, most staying through the three hours of comments from constituents that highlighted a deep divide between fiscal conservatives and proponents of bigger government.

    Rep. Jim Ward, D-Wichita, chaired the meeting and set strict time limits on speakers. Legislators generally did not respond to comments or occasional barbs from speakers.

    American Legislative Exchange Council

    The most common theme addressed by speakers was the role of the American Legislative Exchange Council in state policy making. Detractors at Tuesday’s forum complained about undue corporate influence in passing legislation that favors their interests.

    ALEC’s website says its mission is, “to advance the Jeffersonian principles of free markets, limited government, federalism, and individual liberty, through a nonpartisan public-private partnership of America’s state legislators, members of the private sector, the federal government, and general public.”

    Several speakers opposing ALEC identified themselves as participants or supporters of Occupy Wall Street protests.

    A smaller number of speakers pointed out the role of business in creating jobs. Bob Weeks, who blogs at Wichita’s Voice for Liberty, reminded legislators of ALEC’s Rich States, Poor States report which shows Kansas is becoming less business friendly as surrounding states improve their tax climate.

    Boeing Aircraft Company officials announced today it would cease operations in Wichita by the end of 2013. The move will eliminate about 2,000 jobs from the local economy.

    According to Boeing employees present at the announcement, one reason cited for the decision was higher operating costs in Kansas. Some Boeing work, including aircraft modification and work on Air Force One, will move to San Antonio, Texas, where corporate tax rates are low and there is no individual income tax.

    Foster care

    Several speakers addressed ongoing concerns about child protection officials removing children unnecessarily from homes. Kansas and Sedgwick County are among the nation’s worst performers in reuniting children with their families.

    Marlene Jones, an activist against abuses in child protection and foster care, complained that legislators have not followed through on last year’s promise to create a committee to look into the issue.

    Persistent reports of abuses in the foster care and legal system have been difficult to investigate because privacy law protects much of the information. Glen Burdue gave legislators a list of data that could be collected and investigated to evaluate allegations.

    Gaming

    Jeff Brazill, who used to call the races at Wichita Greyhound Park, asked legislators to consider broadening gaming opportunities in the state. Wichita Greyhound Park closed in 2007 after Sedgwick County voters failed to approve slot machines at the track.

    “The issue isn’t gaming, it’s here,” Brazill said. Kansas lottery tickets are available in Sedgwick County, and Kansas just opened a new casino in Mulvane on Dec. 26, just across the county line in Mulvane.

    Paul Sutherland lives near the new casino and also asked legislators to expand gaming but not before cleaning up the state’s lottery and gaming activities.

    “I tried to get the state to respect the law, they’re not,” Southerland told the panel. He said infrastructure is not ready for the casino opening; was paid for by taxpayer and not by the casino operator as promised, and that local government is operating in secret. He called the activity, “The most corrupt activity in our area.”

    Rick Loveall, another supporter of reopening the greyhound park, claimed it would create about 500 jobs with no government support or subsidies. “Someone told me the best way to get it to pass is to ask for $25 million in subsidies. This time we don’t need it.”

    Craig Gable, a Wichita restaurant owner, wants to allow gaming in a wider array of venues, “So it’s not just one guy making all the money.” He called for allowing the number of slot machines being based on the size of the business so even a small restaurant of garage could make a bit of money from gambling.

    Spend more or spend less

    A majority of speakers expressed a desire for the state to either restore recent funding cuts or spend more for various programs. Most offered no suggestions for increasing revenue. A few suggested keeping the 6.3 percent sales tax enacted in 2010 and slated to be reduced to 5.7 percent in 2013.

    Clinton Coen, a Wichita City Council Candidate, and John Todd, a volunteer coordinator for Americans for Prosperity, spoke against layered government subsidies for private projects.

    Todd said his recent door-to-door work gathering petition signatures shows citizens don’t understand the complex methods for using various subsidies and tax abatements, but they generally oppose such corporate handouts.

    Todd and others recently gained enough signatures to require the Wichita City Council to seek voter approval before refunding 75 percent of the Ambassador Hotel’s guest tax for the hotel’s own use.

    Coen also called for legislation against the practice of “pay to play” in which local government officials cast votes that benefit campaign donors. He said the practice is, “rampant legal corruption.”

    Kari Ann Rinker, Kansas coordinator for the National Organization for Women, made an unusual plea for fiscal responsibility by asking legislators to stop spending time, energy and money on abortion legislation.

