Voice For Liberty

Category: Kansas state government

  • Kansas Capitol renovations

    The restoration of the Kansas Statehouse was featured last fall on an episode of the television program Sunflower Journeys. While providing an interesting look at the history of the stonecarvings on the building’s exterior, the show made a mistaken argument about the economics of the project.

    During the 2011 legislative session, the Republican-controlled Kansas Legislature decided to borrow an additional $34 million for the renovation of the Kansas Capitol building. Add this to the already-established cost of $285 million, and the total cost now pushes well above $300 million. There’s no guarantee this is all that will be spent.

    During the episode Vance Kelley, a project manager for Treanor Architects, promoted the economic development aspects of the capitol building’s restoration. Since the workers are local, he said that utilizing local labor forces means that tax dollars get passed along to local merchants: “Actually we’re generating, I think it’s been estimated between six and seven times the amount of money within the local economy. Preservation actually creates jobs. It is economic development in itself.”

    This argument — that government spending of this type creates jobs — is commonly heard from advocates of more government spending. It’s a popular argument among historic preservationists, too, as they seek to justify why their work is so expensive, and why public money should be expended on it.

    Does government spending create jobs? The short answer is no. The primary reason is that government can only spend what it takes from someone else. It might do the taking now in the form of taxation. Or it might borrow, which delays taxation to the future. Either way, many people have less money to spend, save, and invest because of the taxation.

    Kelley’s argument does have a ring of truth to it. Local merchants — Topeka, he means — are benefiting. Taxpayers across the state are taxed to send money to be spent largely in Topeka. This benefit, however, comes at the expense of spending — and related jobs — in other parts of Kansas. This is a selfish argument.

    Kelley may not be aware of the seen and unseen fallacy that pervades popular thinking. When we go to Topeka — or watch taxpayer-funded public television — we can see the glory and magnificence of the government spending on the Kansas Capitol. Finding the harm caused by the taxation necessary to pay for this, however, is disbursed across the state and very difficult to find. But it exists.

    Kelley also referenced the multiplier. That’s the observation that money spent gets spent again, and again, and again. That’s true. But advocates of government spending like Kelley think that only government spending is magically multiplied. The truth is that any spending is multiplied in this way. It’s a natural phenomenon of economics.

    Some people make the argument that people may not spend their money during uncertain times. Instead, they may save it. But where do savings go? Many people put their money in a bank, which then lends it to people who want to spend it. Other people buy stocks or bonds, or pay down debt. Either action provides funds for others to spend. It’s only when people save money by stuffing it in their mattresses that this argument — that government must spend — applies. And very few people do this.

    The further truth is that when spending their own money, people are usually careful. Government? Not so much. Evidence of this is the ornate decorative carvings illustrated in the Sunflower Journeys episode. Few private buildings are built to this standard, because people — even wealthy people — spending their own money don’t value this frivolity very highly.

    Instead, it is government, spending taxpayers’ money, that builds elaborate monuments to itself.

    There are some cases where we might argue that government spending creates wealth, such as in the building of needed highways. It does not follow, however, that only government is capable of making this investment. Further, streets and highways are far removed from ornate stonecarvings on a government monument.

  • Kansas airports’ economic impact

    Last year the Kansas Department of Transportation released a study of the economic impact of Kansas airports. The accompanying news release is Kansas airports generate billions in economic impact.

    The report caused quite a stir, with newspapers such as the Los Angeles Times (at least its online version) carrying the Associated Press coverage. Perhaps the reason distant newspapers were interested in the story is the sensationally large economic impact figures reported. The number of jobs attributed to airports is large, by any standard.

    But there’s a problem with these numbers. They’re similar to sensational claims made a few years ago when the case for subsidizing airlines in Wichita was made. Those figures were bogus. So are these.

    The staggeringly large figures come from two aspects of the study. First, the study counts the economic activity from businesses near the airport as attributable to the airport. In the case of the Wichita airport, this means that the employees of Cessna and Bombardier Learjet, and all the economic activity these companies produce, is credited as economic impact of the airport.

    This economic sleight-of-hand allows the study to attribute 22,313 jobs to the Wichita airport. The total economic impact of the Wichita airport is reported as $4.7 billion.

    All these employees don’t work for the airport. Almost all of them work at business firms located near the airport. But the study doesn’t really make that distinction. And when you do things like this, you can really pump up some inflated figures.

    It is a convenient circumstance that these two manufacturers happen to be located near the airport. To credit the airport with the economic impact of these companies — as though the airport was involved in the actual manufacture of airplanes instead of providing an incidental (but important) service — is to grossly overstate the airport’s role and its economic importance.

