Perry, KS. Caleb Stegall issued the following statement today on behalf of his client, Kristian Van Meteren, in the wake of the monthly meeting of the Kansas Governmental Ethics Commission:
This afternoon, under the pressure of litigation, the Kansas Governmental Ethics Commission has fully and completely recanted and rescinded its findings and the $7,500 fine it had previously imposed on my client, Kristian Van Meteren, for exercising his constitutionally protected rights to free speech.
By vacating its prior order after challenge in court, the Commission has both tacitly and, through its counsel at the Kansas Attorney General’s Office, expressly conceded that its actions violated Mr. Van Meteren’s constitutionally guaranteed rights to free speech. As such, today’s action is a victory for the liberties of all Kansans.
Unfortunately, though Mr. Van Meteren’s legal rights have been clearly vindicated and he has emerged from this litigation victorious, it has not been without cost. This episode illustrates clearly the abuses that can occur when agents of the State choose to use their power to advance a political agenda, to reward friends, and to discourage political opponents. In fact, were it not for my client’s commitment to liberty, his willingness to expend his own resources to fight this injustice, and his dogged adherence to his clearly protected rights, the Commission would not have been forced to this decision and the speech of all Kansans would remain constrained. While today’s victory is clear, only continued vigilance on the part of citizens can protect against these kinds of abuses in the future.
As such, today’s decision does not end this matter. Mr. Van Meteren has been damaged by the Commission’s actions in having to expend time, energy, and financial resources to clear his good name. In addition, he has suffered the indignities of the Commission’s actions and prior public statements. We fully intend to evaluate Mr. Van Meteren’s options to pursue further recourse in federal courts for this clear and admitted violation.
Finally, we call on the Kansas Legislature to immediately address the unconstitutional statutes and regulations of the Commission at the convening of the 2010 session. Nothing short of a full review and rewrite of those laws will prevent such abuses from occurring in the future.
Here’s a message from Americans For Prosperity — Kansas that, I believe, accurately assesses the current legislative session — now nearly over — and also the past few sessions. AFP State Director Derrick Sontag doesn’t mention the inflow of federal stimulus funds which took a lot of pressure off the legislature. That stimulus money isn’t free, however, and the burden of paying for it will show up somewhere else in the future.
TOPEKA — Kansas legislators are wrapping up the 2009 Kansas Legislative session. Although some progress was made toward closing the state’s budget deficit, long-term solutions were not created, said Americans for Prosperity-Kansas state director Derrick Sontag.
“Last week Governor Parkinson and many in the Legislature put multiple tax increase proposals on the table for consideration involving halting the phase-outs of the franchise and estate taxes, along with decoupling legislation,” Sontag said. “AFP vehemently fought these proposals, communicating to lawmakers that Kansas taxpayers shouldn’t bear the brunt of the Legislature’s failure to efficiently spend tax payer dollars.
“While we’re pleased that legislators were willing to make some tough decisions on the budget without simply turning to taxpayers for more, it’s disappointing to see where their priorities were in terms of budget cuts.”
The bill sent to the Governor for approval includes an additional $38 million in bonding for the statehouse renovations while slashing public safety funding by $8 million, as well as cutting more than 10% of funding to the Judiciary that may result in a 30 day furlough for certain Judiciary employees.
“We fear this budget is too short-sighted, as we will be no better off in the fiscal years ahead,” Sontag said. “According to Kansas Legislative Research, in the next two fiscal years, 2011 and 2012, our deficit will be even more than the $330 million shortfall for fiscal year 2010.
“It’s key to remember that just 22 months ago we had $934 million in the bank and now, even with the tax bill passed by legislators, our ending balance will be only $17,000.”
Sontag said we must change the way we spend money in Topeka because temporary budget cuts and shifting money around will not make our state fiscally solvent.
“This would not have happened had our expenditures only matched receipts for the past four years, but we let spending spiral out of control,” said Sontag. “State general fund spending increased by 48% between FY 2004 and FY 2008, while revenue receipts increased by 38% during that same time period. The days of deficit spending have come to an end and now the legislature should focus on enacting budget reform measures from this point forward.”