    Mark Gietzen, with the Kansas Coalition for Life, asked that Kansas adopt heartbeat legislation that is working its way through the Ohio legislature. The bill would protect unborn children from the moment a heartbeat can be detected by stethoscope.

    Revenue vs. environment

    Fracking, the use of pressurized water to fracture rock and dramatically boost oil and gas extraction, has increased dramatically in the last year in Kansas. Proponents say wells can see a 1,000-fold increase in production through horizontal drilling and fracking.

    Zack Pistora, the new Kansas lobbyist for Sierra Club, and a few other speakers called on legislators to limit the practice.

    Music and humor

    Bob James spent his three minutes giving a banjo and vocal rendition of the 1912 union song Bread and Roses from the 1912 Lawrence, Mass., textile strike.

    Laughter erupted as David Robbins produced copies of his 2010 Kansas income tax filing and regaled the audience with an ongoing saga of problems with the Kansas Department of Revenue.

    According to Robbins DOR overpaid his refund by $232.23, which he returned in an amended tax return only to be told that he owed an additional $106. He’s now also fighting to have his filing’s donation to military relief restored after a DOR employee redirected it to meals on wheels without his permission.

    This article was originally published at Legislative Forum Foretells Challenging 2012 Lawmaking Session .

  • Wichita Eagle on KPERS misses the mark

    A recent Wichita Eagle editorial by Phillip Brownlee misses understates the magnitude of the problem with Kansas Public Employee Retirement System, or KPERS, and fails to recognize problems with possible solutions. ($8.3 billion question, November 4, 2011 Wichita Eagle)

    The first problem is stating the magnitude of the problem. Brownlee, like most sources, states the funding shortfall at $8.3 billion. Using that number is nothing short of fraudulent. KPERS acknowledges that there are about $600 million in market losses that aren’t included in the $8.3 billion figure because government accounting rules don’t require such reporting. Plus, this valuation relies on assumed rates of return that are higher than the private sector uses. Adjusting for these factors, and using a realistic assumed rate of return of six percent, Kansas Policy Institute says the shortfall would be $14.1 billion.

    More shocking is an evaluation of state pension funds conducted by the American Enterprise Institute which uses market valuation methods. This evaluation puts the shortfall for Kansas at $21.8 billion.

    Either way, the magnitude of the problem is far larger than Brownlee acknowledges.

    Brownlee also writes that moving to a defined-contribution plan isn’t the solution. He says that “future contributions would be diverted to the new plan,” but these contributions are needed to prop up the current system. The teachers union and organizations that advocate for state employees have made similar claims, with the KNEA writing: “If all new employees came in under a defined contribution or 401(k) plan, their investments would be essentially personal investments and not used to contribute to benefit payments to current or future defined benefit members. This means that each person who retires will be replaced by someone who is not paying into the defined benefit system.” (emphasis added)

    These admissions that the contributions of young workers are used to fund the benefits of retirees is admission of a Ponzi scheme. Instead of new members’ contributions being invested to provide for their own retirement, their contributions are needed to pay for current retirees. This is a system that guarantees being perpetually under-funded. It must be stopped.

    Very troubling is Brownlee’s discussion of a proposal to borrow $5 billion to prop up KPERS. The only objection Brownlee finds is that it could be risky if the stock market falls. Yes, part of the problem with KPERS is that the stock market is down and there have been losses in recent years. Although we can’t predict when the market will fall and by how much, we know that there will be ups and downs over long periods of time, and that’s the domain of pension funds — long periods of time.

    That the state might even consider borrowing $5 billion to fund KPERS is an admission that the state has been running deficits for some years, despite a requirement for a balanced budget. We are left with the realization that the legislature has committed itself to obligations that it chose not to fund. $5 billion is nearly one year’s general fund spending. It’s a lot of money in Kansas, and even this much would not close the gap in KPERS.

    This deficit has not appeared in any budget. The legislature and governors have said we’ve balanced the budget. But when the liabilities the state has incurred, but not paid for, are added, we realize that we’ve not been told the truth. Mr. Brownlee’s editorial does nothing to advance this truth to Kansans.

    The first thing Kansas must do is realize that the state has not shown responsibility in running a defined-benefit pension plan, and it must stop admitting new employees.