    A second problem is the study’s use of economic impact multipliers to pump up the figures. A multiplier reflects the fact that money spent at, say an airport, get spent again. Proponents of multipliers forget that money spent elsewhere get multiplied too. In fact, money that is saved and invested get multiplied, too.

    These two factors inspired the Associated Press reporter to lead off a story with “Airports in Kansas support more than 47,000 jobs, generate $2.3 billion in payroll and have an annual economic impact of $10.4 billion …” With numbers so big, you can see why news editors in far-away cities might run the story.

    There’s another problem: these studies usually assume that all the activity is the responsibility of the entity being promoted, that none of it would have happened without the celebrated entity, and that since (usually) the promoted entities are government-owned, all this is evidence of the goodness of government.

    Another problem is that these economic impact figures get used several times to support various government subsidies to business. Here we have the airport claiming two aircraft manufacturing companies’ employees and their economic impact as the product of the airport.

    But when these companies want corporate welfare from the Kansas state government, the economic impact of the companies and their employees will be cited as justification. Politicians, bureaucrats, and the public will believe their case.

    Then, the same numbers might be cited again at Wichita city hall, and maybe before the Sedgwick County Commission as the company makes its case for industrial revenue bonds, tax abatements, forgivable loans, and other forms of local corporate welfare.

    But this economic impact can’t be recycled like this. It exists only once. If the Wichita airport claims it, then it can’t be used again to justify some other program or request.

    Another way the study leaps beyond credibility is its inclusion of the Beech Factory Airport in east Wichita. This is an airport without commercial air service. It exists solely for the convenience of Hawker Beechcraft, and is undoubtedly a necessary component of the capital plant needed to manufacture airplanes.

    The study, however, mixes this airport in with all other Kansas airports, so this airport’s claimed $1.8 billion in economic impact is treated the same as any other Kansas airport. But regular people can’t catch a flight at this airport.

    When government officials use stretched and inflated figures like these, they diminish their credibility. The Kansas Department of Transportation already snowed the Kansas public earlier last year with their claims of the need for huge spending on Kansas roads and highways.

    Here they’ve done it again, with claims that simply make no economic sense at all. The fact that news media laps up these figures without any skepticism or critical thought doesn’t help.

    Does this mean that Kansas and its local government shouldn’t offer airports and businesses like aircraft manufacturers help from the public treasury? That’s a different question for a different day.

    Today, however, we need to realize that accurate, reasonable, and believable information about Kansas airports and other transportation infrastructure isn’t available from the Kansas Department of Transportation.

  • Clusters as economic development in Kansas

    Is the promotion by Kansas government of industry clusters as economic development good for the future of Kansas?

    The formula for creating these clusters is always the same: Pick a hot industry, build a technology park next to a research university, provide incentives for businesses to relocate, add some venture capital and then watch the magic happen. But, as I have noted before, the magic never happens. Most of the top-down cluster-development projects in the United States and around the world have died a slow death in relative obscurity. Politicians who held the press conferences to claim credit for advancing science and technology are long gone. Management consultants have cashed in their big checks. Real estate barons have reaped fortunes, and taxpayers are left holding the bag.

    The author is Vivek Wadhwa, writing in the Washington Post article Industry clusters: The modern-day snake oil.

    Wadwha is criticizing Harvard professor Michael Porter’s cluster theory, which he says has to do with how “geographic concentrations of interconnected companies, specialized suppliers, and service providers gave certain industries a productivity and cost advantage.” Wardwha describes the magical potential: “[Porter’s] legions of followers postulated that by bringing these ingredients together into a ‘cluster,’ regions could artificially ferment innovation. They just needed to build the right infrastructure and bring together chosen industries.”

    It’s something that Wichita and Kansas has embraced. We hear — continually — about the importance of the aviation cluster in south-central Kansas and its importance to our state’s economy. Talk of this becomes particularly intense each time the major aviation companies and their suppliers approach local governments for handouts in the form of economic development incentives.

    Wichita Mayor Carl Brewer wants to create a cluster of wind energy companies in and around Wichita, and he has traveled as far as Germany in this quest.

    Kansas Governor Sam Brownback has embraced the cluster concept. In June, Governor Brownback promoted one such cluster, saying “As a state, we must formulate strategies to achieve a successful economic cluster around the animal health sector.”