AFP has supported such budget reform measures as zero-based budgeting, which requires agencies to take a top-to-bottom approach look at their expenditures, and a budget stabilization fund that requires the state to put money aside as a cushion to see us through economic downturns without making drastic cuts to essential government services and public safety.
“Public safety is the most essential function of government, yet some lawmakers chose to cut its funding by millions of dollars instead of applying more cuts to public education, a part of government that has realized a 53% increase in spending since 2003,” said Sontag. “AFP will continue to encourage legislators to consider real budget reform in the future to address the budget situation, without increasing the burden on taxpayers in the next session.”
Over the past year, private sector employment in Kansas declined by 1.9%. At the same time, public sector employment — these are government employees at all levels — increased by 1.9%. (Indicators of the Kansas Economy)
Considering state employees, there were 41,609 FE (full-time equivalent) employees in fiscal year 2008. The estimate for FY 2009, from the Governor’s Budget Report is 41,808, an increase of just less than one-half of one percent. But it’s still an increase, at a time when businesses across the state are shedding jobs to meet challenging economic conditions.
In the Kansas Senate, there was a proposal yesterday to reduce state spending by an amount necessary to balance the Kansas budget. Instead, the measure passed doesn’t balance the budget unless “revenue adjustments” are made. These adjustments, which mean higher taxes on business, will have the effect of reducing private sector employment in Kansas. Government jobs, however, will be preserved.
That’s not a wise move for Kansas — increasing the size of government at the expense of business.
Many Kansas Senate Republicans recognize this and voted accordingly yesterday. But there are three in particular who didn’t. These three — Senate President Stephen Morris, , Vice President John Vratl, and Majority Leader Derek Schmidt — unfortunately, and inexplicably, hold the senate’s top leadership positions.
Dr. Walt Chappell of Wichita is a newly-elected member of the Kansas State Board of Education. He has some realistic perspectives on school spending in Kansas. As the Kansas legislature struggles to close the gap in the budget, the public school spending lobby is resisting cuts.
Following is a letter Chappell sent to Kansas legislators. His cost reduction proposals follow the letter. Contact Dr. Chappell at chappellhq@chappell4ksboe.com or through his website Walt Chappell.
Substantial cuts in K-12 spending are both necessary and possible this year
With a billion dollar deficit in the General Fund, the Legislature is required by the State Constitution to balance the FY2010 budget. Since K-12 education is 51% of that budget, substantial savings must be found without cutting vital instructional programs. The question is — where to make these cuts in spending with the least impact on student learning and classroom teachers.
It’s all about making choices. The Federal Stimulus dollars are targeted to students who qualify for Title I, Title II and Special Ed. funding. So, many subjects and programs will be cut if the Legislature does not take action now to first make substantial savings in non-instructional expenses.
For example, Driver’s Education is being cut back yet traffic accidents are the main cause for death among teenagers. The Kansas School for the Deaf and the Kansas School for the Blind are being considered to be closed after nearly 100 years of service. Where will these deaf and blind students go to attend school? Local schools do not have the staff, specialized equipment or facilities to teach these students. Without proper instruction, these young people will need expensive tax supported services the rest of their lives. Likewise, fine arts, foreign language and vocational education courses are being cut or scaled back just when we need them most.
As a strong supporter of public education, I have proposed five specific legislative actions which will save nearly $500 million dollars per year. It is clear, that without substantial savings in K-12 education this legislative session — while Federal Stimulus dollars take up the slack — the hole to fill will be much bigger next year.
It is time to save the instructional programs our kids need to compete in a global economy. Merging the hundreds of small Kansas school districts, increasing the productivity of K-12 teachers and college faculty plus putting a hold on the use of State matching funds for new school construction projects will make sure we are making wise choices.
As an example, the passage of SB20 will save about $100 million per year and put a temporary hold on using State money for bonds sold after January 1, 2009. This is a realistic and practical way to help “stop the bleeding” of taxpayer dollars and save that money for more important education and State programs. It will also cause local districts to rethink which building projects they really need.