  • In Kansas Legislature, opportunities for saving were lost

    This year the Kansas Legislature lost three opportunities to improve the operations and 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.

    Each of these bills represents a lost opportunity for state government services to be streamlined, delivered more efficiently, or measured and managed.

    Kansas Streamlining Government Act

    HB 2120, according to its supplemental note, “would establish the Kansas Streamlining Government Act, which would have the purpose of improving the performance, efficiency, and operations of state government by reviewing certain state agencies, programs, boards, and commissions.” Fee-funded agencies — examples include Kansas dental board and Kansas real estate commission — would be exempt from this bill.

    In more detail, the text of the bill explains: “The purposes of the Kansas streamlining government act are to improve the performance, streamline the operations, improve the effectiveness and efficiency, and reduce the operating costs of the executive branch of state government by reviewing state programs, policies, processes, original positions, staffing levels, agencies, boards and commissions, identifying those that should be eliminated, combined, reorganized, downsized or otherwise altered, and recommending proposed executive reorganization orders, executive orders, legislation, rules and regulations, or other actions to accomplish such changes and achieve such results.”

    In testimony in support of this legislation, Dave Trabert, President of Kansas Policy Institute offered testimony that echoed findings of the public choice school of economics and politics: “Some people may view a particular expenditure as unnecessary to the fulfillment of a program’s or an agency’s primary mission while others may see it as essential. Absent an independent review, we are expecting government employees to put their own self-interests aside and make completely unbiased decisions on how best to spend taxpayer funds. It’s not that government employees are intentionally wasteful; it’s that they are human beings and setting self-interests aside is challenge we all face.”

    On February 25 the bill passed the House of Representatives by a vote of 79 to 40. It was referred to the Senate Committee on Federal and State Affairs, where it did not advance.

    Privatization and public-private partnerships

    Another bill that did not advance was HB 2194, which in its original form would have created the Kansas Advisory Council on Privatization and Public-Private Partnerships.

    According to the supplemental note for the bill, “The purpose of the Council would be to ensure that certain state agencies, including the Board of Regents and postsecondary educational institutions, would: 1) focus on the core mission and provide goods and services efficiently and effectively; 2) develop a process to analyze opportunities to improve efficiency, cost-effectiveness and provide quality services, operations, functions, and activities; and 3) evaluate for feasibility, cost-effectiveness, and efficiency opportunities that could be outsourced. Excluded from the state agencies covered by the bill would be any entity not receiving State General Fund or federal funds appropriation.”

    This bill passed by a vote of 68 to 51 in the House of Representatives. It did not advance in the Senate, falling victim to a “gut-and-go” maneuver where its contents were replaced with legislation on an entirely different topic.

    Opposing this bill was Kansas Organization of State Employees (KOSE), a union for executive branch state employees. It advised its “brothers and sisters” that the bill “… establishes a partisan commission of big-business interests to privatize state services putting a wolf in charge of the hen house. To be clear, this bill allows for future privatization of nearly all services provided by state workers. Make no mistake, this proposal is a privatization scheme that will begin the process of outsourcing our work to private contractors. Under a privatization scheme for any state agency or service, the employees involved will lose their rights under our MOA and will be forced to adhere to the whims of a private contractor who typically provides less pay and poor benefits. Most workers affected by privatization schemes are not guaranteed to keep their jobs once an agency or service is outsourced.”

    Note the use of “outsourcing our work.” This underscores the sense of entitlement of many government workers: It is not work done for the benefit of Kansans, it is our work.

    Then, there’s the warning that private industry pays less. Most of the time representatives of state workers like KOSE make the case that it is they who are underpaid, but here the argument is turned around when it supports the case they want to make. One thing is probably true: Benefits — at least pension plans — may be lower in the private sector. But we’re now painfully aware that state government has promised its workers more pension benefits than the state has been willing to pay for.

    Performance measures

    Another bill that didn’t pass the entire legislature was HB 2158, which would have created performance measures for state agencies and reported that information to the public. The supplemental note says that the bill “as amended, would institute a new process for modifying current performance measures and establishing new standardized performance measures to be used by all state agencies in support of the annual budget requests. State agencies would be required to consult with representatives of the Director of the Budget and the Legislative Research Department to modify each agency’s current performance measures, to standardize such performance measures, and to utilize best practices in all state agencies.” Results of the performance measures would be posted on a public website.