    Other clusters the state wants to promote include life sciences, tourism, and, as aleady mentioned, aviation. Brownback has held summits on most of these topics. A presentation titled Kansas Competitiveness: State and Cluster Economic Performance, billed as “Prepared for Governor Sam Brownback” in February by Harvard’s Porter analyzes Kansas and its business clusters.

    Evidence that backs up Wardwha’s criticism of clusters is found in the recent paper When local interaction does not suffice: Sources of firm innovation in urban Norway (Rune Dahl Fitjar and Andrés Rodríguez-Pose). Summarizing it, Wardwha wrote: “The study found that regional and national clusters are ‘irrelevant for innovation.’”

    In particular, the paper states in its introduction: “The results indicate that firm innovation in urban Norway is mainly driven by global pipelines, rather than local interaction. The most innovative — both in terms of basic product innovation and radical product and process innovation — firms are those with a greater diversity of international partners. Local and even national interaction seems to be irrelevant for innovation.”

    And from the conclusion: “Recent analyses of clusters and agglomeration have looked for the sources of innovation of firms in the combination of the multiple interactions of firms within the region and in the connections of certain firms in the region with the outside world. The story emerging was one of complementarity. Local interaction took place without much effort through frequent face-to-face interaction in high trust environments, while global pipelines implied a conscious and often costly attempt by individual firms to engage with external actors in order to generate greater innovation and reap economic benefits. … There is a dearth of analyses that have systematically addressed whether the complementarity of these two types of interaction holds across a large number of firms. This has been the main aim of this paper, which has looked at the sources of innovation of 1604 firms across the five main urban agglomerations in Norway. The picture which emerges from the analysis does not conform to that generally stemming from the theoretical literature and from case-studies.”

    Is the promotion and pursuit of business and industry clusters a misguided effort by Kansas politicians like Brewer and Brownback and the state’s economic development officials? To the extent that promotion of certain industries means the state is using a top-down, “active investor” approach to economic development — rather than being the caretaker of a competitive platform that encourages as much business experimentation as possible — yes, it is misguided. We run the risk of all the problems described in the opening quotation appearing in this article.

  • Kansas jobs creation numbers in perspective

    This week the administration of Kansas Governor Sam Brownback announced job creation figures that, on the surface, sound like good news. But before we celebrate too much, we need to place the job numbers in context and look at the larger picture, specifically whether these economic development wins are good for the Kansas economy.

    The governor’s office announced that since January 10th, almost exactly one-half year ago, the Brownback administration is taking credit for creating 3,163 jobs. These jobs, according to the governor’s office, are in companies that are moving to Kansas or expanding their current operations. Some of the jobs, like those in the recently-announced Mars Chocolate plant to be built in Topeka, won’t start for perhaps two years.

    To place this number on an annual basis, extrapolating to a full year, we get 6,326 jobs created during the first year of Brownback’s term.

    That sound like a lot of jobs. But we need to place that number in context. To do so, I gathered some figures from the Bureau of Labor Statistics, in particular figures for the gross number of jobs created in the private sector. According to BLS, “Gross job gains are the sum of increases in employment from expansions at existing units and the addition of new jobs at opening units.” In other words, jobs created — just like the governor’s definition.

    Looking at the numbers, we find that for the years 2000 to 2009, the Kansas economy created gross jobs in the private sector at the average rate of 293,335 per year. Of course, jobs are lost, too. In Kansas, again for 2000 to 2009, there was a net loss of 61,394 jobs in the private sector. Not a good number.

    Each year, then, many jobs are created and lost, nearly 300,000 per year in Kansas. This illustrates the dynamic nature of the economy. Each year many jobs are created, and many are lost. Even in 2009 — a recession year — the Kansas economy created 232,717 jobs in the private sector. That same year 294,111 jobs were lost. But in most years, the number of jobs created is pretty close to the number of jobs lost.

    Kansas job gains and lossesKansas job gains and losses

    Now we have context. If we compare the 6,326 jobs (the extrapolated annual rate) the state created through its economic development efforts to the average number of private sector jobs created each year, we find that number to be 2.2 percent.

    If we use a recession year (2009) figure for private sector job creation, the state’s efforts amount to 2.7 percent of the jobs created by the private sector economy.

    These numbers, I would say, are small. About one of 40 jobs created in Kansas is created through the efforts of the state’s economic development machinery. This assumes that these jobs would not have been created without government intervention, and I think that’s something we can’t assume one hundred percent.

    These jobs that Brownback takes credit for come at great cost. In the case of Mars, the incentive package is reported to be worth $9 million, or $45,000 for each of the 200 people to be initially hired. I haven’t asked the Department of Commerce for a full rundown of the incentives offered, but in my experience the press releases and news stories based on them understate the full cost of the incentives.

