Voice For Liberty

Category: Kansas state government

  • What’s really the matter with Kansas

    By Dave Trabert, Kansas Policy Institute.

    A May 22 story in the Wichita Eagle about the Kansas Legislature’s lack of focus on job creation in the just-concluded legislative session provides great insight into the economic stagnation the Sunflower State has suffered over the last decade.

    According to the Kansas Department of Labor, between April 2008 and April 2011 the state lost 73,200 private sector jobs, 500 state government jobs and 500 local government jobs. Last year, despite warnings from two academic studies that a sales tax increase would cost thousands of jobs, legislators did it anyway — and sure enough, between July 1, 2010 and April 30, 2011 we lost 5,000 private sector jobs (seasonally adjusted according to the Bureau of Labor Statistics for comparability). State government employment didn’t change over that time frame.

    So what was the focus of that lengthy article? The loss of government jobs. Private sector jobs were barely mentioned.

    The Eagle article spoke of a large number of state job cuts without mentioning that the majority were vacant positions. But there was no mention of last year’s legislative action that destroyed private sector jobs by raising the sales tax so government could spend more money.

    That pretty much sums up the job problem in Kansas for the last decade: lots of concern about protecting government and not much more than lip service for the private sector.

    The article painted a dire picture for education but failed to mention that total state spending on K-12 will increase by more than $100 million next year. Mandatory spending increases on school employee retirement benefits, special education programs and school bond payments prompted a reduction in the starting point of the funding formula (base state aid), but legislators also passed a law allowing districts to make up the difference in base state aid. Districts are allowed to transfer carryover cash balances from a variety of funds for operational purposes — and all but one district started this year with enough money in those funds to do so. Most, in fact, have more than $1,000 per pupil in those funds. Districts have the ability to avoid the layoffs mentioned in this article, so why did the reporter and the people he interviewed fail to mention it?

    The reporter also didn’t provide readers with the context of the education job cuts. Statewide, there are 4.6% more teachers in the wake of the cuts than there were in 2005, and all other school employment is up by 8.6%, while enrollment is up just 3.1%. It’s a shame that those people lost their jobs but it would be nice to see just as much concern for unemployed private sector workers.

    The Rural Opportunity Zones created by the Kansas Legislature are a good step forward, but the change that would create more jobs than any other effort — eventually eliminating the income tax — was killed in the Senate. The Senate wouldn’t even allow it to be discussed.

    Kansas will continue to suffer the economic stagnation we’ve seen over the last decade until we stop valuing government jobs over private sector jobs. That’s what is really the matter with Kansas.

    Dave Trabert is the President of the Kansas Policy Institute.

  • Kansas needs a dynamic economic growth policy

    Note: Since Dr. Hall’s address to the Wichita Pachyderm Club covered below, the business expensing that he proposed has been signed into law by Governor Brownback. The governor also issued an economic development plan that incorporates large portions of Hall’s advice, but legislation expanding some of the present-day “active investor” economic development practices has also been signed into law. The Promoting Employment Across Kansas (PEAK) program, which allows companies to retain their employees’ payroll withholding taxes, has been expanded, but not so that it covers all new business firms, as Hall recommended.

    A dynamic market where many new business startups attempt to succeed and thrive while letting old, unproductive firms die is what contributes to productivity and economic growth. But most economic development policies, including those of Kansas and Wichita, do not encourage this dynamism, and in fact, work against it.

    That’s the message of Dr. Art Hall, who spoke to the Wichita Pachyderm Club on the topic “Business Dynamics and Economic Development in Kansas.” Hall is Director of the Center for Applied Economics at the Kansas University School of Business.

    At the start of his talk, Hall said that economic development has become an industry of its own, a public industry sometimes implemented as public-private partnerships. But its agenda is often not genuine economic development, he said.

    In a short history lesson, Hall described how Walter Beech came to Wichita from North Carolina simply because Clyde Cessna was in Wichita. Sprint began in Abilene in 1899. Fred Koch, who founded the company that became Koch Industries, came to Wichita because Lewis Winkler was here. “Serendipity — that’s the theme.”