    This bill passed the House of Representatives by a nearly unanimous vote of 119 to 2, with Wichita’s Nile Dillmore and Geraldine Flaharty the two nay votes. In the Senate, this bill was stripped of its content using the “gut-and-go” procedure and did not proceed intact to a vote.

    Opposition to these bills from Democrats often included remarks on the irony of those who were recently elected on the promise of shrinking government now proposing to enlarge government through the creation of these commissions and councils. These bills, however, proposed to spend modest amounts increasing the manageability of government, not the actual range and scope of government itself. As it turns out, many in the legislature — this includes Senate Republicans who initiated or went along with the legislative maneuvers that killed these bills — are happy with the operations of state government remaining in the shadows.

    These proposals to scale back the services that government provides — or to have existing services be delivered by the private sector — mean that there will be fewer government employees, and fewer members of government worker unions. This is another fertile area of gathering support for killing these bills.

    State workers and their supporters also argue that fewer state workers mean fewer people paying state and other taxes. Forgotten by them is the fact that the taxes taken to pay these workers means less economic activity and fewer jobs in the private sector. And, in fact, Kansas has seen the number of government workers — at all levels — rise.

    As to not wanting performance measures: Supporters of the status quo say that people outside of government don’t understand how to make the decisions that government workers make. In one sense, this may be true. In the private sector, profitability is the benchmark of success. Government has no comparable measure when it decides to, say, spend some $300 million to renovate the Kansas Capitol. But once it decides to do so, the benchmark and measurement of profitability in executing the service can be utilized by private sector operators. Of course, private contractors will be subject to the discipline of the profit and loss system, something again missing from government.

    Curiously, Kansas Governor Sam Brownback didn’t use his prestige and influence to support these bills, at not publicly. Perhaps next year, an election year not only for the House but also for the entire membership of the Senate, will be different.

  • Research on state taxes: Kansas should cut

    As Kansans prepare to debate whether to reduce our state’s income taxes, there will be those, such as Rhonda Holman of the Wichita Eagle, who will urge caution before proceeding with reducing taxes. Others will claim that government taxation and spending is what makes the state’s economy grow. Two research papers illustrate the need to reduce taxes, finding that high taxes are associated with reduced income and low economic growth. Research such as this rebuts the presumption of government spending advocates that reducing taxes will kill jobs in Kansas.

    One paper is The Robust Relationship between Taxes and U.S. State Income Growth by W. Robert Reed, published in the National Tax Journal in March 2008. The abstract to this paper states:

    I estimate the relationship between taxes and income growth using data from 1970 – 1999 and the forty-eight continental U.S. states. I find that taxes used to fund general expenditures are associated with significant, negative effects on income growth. This finding is generally robust across alternative variable specifications, alternative estimation procedures, alternative ways of dividing the data into “five-year” periods, and across different time periods and Bureau of Economic Analysis (BEA) regions, though state-specific estimates vary widely. I also provide an explanation for why previous research has had difficulty identifying this “robust” relationship. (emphasis added)

    In his introduction, Reed writes that previous studies had found: “To the extent a consensus exists, it is that taxes used to fund transfer payments have small, negative effects on economic activity.” His paper found a stronger relationship.

    Reed issues a caution on the use of his conclusions: “It needs to be emphasized that my claim for robustness should be understood as applying only within the context of U.S. state income growth. It should not be interpreted as being more widely applicable to other contexts, such as employment growth, manufacturing activity, plant locations, etc., or to the relationship between taxes and income growth outside the U.S.”

    This illustrates one of the ways we focus on the wrong measure of growth. Politicians focus on jobs. But to business, jobs are a cost. One of the better goals to seek, as Art Hall specifies in his paper Embracing Dynamism: The Next Phase in Kansas Economic Development Policy, is income growth, along with population density and population migration, productivity growth, capital investment, gross business starts and expansions, and customer service and throughput measures of state economic development agencies. Hall writes: “If Kansas performs well in the measures provided, it will also perform well in terms of job count.”

    Another example of research finding a negative impact of taxation is State Taxes and Economic Growth by Barry W. Poulson and Jules Gordon Kaplan, published in the Winter 2008 Cato Journal. In the introduction to the paper, the authors write: “The analysis reveals a significant negative impact of higher marginal tax rates on economic growth. The analysis underscores the importance of controlling for regressivity, convergence, and regional influences in isolating the effect of taxes on economic growth in the states.” (emphasis added)

    In its conclusion, the paper states:

    The analysis reveals that higher marginal tax rates had a negative impact on economic growth in the states. The analysis also shows that greater regressivity had a positive impact on economic growth. States that held the rate of growth in revenue below the rate of growth in income achieved higher rates of economic growth.