    But in any case, the incentives used by the state’s economic development efforts have costs. Some require the direct expenditure of state funds.

    Some incentives require that the state spend money through the tax system in the form of tax credits. These expenditures made through the tax system have the same fiscal impact on the state’s budget as if the legislature appropriated funds and wrote a check for the amount of the tax credit.

    Other incentives require that the state give up a claim to tax revenue that it would otherwise collect. This means that other taxpayers must make up the difference, unless the state were to reduce spending.

    The cost of these incentives is born by the taxpayers of the state of Kansas. This cost is a negative drag on jobs that would have been created or retained in companies that don’t receive incentives. The Brownback administration knows this, although it doesn’t recognize this job loss when it trumpets its accomplishments in creating new jobs through targeted economic development incentives. One of the major initiatives of Brownback is to reduce Kansas taxes, particularly the personal and corporate income tax, in order to grow the Kansas economy. The governor — correctly — recognizes that low taxes are good for economic growth.

    The governor also needs to recognize that targeted economic development incentives have a cost. That cost is paid in the form of taxes that someone else pays. That cost leads to foregone economic activity, and that leads to lost jobs.

    While the state’s wins in job creation are easy to see — there are government employees paid to make sure we’re aware of them — the lost jobs, however, are spread throughout the state. These job losses don’t often take the form of a large — or even small — business closing or moving to another state, although sometimes it does.

    Instead, the job loss occurs in dribs and drabs across the state. A restaurant manager finds his store is not as busy as last month, so he lets a server go. A small retail outlet finds it can’t quite keep up with its overhead, so it shuts down. These events don’t often make news. The jobs lost are difficult to detect — nearly invisible — although the cumulative impact is very real.

    Instead of relying on traditional, targeted economic development efforts, Kansas needs to follow the advice of Dr. Art Hall. He recommends policies to encourage as much business experimentation as possible. These policies, basically, call for low taxes for all business firms. Then, it is through markets, not the government’s economic development officials, that successful and productive firms are identified.

    Portions of Dr. Hall’s advice was incorporated in Governor Brownback’s economic development plan. Specifically, page 10 of the plan contains this language: “Over the decades, Kansas has enacted a variety of tax policies intended to advance economic development. Many of them provide a meaningful economic incentive to make new investments and create new jobs. Almost all of the policies provide a meaningful incentive to a small number of worthy businesses to the exclusion of tens of thousands of other worthy businesses. The initiatives in this plan seek to end the exclusion. They begin the process of fulfilling the vision that every business matters; they seek to replace the old vision of ‘targeting’ with a new vision of ‘dynamism.’”

    It’s time that the governor and his administration apply this advice. That’s going to be hard to do. The crowing over the Mars deal — the very type of targeted economic development “win” that the plan criticizes — shows that politicians love to be seen as actively pursuing and creating jobs. A dynamic, free market-based job-creating economy requires that politicians and bureaucrats keep their hands off — something that goes against their very nature.

  • Kansas job growth — or lack of it

    The lack of job growth in Kansas should be in the news, as the figures are quite startling and reveal a stagnant Kansas economy when compared to nearby states. It’s also the one-year anniversary of the increase in the state-wide sales tax of one cent per dollar.

    But some want to stick their heads in the sand when it comes to the harmful effect of tax increases and the dismal performance of the Kansas economy. An example is from yesterday, when Wichita Eagle opinion page chief Phillip Brownlee editorialized that “Apparently last year’s sales-tax increase didn’t wreck the Kansas economy, as some predicted.”

    Perhaps Brownlee hasn’t been listening to what others have said. The most startling fact, and one that should be a wake-up call to anyone who cares about the future of Kansas, is the uncovering by the Kansas Policy Institute that Kansas is the only state to have a loss in private sector jobs over the past year.

    All the spending on schools, highways, and other government programs that are supposed to spur our economy to greatness have lead to this: last place. The only state with private-sector job loss. We couldn’t have done worse.

    Here are some charts based on data from the Bureau of Labor Statistics that illustrate. First, here’s the trend in Kansas employment, using January 2009 as the base. Other months are indexed from that number. The chart separately shows the trends in government and private sector employment.

    The effect of the recession on private sector employment has been severe, while government employment has fared much better. But government employees don’t create the wealth necessary to create prosperity for Kansans. Instead, the government jobs are a burden to our economy as they drain resources from the productive private sector.