    Hall displayed a map of taxpayer migration. There is a huge and wide swath of deep blue — representing the highest rate of out-migration — stretching north to south through the Great Plains, including much of Kansas. The Plains are urbanizing, Hall said. Pockets are doing well, but generally the rural areas are losing population. Economic development strategies must realize this long-term trend, he said.

    A chart showed the geographic distribution of income earned in Kansas. In 1970, 55 percent of income was earned outside the state’s two major urban areas: Wichita and the Kansas City and Lawrence areas. In 2008, that number had declined to 38 percent. The cause of this is people moving to cities from small towns and rural areas.

    On a map of Kansas counties, Hall showed how jobs are moving — concentrating — to a few areas of the state. “I think this is a positive development, because density tends to be a precursor to productivity, and productivity — meaning the value of output per worker — is one of the core fundamental definitions of economic growth.” It’s the reason, generally speaking, as to why cities are prosperous.

    Hall said that we should care about our rural communities, but if we slow down the process of densification, we may be losing out on productivity growth and its benefit to economic development.

    Continuing on this important theme, Hall said that the key to real and sustainable economic development is productivity growth: “Productivity growth happens on the front lines of individual businesses. You cannot will productivity growth. You cannot legislate productivity growth. You must create the conditions under which individual businesspeople, slogging it out on the front lines every day, create prosperity and productivity by trying new things and working hard. That requires a climate in which they feel optimistic enough to try new things, are rewarded for their efforts, and are willing to test new ideas.”

    Dynamism is one of the most underappreciated aspects of the U.S. economy among those working in economic development, Hall told the audience. There is a high correlation between the average size of a business and economic growth, and particularly employment growth. In other words, small companies tend to grow faster than large companies. In the chart Hall displayed, there is a clear demarcation at companies with about 20 employees.

    But most of our economic development policies have a bias towards big business. Hall said this is understandable. Further, he said that Wichita is a big business town, meaning that statistically, it is not poised to be a fast-growing area. Hall said we should create an atmosphere where we have lots of small businesses, where there is lots of experimentation. “If our economic development policies are biased against that, that is not helpful.”

    A chart showed that each year many business firms die or contract, and many others are born or expand. These numbers are large, relatively speaking: in most years, around 150,000 jobs are created through new firms or expansion of existing firms, and about the same number are lost. Given that Kansas has about one million jobs, each year about 30 percent of Kansas jobs are in in play, just as a result of business dynamics.

    Hall said that when the Kansas Department of Commerce announces the creation of 80 new jobs in Kansas, we need to remember that the marketplace swamps anything that individual economic development agencies can do. Hall called for policies that can handle a large volume of businesses — 15,000 to 25,000 — in growth mode each year. Our state’s economic development policies can not handle this level of volume, he said.

    Another chart of the states illustrated the relationship between job reallocation rate — the “churn” of jobs — and the economic growth rate in a state. States with high growth rates have high turnover rates in jobs. Kansas ranks relatively low in economic growth.

    Economic development policy should encourage new business startups, Hall said, although there is a high correlation between newness and death of businesses. “What you’re trying to do is have enough experimentation that enough good experiments take hold, and they grow.” This concept of experimentation is related to serendipity, or “making desirable discoveries by accident” that Hall mentioned earlier.

    But much economic development policy focuses on retaining jobs. Hall said that if what we mean by job retention is saving jobs in companies that ought to die, the policy is not productive. Instead, job retainment policies should create a climate where people can find new jobs quickly here in Kansas. Job retention should not mean bailouts, he added.

    Hall emphasized that while there is a high correlation between new businesses and being small, he said it is new businesses that are most important to driving economic growth.

    Newness of business firms is vitally important, Hall said. Summarizing a chart of Kansas job creating by age of the firm, he told the audience: “Without year-zero businesses [meaning the newest firms], the entire state of Kansas is almost always losing jobs. It’s the same for the United States. It’s the newness that matters. We want new businesses, but new businesses create churn, as there’s a high correlation between birth and death.”