    The analysis underscores the negative impact of income taxes on economic growth in the states. Most states introduced an income tax and came to rely on the income tax as the primary source of revenue. Jurisdictions that imposed an income tax to generate a given level of revenue experienced lower rates of economic growth relative to jurisdictions that relied on alternative taxes to generate the same revenue. (emphasis added)

  • Kansas tax overhaul skeptics

    In yesterday’s Wichita Eagle, editorial writer Rhonda Holman expresses her skepticism that income tax cuts in Kansas will do much good for the state.

    First, of all, there’s one very good reason to reduce taxes in Kansas — and everywhere: doing that lets people keep more of their own money, and keeps it in the productive private sector. This is good.

    There’s also a dangerous misconception contained in this editorial. Holman mentions the $4.2 billion in sales tax exemptions, referring to the amount of additional sales tax revenue that the state would purportedly collect if the exemptions were eliminated. First, eliminating most of these exemptions is a great idea. But some are not really exemptions at all, at least if we’re talking about a retail sales tax.

    Last year the Kansas Legislative Division of Post Audit looked at these exemptions. Its report is Kansas Tax Revenues, Part II: Reviewing Sales Tax Exemptions.

    The audit described one exemption labeled 79-3606 (m), described as “Ingredient/Component parts: Of items manufactured or produced for sale at retail.” The audit report estimates that for 2009, this exemption cost the state $2,248.1 million in lost sales tax revenue. This is over half the $4.2 billion Holman cited as available to the state by eliminating exemptions.

    But this exemption isn’t really an “exemption,” at least if the sales tax is a retail sales tax designed to be levied as the final tax on consumption. That’s because these goods aren’t being sold at retail. They’re sold to manufacturers who use them as inputs to products that, when finished, will be sold at retail. Most states don’t tax this type of sales. If Kansas decided to tax these transactions, it would place our state’s manufacturers at a severe disadvantage compared to almost all other states.

    There are two other exemptions that fall in this category of inputs to to production processes, totaling an estimated $461 million in lost revenue.

    Another big-dollar exemption is “items already taxed” such as motor fuel. This is an estimated $232.5 loss in revenue. Two other categories of exemptions are purchases made by government, or purchase made by contractors on behalf of government. Together these account for an estimated $449.9 million in lost revenue. If these two exemptions were eliminated, the government would be taxing itself.

    All told, these six exemptions account for $3,391.5 million of the total $4,234.2 million in exemptions for 2009. That’s about 80%.

    So $4.2 billion has shrunk to $842.7 million. That’s still a lot of money, but not near as much as spending advocates would like to have Kansans believe is lying in wait just for the taking.

    By the way, the $4.2 billion figure doesn’t include all the sales tax exemptions given, as the audit looked at only those exemptions placed into statute. Many sales tax exemptions are one-time deals, such as the over $500,000 exemption the Wichita City Council awarded to the developers of a hotel in downtown Wichita.

    In her editorial, Holman wrote that “Brownback likened eliminating the exemptions to raising taxes,” the implication being that the governor would not support eliminating these exemptions. But these exemptions should not have been granted in the first place.

    Holman contends that businesses make location decisions based on “availability of labor and land and the regulatory climate.” Given this, we’re told that Kansas has a skilled work force, we’ve got plenty of inexpensive land, and in many rankings, our regulatory climate is not too bad. That leaves taxes as an additional field on which to compete, and we’re moving in the wrong direction regarding taxes.

    Holman also writes that K-12 education is underfunded. This argument is difficult to sustain in light of the facts, which are that until very recently, Kansas school spending soared.

    Kansas school spending, per studentKansas school spending, per student.

    Instead of spending more on a state school system, we could spend less and give parents more choice by implementing various forms of school choice. Despite the claims of school spending advocates, school choice saves money for the state. Additionally, local districts are actually better off under school choice, as explained in The arithmetic of school choice in Wichita.

    There’s much more Kansas could do to reduce spending, which in turn would let us reduce tax rates without cutting services. First, Kansas makes little use of outsourcing. In Wichita, our one major experiment in outsourcing produced savings greater than anticipated. Yet, we don’t have plans to expand this practice.