    Of particular interest is the relative flatness of the curve over the past year. Around that time we’re told the recovery was taking place — it was on June 17, 2010 that President Barack Obama announced the “Summer of Recovery.” But Kansas private sector employment has remained largely unchanged since then.

    Kansas employment trendsKansas employment trends, government and private sector

    Comparing Kansas private sector employment to other states near Kansas produces a grimmer picture. All these states suffered from the recession, but many of these states did not suffer job losses as large as Kansas (on a relative basis).

    Then about a year ago, the trend in most of these states started to improve. But not Kansas.

    Kansas private sector employment trendsKansas private sector employment trends, compared to other states

    Even if one believes that government jobs create prosperity, Kansas has lagged here, too. It should be noted that Kansas has a very large number of government employees compared to its population. Kansas has 717.4 public employees per 10,000 population, which is number 48 in the nation. Only two states have more government employees, compared to population, than Kansas.

    Starting from such a high level of government employment may explain the following chart, where Kansas, when compared to neighboring states, has lagged behind in the change in the number of government jobs.

    Kansas government sector employment trends, compared to other statesKansas government sector employment trends, compared to other states

    Last year supporters of the increase in the sales tax made the case that more government revenue was necessary to avoid decreases in government employment. Judging by the record since then, the cost of the sales tax has been a stagnant Kansas private sector economy at the same time our neighbors are starting to grow employment. This is a policy that must be reversed. We know how to do this — the Rich States, Poor States: The ALEC-Laffer Economic Competitiveness Index report has evidence of polices that work to produce economic growth and those that don’t work. We simply need the will to implement them.

  • Economist: Kansas must improve its competitive position

    Last week the American Legislative Exchange Council released the fourth edition of Rich States, Poor States: The ALEC-Laffer Economic Competitiveness Index. This is an important study by authors Arthur B. Laffer, Stephen Moore, and Jonathan Williams that identifies states that use “best practices to enable states to drive economic growth, create jobs, and improve the standard of living for their citizens.” On Friday Williams was in Wichita and spoke to a group of business and political leaders at an event sponsored by Kansas Policy Institute and Wichita Independent Business Association.

    Williams said that there is reason for optimism in Kansas, but the news is not all good for our state. ALEC calculates economic outlook rankings, which is a “forecast based on a state’s current standing in 15 policy variables, each of which is influenced directly by state lawmakers through the legislative process, looking at states’ forecast for growth. In this ranking, Kansas fell from 25th to 27th among the 50 states in one year. A lot of this, Williams said, was due to the statewide sales tax increase of one cent per dollar which took effect on July 1, 2010. That will “leave a mark on competitiveness,” he added.

    Williams praised a bill in the Kansas Legislature this year which would have used increases in tax revenue to buy down the income tax rate. That bill, SB 1, known as the March to Economic Growth Act, passed the House of Representatives but did not advance out of committee in the Senate. This bill was important, Williams said, as one of the key findings of the Rich States, Poor States report is how important low income taxes are for economic growth.

    Kansas has a choice to make, Williams told the audience. Kansas could become a growth state like Texas, which has gained four Congressional seats over the last ten years. (Kansas has four seats. States gain Congressional seats when they grow in population more rapidly than other states.) Also, according to co-author Stephen Moore, Texas has created 40 percent of all jobs created during the recent economic recovery. Moore attributes part of Texas’ growth to having no personal income tax and living within its means.

    The other course is for Kansas to become accustomed to its mediocre, middle-of-the-pack ranking. But we may not want to live with the loss or prosperity that comes with this ranking. Williams cited research by KPI that show that Kansas was the only state to have a net loss of private sector jobs over the last year. All other states had at least some job growth.

    In ranking states on economic outlook, three of our our neighboring states — Colorado (number 6), Missouri (9), and Oklahoma (14) are in the top 15 states. This, said Williams, makes Kansas’ mediocre ranking of 27th look even worse.

    Williams outlined some principles that lead to effective tax policy. First, taxes ought to be simple. Complicated tax systems require much effort and cost to comply with, and are a deadweight loss to the economy.

    Transparency is important. It should be clear who is paying the tax. Williams said that business taxes violate this principle, as businesses pass on taxes to customers, employees, and investors.

    Neutrality — not using tax policy to select winners and lowers — is important, as government has a terrible record of success, and it leads to corruption in the manner of choosing winners.

    Predictability is important, and institutional controls like the taxpayer bill of rights or a super majority requirement to raise taxes help in this regard.

    Finally, tax policies must be pro-growth.