    Hall said this is a complicated process, and that most discussions of economic development do not recognize this complexity.

    Hall explained that the state, in conducting economic development activity, often acts as an investor in a company. Specifically, he said that the state acts as an “active manager” similar to an actively managed stock mutual fund. The other type of investor or mutual fund is the passively-managed index fund, where the fund invests in all stocks, usually weighted by the size of the firms. Which approach works best: active management, or investing in all companies. This historical record shows that very few actively-managed funds beat index funds, only 2.4 percent from 1994 to 2004.

    Hall said the data shows it is very difficult to predict which are the right firms to pick to come to Kansas. Therefore, we need policies that benefit all companies in order to have a dynamic market in new business firms. “Everyone gets the same deal,” he said.

    Hall recommended three specific policies: First, universal expensing of all new capital investment made in Kansas, which means that companies can deduct new investment immediately. Second, eliminate the tax on capital gains. Third, automatic property tax abatements for new or improved business investment for a period of five years.

    Hall’s talk was based on his paper from earlier this year titled Embracing Dynamism: The Next Phase in Kansas Economic Development Policy. That paper contains the charts referred to, and also more detail, additional information, and policy recommendations.

  • In Kansas Legislature this year, 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.

  • Kansas needs large ending balance

    Negotiations between Kansas House and Senate budget committees are stalled due to differing opinions on how large an ending balance the budget should have, if it should have any balance at all.

    We need to have a large ending balance for two reasons: First, the larger the ending balance, the lower the planned spending. Kansas government needs to spend less. While proponents of a small ending balance (which is the same as wanting to spend more) make their case with images of closed schools and abandoned senior citizens, the state is spending a lot of money that could be shifted to these programs.

    Second, in recent years the legislature has left too small an ending balance, and the governor has had to make allotments, or spending adjustments. This has been the case because revenue incoming to the state was lower than expected. Legislators construct the budget based on forecasts from the state’s consensus revenue estimating group. These forecasts, of course, are subject to error and all sorts of uncertainty that can’t be forecast. The group has had a tendency to overestimate future revenue recently, as shown in the chart below.

    If this trend of overestimating continues — and we don’t know if it will — a budget with a small ending balance will probably force spending cuts to be made mid-year. It would be better if we planned for them now.

    Kansas Consensus Revenue Estimating Group Error

    The chart shows the percent error between the consensus revenue estimating group’s initial estimate of revenue for a year and the actual results. It seems that the group has a tendency to underestimate the magnitude of the swing of actual results, both good and bad. During the recession years of the early 2000s, the group was too high in its estimates (leading to a negative error percentage). Then during the following boom years the group underestimated. For the past two years the group forecast much more revenue than the state actually received, leading to some of its largest errors, in relative terms.

  • KPERS editorial a disservice to Kansans

    A recent Wichita Eagle editorial written by Phillip Brownlee urges caution in proceeding with changes to KPERS, the Kansas Public Employees Retirement System. The editorial has two areas that we should be concerned about, as the facts Brownlee provides leave time for proceeding cautiously. The actual facts leave no such margin for maneuvering.

    Brownlee cites $7.7 billion as the shortfall or unfunded liability in KPERS. This is highly misleading. It’s true on a certain technical level, but on an economic level — meaning what really counts — it is dangerously misleading. Neither Brownlee or the KPERS Fiscal Impact Report he refers to mention $1.7 billion in asset value losses that don’t have to be included in reports. (It’s possible with recent rises in financial markets that some of theses loses have been recouped, but we don’t know that at this time.)

    Additionally, the $7.7 billion figure is based on an unrealistic assumption: that KPERS investments can earn an annual return of 8.0 percent. Since most calculations involving retirement plans involve long periods of time, even a small change in the rate of return can produce some large changes in values. KPERS actuaries say that if the rate of return was 7.5 percent instead of 8.0 percent, that small change would cause an additional unfunded liability of $1.3 billion.