    Another thing Kansas must do is to use zero-based budgeting, at least periodically. The current practice is to form new budgets based on last year’s spending. While he was a member of the Kansas House of Representatives, Jason Watkins explained the need, as I reported: “Watkins said that the present system, where each year’s budget is based on the past year’s plus an increase, produces anomalies. He illustrated a case where an agency might be able to get some federal money if the state spends some if its own. It might be, say, a three-year program. So the legislature authorizes and appropriates the funds. Then three years later the federal money is gone, so the program ends because the state funding alone is not sufficient for continuation. But the money the state allocated is still in the agency’s base budget — even through the program no longer exists.”

  • Kansas needs pro-growth policies

    A theme of Kansas Governor Sam Brownback when he spoke in Wichita this week was jobs and opportunities, and how Kansas needs pro-growth policies to break out of a slump.

    The governor spoke at the annual dinner of the Kansas Policy Institute. He said: “We cannot continue on this path and hope that we are going to move forward and win in the future. It won’t work. We have got to change course, and we’ve got to be aggressive about it, or we’re doomed to a slow decline, which we’ve had for some period of time.”

    Brownback said we need to move to a pro-growth tax policy, although he wasn’t ready to release details at the time.

    Looking at a few charts of job growth in Kansas, we can easily see the problem Brownback referred to. A chart of the number of private sector jobs in Kansas as compared to a few surrounding states over the past ten years shows Kansas at or near the bottom.

    Kansas private sector job growth compared to other statesKansas private sector job growth compared to other states. Data is indexed, with January 2001 equal to 1. Source: Bureau of Labor Statistics

    Looking at year-to-year job changes over since January 2010, we again see Kansas at or near the bottom.

    Kansas private sector job change, year-to-year, compared to other statesKansas private sector job change, year-to-year, compared to other states.

  • Leading index for Kansas economy improves

    An indicator of future economic growth in Kansas has improved, not only in comparison to past values, but also compared to the national value and values for surrounding states.

    Kansas leading economic indicatorKansas leading economic index.

    KSSLIND is the leading index for Kansas, which predicts the six-month growth rate of the state’s coincident index. According to its creator, the Federal Reserve Bank of Philadelphia, in addition to the coincident index, “the models include other variables that lead the economy: state-level housing permits (1 to 4 units), state initial unemployment insurance claims, delivery times from the Institute for Supply Management (ISM) manufacturing survey, and the interest rate spread between the 10-year Treasury bond and the 3-month Treasury bill.”

    The coincident index includes four indicators, according to its creators: nonfarm payroll employment, the unemployment rate, average hours worked in manufacturing, and wages and salaries.

    This index, which is again a leading indicator with a six-month time lag, been improving. In April, when I last looked at this series, the average value for the index for the previous six months had been 0.04. Now, the value for the previous six months is 0.69. Data is available through June, 2011.

    Comparing the value for Kansas to that for the nation as a whole and surrounding states plus Iowa, we see some improvement. The value for Kansas, shown in the bold black line, had been right in the middle of the values for these other entities. But about a year ago the value for Kansas began to be lower than these peer values. When assessing this data in April, I wrote “While generally following the same trend, the fact that Kansas’ value is lower than the others means that the near-term economic outlook for our state — while improving — is not as good as for the other states that appear on the chart, and for the nation as a whole.”

    Now in recent months the value for Kansas has been above that of Colorado, Iowa, and Missouri.

    Kansas leading economic indicator compared to othersKansas leading economic index compared to others.

  • Kansas budget director on budget, fiscal reform

    By Paul Soutar, Kansas Watchdog.

    WICHITA — Budget Director Steven J. Anderson outlined how he and his boss, Gov. Sam Brownback, would like to improve the fiscal affairs and economic recovery in Kansas. But Anderson admitted the effort isn’t likely to win him many friends.

    His presentation to the Wichita Pachyderm Club Friday included much for fiscal conservatives to like, including efforts to reduced state spending, lower income tax rates and make state government more efficient. But some planned initiatives probably won’t sit too well with a portion of the Republican base.

    Anderson said he thinks the Fair Tax, a proposal that relies on a sales or consumption tax and eliminates virtually all other taxes and exemptions, would not work politically. “From a strictly numbers perspective it’s very viable,” he said.