    Williams also said that increasing spending is not a good answer to economic problems. The ARRA (federal stimulus program of 2009) allowed states to live beyond their means for two years, and the money had many strings attached. Maintenance of effort requirements forced states to abandon good budgeting practices, and set states up to fail once the stimulus money stopped. In Kansas, the budget shortfall at the start of the legislative session in January was about $550 billion, and most of that was due to the end of the stimulus money.

    In analyzing tax policy, Williams told of how many people insist on using static analysis to predict the outcome of changes to tax policy. He showed the famous Laffer Curve, made prominent by co-author Arthur Laffer. The concepts illustrated by the curve include these: At an income tax rate of zero, the government collects no tax revenue. At a tax rate of 100 percent, again the government collects no revenue, as no one will work if all their earnings go to taxes. Between these two rates, revenue will rise as the tax rate is increased, until at some point tax revenue begins to fall with increasing tax rates. Eventually people figure out it just doesn’t pay to work any longer after the tax rate becomes too high.

    It’s important, therefore, to include human behavior and reaction to changes in tax policy. This is dynamic analysis — realizing that as tax rates change, people alter their behavior. Static analysis, on the other hand, doesn’t take this into account. Williams recounted an example as told in the book Flat Tax Revolution: Using a Postcard to Abolish the IRS by Steve Forbes:

    In 1989, Bob Packwood (R-OR) requested a revenue forecast from Congress’s Joint Committee on Taxation (JCT) on a hypothetical tax increase raising the top rate to 100 percent on incomes over $200,000. The JCT responded by forecasting increased revenues of $204 billion in 1990 and $299 billion in 1993. Essentially, the JCT predicted that people would continue to work even if the government taxed them out of every penny they earned.

    Williams said that only about ten states use a method of analysis different from static analysis when considering tax policy changes. Therefore, pro-growth tax policies often don’t get a good revenue score and are rejected for that reason. But the static models don’t take into account that as tax rates decrease, revenue may increase, or not decline as much as static models predict.

    On the state pension crisis, Williams said that official estimates understate the magnitude of the actual problem, as government accounting standards do not require states to fully recognize the full magnitude of recent investment losses. The losses may be spread over several years. Further, he said that states generally use an assumed rate of return that is greater than what is likely to be realized. He said that legendary investor Warren Buffet has recommended that state use six percent as their future earnings assumption. Kansas uses eight percent. Over long periods of time, which is the timeframe of pension plans, this difference in returns produces a large change in earnings.

    For more information on this report and its findings for Kansas, see Rich States, Poor States released for 2011. The report is available to read in its entirety at no cost at Rich States, Poor States: The ALEC-Laffer Economic Competitiveness Index.

  • Rich States, Poor States released for 2011

    For the most recent version of “Rich States, Poor States” see Rich States, Poor States 2012 edition released.

    This week the American Legislative Exchange Council released the fourth edition of Rich States, Poor States: The ALEC-Laffer Economic Competitiveness Index. This is an important study by authors Arthur B. Laffer, Stephen Moore, and Jonathan Williams that identifies states that use “best practices to enable states to drive economic growth, create jobs, and improve the standard of living for their citizens.”

    Kansas Governor Sam Brownback provided the forward for this year’s edition. In it, he wrote: “It is true that lowering taxes can be politically difficult: even fiscal conservatives start losing their enthusiasm for cutting taxes when special interest groups that consume a state’s tax dollars warn them that tax cuts will have dire consequences. But the consequences of being caught in a spiral of increased taxes and a decreasing rate of return on the tax base are much more dangerous.”

    On the state of states’ finances, the authors write: “it is clear a vast majority of states set themselves up to fail by spending beyond their means and hoping the market will keep up with their spending sprees.” This has been the case in Kansas, as illustrated in Why the Kansas budget is in trouble. In years of rapidly rising tax revenue, the legislature also increased spending just as fast. Instead, Kansas should have saved some tax revenue in a rainy day fund, lowered tax rates, or rebated excess tax revenue back to citizens.

    “Rich States, Poor States” evaluates states on two scales. The first, the Economic Performance Rank, is a “backward looking measure based on a state’s income per capita, absolute domestic migration, and nonfarm payroll employment — each of which is highly influenced by state policy. This ranking details states’ individual performances over the past 10 years based on the economic data.”

    The second measure, the Economic Outlook Rank, is a “forecast based on a state’s current standing in 15 policy variables, each of which is influenced directly by state lawmakers through the legislative process. Generally, states that spend less, especially on income transfer programs, and states that tax less, particularly on productive activities, such as working or investing, experience higher growth rates than states that tax and spend more.”