    Adding these factors together — the reported unfunded liability, the unrecognized losses, and a more realistic rate of return — and we come up with an unfunded liability of $10.7 billion. And some would say a 7.5 percent assumed rate of return is too high, which adds even more unfunded liability. For example, the Employees Retirement Income Security Act (ERISA) recommends that private employers assume a 6.1 percent return on assets in private pension plans. And with a note of irony, in illustrations of what benefits from a defined contribution plan would look like, the KPERS report uses 7.0 percent return prior to retirement and 5.0 percent return following retirement.

    Growth over time of contributions at different rates of returnIllustration of how the rate of return impacts the growth of a stream of contributions over time: Small changes in rates produce large differences in ending balances. KPERS uses 8.0 percent in its assumptions, while some authorities recommend 6.1 percent.

    What we’re not facing is the fact that the KPERS unfunded liability is much larger than reported by Brownlee and by most of the other news media in Kansas.

    A second problem is the largely successful attempt by state employee unions to convince Kansans that the KPERS unfunded liability can be paid off only if the present defined-benefit system is maintained. Supporters of the present system say that if a defined-contribution plan is established for new employees, it will be too expensive to pay off the unfunded liability.

    But the fact is that unless the state wishes to renege on its promises, the unfunded liability must be paid off. It doesn’t matter whether it’s paid off as part of a reformed defined-benefit or new defined-contribution plan, or even if the state were to appropriate funds apart from payroll contributions. The bill must be paid.

    And since the Kansas Legislature has shown itself incapable or unwilling to funding the promises it has made, its vital that we stop enrolling new employees in the present defined-benefit plan.

    While the present legislature seems intent on solving the problem, it’s hard to place much faith and trust in their seriousness. Consider the motives and incentives of legislators: If legislators were to give state employees raises, that would require them to raise taxes or cut services. But granting generous retirement benefits is another matter. The bill for these benefits doesn’t come due until many years later — as we are now painfully aware. Except, of course, that the legislature should be paying, on an annual basis, the amount necessary to provide the promised benefits. The Kansas Legislature hasn’t done this for a long time, and that’s part of the reason why KPERS is in a mess.

    Promises by lawmakers to behave well in the future must be discounted. The present defined-benefit retirement plan allows them to make promises they don’t have to pay for. With the discipline of a defined-contribution plan — the 401(k)-type plans that almost all private sector workers have — we don’t have to worry about present legislators heaping debt on yet another future generation.

    Note: Today’s editorial by Brownlee holds this conclusion: “The state may also need to make additional reforms to limit future liabilities for new employees, such as reducing plan benefits or possibly switching to a 401(k)-like plan. Climbing out of this hole will be a struggle. But the sooner the state starts, the better. At the very least, it needs to stop digging the hole even deeper.” Canceling the defined-benefit plan for new employees is the best way to “stop digging.”

  • Kansas economic indicator improves, but lags region

    Today Professor Ernest Goss of Creighton University released the Mid-America Leading Economic Indicator. Some key findings are that the index, with is a leading indicator of future economic activity, dropped for the second consecutive month for the Mid-America region. Also, inflation is a threat: “Higher commodity prices, especially for energy products pushed our inflation gauge to its highest level since we initiated the survey in 1994,” said Goss.

    The Creighton Economic Forecasting Group has conducted the monthly survey of supply managers in nine states since 1994 to produce leading economic indicators of the Mid-America economy. States included in the survey are Arkansas, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, Oklahoma and South Dakota. The press release and discussion is at Mid-America Leading Economic Indicator Slides Again.

    Kansas in the index

    The index value for Kansas rose this month. For eight of the past nine months it has been above the value of 50, which indicates a outlook above “growth neutral,” meaning the economy is expected to expand over the next three to six months.

    But the accompanying chart shows a troubling tendency for the index value for Kansas to be below that for other states and the region. Since January 2010, the average value of the index has been far below that of the U.S., the Mid-America region, and several of our peer states. According to Goss, aviation and telecommunications are responsible for Kansas’ poor performance.