    “When you talk about the Fair Tax you gore about everybody. Twenty percent of the GDP in this country is non-profits. Do we really want to take the charitable deduction away from your churches?” One audience member said yes as Anderson continued. “I think the hue and cry becomes really high and pitchfork and torch sales go up all over town when you talk fair or flat tax.”

    Anderson also said he prefers to keep the 19 percent sales tax increase, from 5.3 to 6.3 cents on the dollar) enacted by the 2010 Legislature. “That isn’t wildly popular among some members of my party,” Anderson said. Repealing the tax increase was high on the priority list for many freshmen legislators.

    Anderson would use the extra sales tax revenue to offset reductions in income tax rates. “I believe income tax is an economic inhibitor and sales tax is a measure of economic activity.”

    Senate Bill 1, which would cap state spending and use sales tax revenue to reduce income tax rates, passed the House and is likely to get another shot in the Senate next year. Opponents of SB1 argue that sales taxes place a greater burden on the poor who spend a higher percentage of their income on necessities.

    Recent experience shows that improving the state’s fiscal health and competitiveness will not be as simple as cutting one tax and increasing another.

    In August 2009 QuikTrip demolished a store in Kansas then built a new one on the same property just a few feet to the east so the store, cash registers, and gasoline tanks are on the other side of the state line in Kansas City, Mo. The company said it pays lower taxes, has a better regulatory environment and has more customers who save money on gasoline taxes, sales taxes and cigarette taxes. Kansas loses an estimated $1.4 million in tax revenue each year because of the move.

    Anderson said by keeping the state’s income tax rates where they are and cutting the state sales tax back to 5.3 percent the state would get more gas stations, but if the state has no income tax it would be more likely to lure businesses just as Texas and other states with no income tax have done. “I’d rather have the corporate headquarters.”

    Anderson said he advised Brownback to focus on the state’s customers in addressing fiscal reform. “We all know that a business doesn’t survive if it can’t keep its customers. What has happened in Kansas in the last decade? If you’ve seen the latest census you know. Our customers, our citizens, have voted with their feet and left the state. I am probably an example of that. I had greater opportunity moving to Oklahoma.”

    Anderson, a Kansas native and graduate of Fort Hays State University, has an accounting practice in Edmond and worked for Oklahoma Gov. Frank Keating from 1999 to 2002 in the Office of State Finance. He moved back to Kansas to work with Brownback.

    “When the state thinks they can raise taxes and outwit business they make a bad mistake,” Anderson said. “Business knows how to deal with that. They either leave the state or they adjust their operations.”

    Brownback wrote the foreword to “Rich States, Poor States,” an annual evaluation of economic competitiveness among the states published by the American Legislative Exchange Council (ALEC). “When you read it you will understand where we are going to go. He is very plain that we intend to cut income taxes and we intend to cut them a lot.”

    One of Brownback’s early initiatives was creation of Rural Opportunity Zones (ROZ). The program offers individuals income tax exemptions for up to five years and up to $15,000 in student loan forgiveness for moving into one of 50 rural counties.

    “Part of the reason why we did that was to show those that were on the fence that if you will move to what they consider the hinterlands — of course, being from Western Kansas, I don’t consider it that — for zero income tax, they certainly will jump across the Missouri border into Kansas. It’s been a real success so far and we aren’t a month into it yet.”

    Anderson’s presentation addressed complaints that Brownback’s team is doing too much or too little.

    Newly elected fiscal conservatives and their supporters have said Brownback didn’t move fast enough on reforms during the 2011 Legislative session. Anderson said Brownback’s team is continuing to explore data that was not available during the transition and is finding additional opportunities for reforms he expects to be unveiled soon.

    Anderson also said reforms must not be stalled by projections of economic improvement based on improving income tax revenue. He said about $100 million in recent income tax revenue is from capital gains tax paid by filers who chose to sell investments now rather than after a feared federal capital gains tax increase.

    As of publication time, the Kansas Department of Revenue has not replied to a KansasWatchdog request that they verify or deny Anderson’s claim.

    “We actually are running behind on every revenue source,” Anderson said. “I think that should trouble us when we look down to Oklahoma who just cut taxes again. They just put $219 million in their rainy day fund. I think the proof is in the pudding. Cutting taxes works.”

    Video of Anderson’s presentation is available on Kansas Watchdog TV at Kansas Budget Director Steve Anderson Part 1, part 2, and questions and answers.