    For this year, in the “Overall Economic Outlook Rank,” Kansas comes in at number 27. The year before Kansas was number 25, and before that 24 and 29.

    For the “Economic Performance” rank over the years 1999 to 2009, Kansas is number 34. That’s up from number 40 the year before, which covered 1998 to 2008.

    What is it that hurts states? According to the report: “The policy blunders that hurt growth prospects the most are high income tax rates, forced union work rules, heavy regulation, an excessive state workforce, unfunded public pensions and health plans, poorly performing schools, and a litigation system that invites expensive and frivolous lawsuits.” Kansas ranks particularly poorly on two of these factors. We have a very large number of government employees compared to our population, and KPERS, the Kansas Public Employees Retirement System is grossly underfunded.

    Additionally, Kansas needs to fear the rush towards the false promise of “green energy” as economic growth. Some states are implementing new policies in this area that will harm their rankings. One, state based cap-and-trade taxes to address climate change, is not on the radar in Kansas. The other, renewable energy standards (RES) which force utilities to generate a certain level of power from “green energy” methods such as wind, is. As a U.S. Senator, Sam Brownback was in favor of RES, and said so during his campaign for governor. It seems that he has de-emphasized this talk since taking office, however.

    The report mentions several southern states that may soon phase out or eliminate their income tax, and Missouri, too, which would be a severe competitive blow to Kansas.

    Of interest to Kansans, the report notes the passage in one chamber of important tax-related legislation: “Hoping to keep pace with their neighbors to the south, legislators in Kansas recently passed important pro-growth legislation that would automatically phase down personal and corporate income tax rates. Under the proposal — the March to Economic Growth Act — which passed the House but stalled in the Senate, taxpayers would enjoy reduced income tax rates on personal and corporate taxes when state revenue grows.” This is another reminder that there was an election last year for House members and the governor, but not for senators.

  • Rich States, Poor States author to be in Wichita

    Kansas Policy Institute and the Wichita Independent Business Association are hosting a breakfast event featuring Jonathan Williams, one of the authors of Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index.

    This annual publication looks at each of the 50 states and evaluates them on several areas of economic competitiveness. Last year, Kansas ranked 40th for “Economic Performance Rank” and 25th for “Economic Outlook Rank.” It is feared that Kansas may fare even worse this year.

    The report is a source of much useful information. For example, did you know that Kansas has 696.3 public employees for each 10,000 people? That ranks us 48th among the states. That’s good news if you’re a public employee union organizer, but bad for everyone else.

    The event is at 7:30 am on Friday June 24th at Pioneer Balloon (5000 E. 29th St. N., across from the WSU Metro Complex). The cost is $10. Click here to RSVP by email, or call 316-201-3264.

  • Arts won’t go away in Kansas

    Supporters of government-funded art in Kansas are lashing out at Kansas Governor Sam Brownback for his decision to cancel funding for the Kansas Arts Commission. An example is the Wichita Eagle’s Rhonda Holman in her editorial A state for the arts?

    In her editorial Holman makes the claim that eliminating the Kansas Arts Commission exposes Kansas to the risk of losing federal and other funds. Many government art supporters state that the loss of funds in a certainty. But as I wrote earlier this year when I covered a hearing before a Kansas Senate committee, Kansas Legislative Research Department made inquiries to the Arts Alliance and the NEA. The answers from both agencies indicate that it is unclear as to whether the new Kansas Arts Foundation would be eligible to receive grants. In particular, the NEA answered, according to Legislative Research, “the potential exists for Kansas to forfeit its ability to receive National Endowment for the Arts funding depending on how the new entity in structured …”

    A related — and more important to public policy — question is why do we send tax money to Washington, only to have to jump through federally-designed hoops to get it back? We shouldn’t argue for the perpetuation of such a system just so we can receive matching grants.

    Holman and others make the case that the arts funding that Brownback canceled is small — “minuscule in the context of the state’s $13.8 billion budget,” she wrote. It’s not only a financial matter, although this factor alone is reason enough to cancel this funding. The arguments of supporters of this funding, small amount that it is, illustrate some of the worse aspects of government and public policy.

    Government funded arts supporters promote the government funding as an investment that pays off for Kansas taxpayers. They have studies that say it does. But these studies have little credibility, as shown in Arts funding in Kansas. These studies purportedly show that spending on the arts has a magic power that is not present when people spend their own money on the things they value most highly. But these studies, like most, rely on several economic fallacies. Henry Hazlitt, writing in Economics in One Lesson, explains.