    Leading economic activity index from Creighton UniversityLeading economic activity index from Creighton University .
    Kansas leading economic indicator compared to othersKansas leading economic index compared to others.

  • Leading index for Kansas economy improves, but lags behind peers

    For the second month in a row, an indicator of future economic growth in Kansas has improved, but the index is below 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.”

    This index, which is again a leading indicator with a six-month time lag, has lately hovered around zero. The average value for the index for the last six months is 0.04. Positive values mean the coincident index is expected to rise, while negative values mean it is expected to fall.

    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.

    Kansas compared to others

    Comparing the value for Kansas to that for the nation as a whole and surrounding states plus Iowa, we see a troubling trend emerge. 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. 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.

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

  • KPERS solution not likely this session

    With little time left for the Kansas Legislature to meet this year, and with the budget still not passed, it’s not very likely that action will be taken to reform the Kansas Public Employees Retirement System (KPERS). Especially when there’s a study commission waiting in the wings to take the pressure off lawmakers to take action now. It should be noted that the “best” plan, in terms of making a start on the reforms KPERS needs, still falls short of making the fundamental reforms that are required. Below, Kansas Reporter provides details of the political wrangling.

    Lawmakers spar over Kansas pension proposal

    By Gene Meyer
    April 28, 2011

    (KansasReporter) TOPEKA, Kan. — Kansas House and Senate negotiators offered sharply differing approaches Thursday to one of the biggest changes proposed for the state’s underfunded government employees pensions plans.

    House negotiators, led by state Rep. Mitch Holmes, a St. John Republican and chairman of that chamber’s Pension and Benefits Committee, are adamantly backing a House proposal that would convert what now is a traditional pension plan for Kansas teachers, state employees and local government workers into what’s known as a defined contribution plan for workers hired after July 1, 2013.

    Such plans, including the 401(k) plan versions many private employers offer, provide retiring workers with pools of savings with which to supplement Social Security or other resources, but not guaranteed lifetime pensions. That would limit future exposure of Kansas taxpayers — who pay the employers’ current contributions equal to 8 percent or more of each workers’ salary into the system — to rising pension plan costs. Those costs, according to Kansas Public Employees Retirement Systems projections presented in February, could rise to equal more than 21 percent of some workers’ paychecks in two decades and still leave one group of penson funds, for Kansas teachers, out of balance.

    “What my colleagues in the House, and even some Senators, are telling me is, ‘don’t back down,’” Holmes said after negotiators met Thursday to define the broad outlines of differences between the House and Senate plans.

    “The Senate rejects defined contributions,” said state Sen. Jeff King, an Independence Republican and vice chair of the Senate Select Committee on KPERS, who is leading the Senate negotiators.

    Senate negotiators want a special KPERS commission to study the defined contribution idea along with other potential solutions between now and the end of next year’s legislative session. Critics of the defined contribution proposal worry that such a plan would worsen the cash bind to which KPERS appears to be heading because it would reduce what is paid into the plan for traditional pension benefits current workers would continue to earn for another few decades.

    “Defined contributions are a non starter as far as the Senate is concerned,” King said.

    But that is just for 2013 as the House has proposed, he said; “Everything would be on the table for the study commission.”

    The proposed commission is the brainchild of state Senate President Steve Morris, a Hugoton Republican who Kansas Gov. Sam Brownback last winter named as point man for legislative efforts to deal with the pension funding gap. Brownback has been quoted as saying he thinks some version of a defined contribution plan is inevitable for KPERS, whether it’s a relatively pure version such as private employers offer or a hybrid plan that would include some pension-like guarantees.

    The funding hole that legislators are trying to fill is an officially projected $7.7 billion gap between benefits that KPERS has promised to pay its approximately 250,000 members over the next few decades and the money it is projected to have by then to pay those benefits. Unofficial estimates put the gap in the $9 billion to $12 billion range, based on a combination of lower market level of rates of investment returns than KPERS presumes for planning purposes and longer recovery times that will be needed to recoup market setbacks.

    House and Senate negotiators were agreed Thursday on a few broad ideas for closing the gap. Both broadly agree to offer employees a choice between increasing workers contributions to maintain current formulas for calculating retirement benefits or leaving contribution rates unchanged and reducing the formulas for future benefit calculations. Some of these proposed changes would require Internal Revenue Service approval.

    Both also broadly agree to accelerate the rate at which taxpayer contributions are increased — now capped at 0.6 percent per year — to at least 1.2 percent by 2017.

  • Kansas Chamber finds voters favor cuts, not tax increases to balance budget

    A survey of Kansas voters conducted on behalf of the Kansas Chamber of Commerce found widespread support for cutting spending rather than raising taxes as the way to balance the Kansas budget. Support was also found for cutting state worker salaries, or reducing the number of state employees.

    The survey was conducted on April 21 and 25 by Cole Hargrave Snodgrass & Associates, Inc. of Oklahoma City. 500 registered voters participated. The survey margin of error is given as 4.3 percent. The company says respondents were balanced for geographic region, gender, and partisan registration.

    One question asked respondents’ opinion of the general course of the state: “Generally speaking, do you think that things in Kansas are going in the right direction or do you think that things have pretty seriously gotten off on the wrong track?” 31 percent responded “right track,” while 47 percent said “wrong track” with the remainder undecided.

    As a point of comparison, a recent Rasmussen poll asked a similar question of voters across the country. 71 percent said the country is heading down the wrong track, with 21 percent saying the country is headed in the right direction.

    When presented with the fact that Kansas is faced with a $500 million budget shortfall, 13 percent said the state should raise taxes, 69 percent said to cut spending, and 18 percent were undecided among these options.

    The survey found widespread support for cutting spending across demographic groups. Among self-identified liberals, 56 percent said to cut spending, with 27 percent wanting to raise taxes. Of those in homes with less than $40,000 income, 75 percent said cut spending, with nine percent in favor of raising taxes. For respondents who favored reelecting President Barack Obama, cutting spending was favored by 48 percent, with only 28 percent of those in favor of tax increases. For those who disapprove of the job Governor Sam Brownback is doing, the numbers were similar, with spending cuts favored 43 percent to 33 percent wanting tax hikes.

    The issue of possible pay cuts for state employees has been considered by the Legislature and has been in the news. The survey asked this question with the following results:

    It has been discussed that state employees may be forced
to take a pay cut in order to balance the budget.
Which of the following best describes how you 
think the state deal with this situation?
State emp. salaries should not be cut            13%
State emp. salaries should be cut up to 3%       17%
State emp. salaries should be cut 3 to 5%        16%
State emp. salaries should be cut 5 to 10%        3%
State emp. salaries should be cut more than 10%   2%
Instead of cutting salaries, we should cut the
number of state employees                        31%
Undecided (vol.)                                 18%

    In its analysis of the responses to this question, Cole Hargrave wrote “Kansas voters also demonstrate a desire to make real cuts and are not just reacting with an anti-tax sentiment. When asked about how much the salaries of state employees should be cut, only 13% said they should not be cut. Most remarkable is that 31% of voters said that instead of cutting salaries, the total number of state employees should be reduced. Fully 67% of Kansas voters support either elimination of employee positions are at least a 3% cut.”

    The governor’s budget calls for not filling some 2,000 vacant state jobs.

    The survey also asked about attitudes toward state government competing with private sector provision of a service when the private sector is doing a good job. 73 percent of respondents agreed strongly or somewhat that the state should not compete, with 12 percent disagreeing and 16 percent undecided. The survey did not provide respondents with an example of a competitive situation.

    Respondents showed disapproval of the job President Obama is doing, with 28 percent favoring his reelection, and 57 percent desiring someone else to be elected. Governor Brownback fared better, with 49 percent approving to some degree the job he has been doing. 21 percent disapproved to some degree, with 29 percent undecided.