    Economics is haunted by more fallacies than any other study known to man. This is no accident. The inherent difficulties of the subject would be great enough in any case, but they are multiplied a thousandfold by a factor that is insignificant in, say, physics, mathematics or medicine — the special pleading of selfish interests. While every group has certain economic interests identical with those of all groups, every group has also, as we shall see, interests antagonistic to those of all other groups. While certain public policies would in the long run benefit everybody, other policies would benefit one group only at the expense of all other groups. The group that would benefit by such policies, having such a direct interest in them, will argue for then plausibly and persistently. It will hire the best buyable minds to devote their whole time to presenting its case. And it will finally either convince the general public that its case is sound, or so befuddle it that clear thinking on the subject becomes next to impossible.

    The proposed funding for the arts commission is a clear illustration of the problem with many pleas for public funding. A small group of people will benefit powerfully from this spending. What about the rest of us? Government-funded arts supporters make the case that the cost of the funding is just 29 cents per person in Kansas. Who of us will get worked up over such a small cost?

    The Public Choice school of economics calls this the problem of concentrated benefits and dispersed costs. It’s a huge problem.

    Besides the financial aspects of government funding of arts, there’s the artistic issue itself. There are very important reasons to keep government away from art. Lawrence W. Reed wrote in What’s Wrong with Government Funding of the Arts? of the harm of turning over responsibility to the government for things we value and find worthwhile:

    I can think of an endless list of desirable, enriching things in life, of which very few carry an automatic tag that says, “Must be provided by taxes and politicians.” Such things include good books, nice lawns, nutritious food, and smiling faces. A rich culture consists, as you know, of so many good things that have nothing to do with government, and thank God they don’t. We should seek to nurture those things privately and voluntarily because “private” and “voluntary” are key indicators that people are awake to them and believe in them. The surest way I know to sap the vitality of almost any worthwhile endeavor is to send a message that says, “You can slack off of that; the government will now do it.” That sort of “flight from responsibility,” frankly, is at the source of many societal ills today: many people don’t take care of their parents in their old age because a federal program will do it; others have abandoned their children because until recent welfare reforms, they’d get a bigger check if they did.

    The boosters of government arts funding in Kansas make the case that arts are important. Therefore, they say, government must be involved.

    But actually, the opposite is true. The more important to our culture we believe the arts to be, the stronger the case for getting government out of its funding. Here’s why. In a statement opposing the elimination of the Kansas Arts Commission, former executive director Llewellyn Crain explained that “The Kansas Arts Commission provides valuable seed money that leverages private funds …”

    This “seed money” effect is precisely why government should not be funding arts. David Boaz explains:

    Defenders of arts funding seem blithely unaware of this danger when they praise the role of the national endowments as an imprimatur or seal of approval on artists and arts groups. Jane Alexander says, “The Federal role is small but very vital. We are a stimulus for leveraging state, local and private money. We are a linchpin for the puzzle of arts funding, a remarkably efficient way of stimulating private money.” Drama critic Robert Brustein asks, “How could the [National Endowment for the Arts] be ‘privatized’ and still retain its purpose as a funding agency functioning as a stamp of approval for deserving art?” … I suggest that that is just the kind of power no government in a free society should have.

    We give up a lot when we turn over this power to government bureaucrats and arts commission cronies. Again I turn to David Boaz, who in his book The Politics of Freedom: Taking on The Left, The Right and Threats to Our Liberties wrote this in a chapter titled “The Separation of Art and State”:

    It is precisely because art has power, because it deals with basic human truths, that it must be kept separate from government. Government, as I noted earlier, involves the organization of coercion. In a free society coercion should be reserved only for such essential functions of government as protecting rights and punishing criminals. People should not be forced to contribute money to artistic endeavors that they may not approve, nor should artists be forced to trim their sails to meet government standards.

    Government funding of anything involves government control. That insight, of course, is part of our folk wisdom: “He who pays the piper calls the tune.” “Who takes the king’s shilling sings the king’s song.”

    Around the country Kansas is being portrayed by government arts supporters as having taken a giant step backwards. For those who value the tenets of classical liberalism — liberty, individualism, skepticism about power, spontaneous order, free markets, limited government, and peace, to name a few — Kansas has moved forward, although I don’t imagine for a moment that all these attributes were motivators for Brownback’s decision. It’s sad and telling that arts supporters, who often claim to express the human soul and condition through their art — a viewpoint that ought to be sympathetic to classical liberalism — are not able to grasp the importance of this decision.