Let’s work together to find practical ways to reduce spending and save money for high priority programs. For me, cuts in instructional programs are not an option when major savings can first be achieved from reductions in educational administrative, transportation, operation and maintenance costs.
Businesses and families throughout Kansas and America are making these tough choices. I know that you are also thinking hard and want to do the right thing for Kansas students and families. So, please make substantial cuts in non-instructional programs now so that vital education programs and State services can continue.
(This is a Scribd document. Click on the rectangle at the right of the document’s title bar to get a full-screen view.)
Dear Kansas Legislator, March 2, 2009 The voters elected you and me to “think outside the box” and make hard decisions. As a member of the Kansas State Board of Education, I have given a lot of thought to the following powerful proposals which will save millions of dollars in education costs during FY2010 and years to come without reducing the quality of instruction for Kansas students. The $563 million in Federal Stimulus funds for K-12 education will help offset these reductions. But, I urge you to pass and implement these cost savings—this legislative session. 1) Define a Kansas School District as having 10,000 students or more. This will save $300 million per year by reorganizing and merging Kansas school districts. (Below are examples of cost savings from school superintendents Little and Kennedy.) 2) An Equal Day’s Pay for an Equal Day’s Work!! Since 80% of education costs are for personnel, to lower expenses and optimize the use of existing classrooms, the Legislature must first increase the productivity of K-12 teachers and Post-Secondary faculty. 3) Pass SB20 to halt State payments on school bonds not yet issued. Over $800 million in new bonds were voted last November and pitched by special interest contributors claiming the State has “free money” of 25% and more. There is NO FREE LUNCH!! 4) Save 3-4% of K-12 costs by passing Pay-to-Play for varsity sports. The extra costs for coaches, busses, insurance, referees, utilities and facilities needs to be spent on teaching employable skills to all students. Our graduates first need to qualify and compete for jobs. 5) Change the definition of At-Risk students and base the weighting in the school finance formula on the number of students actually having difficulty learning. 1) SAVE $300 MILLION THROUGH SCHOOL DISTRICT REORGANIZATION: The current State budget shortfall makes it necessary for each of us as leaders to “Do More With Less”. Government costs too much in Kansas because there are too many taxing units with the authority to increase taxes and fees rather than operate efficiently. This is especially true in Kansas K-12 school districts. Each year, over $300 million could be saved in Kansas by merging the 296 school districts into (+/- 40) administrative units of 10,000 students or more. Below are district enrollments for 2007 showing that currently only 7 districts in Kansas have over 10,000 students. There are 252 school districts or 85% which have less than 2,000 students. This is not cost-effective. Number of USDs by Enrollment Categories 201-399 400-1,999 2,000-9,999 70 152 37 Total 2006-2007 Enrollment 468,778 < 100 4 101-200 26 > 10,000 7 Total 296 In addition to saving $300 million per year in state general fund expenditures, by reorganizing districts, the tax base in each district will increase which will help equalize the educational opportunity for each Kansas student—no matter where they attend school. Increasing the tax base will also help districts raise local dollars through their LOB while lowering the amount of property tax paid by each taxpayer. Most of the savings will come from the elimination of duplicate transportation, administrative, operational and personnel costs. Article 6 of the Kansas Constitution gives the Legislature the responsibility and authority to reorganize school districts. It states: Constitution of the State of Kansas Article 6.–EDUCATION 1: Schools and related institutions and activities. The legislature shall provide for intellectual, educational, vocational and scientific improvement by establishing and maintaining public schools, educational institutions and related activities which may be organized and changed in such manner as may be provided by law. School district reorganization will establish “Regional Education Districts”. It is NOT about closing schools or eliminating Friday night football or basketball in hundreds of small Kansas towns. Instead, it is getting smart about how we use limited tax dollars by cutting millions of dollars of duplicate expenses. Rather than waste this $300 million each year, we must use these savings to teach our kids employable skills and help fund other vital government services. At the end of this letter is a brief description of the advantages and an example of how the savings are achieved as proposed to the Kansas Legislature by Superintendents Dr. Sharol Little from Manhattan and Mr. Ken Kennedy from Pratt in 2003. A simple definition of a school district added to the Omnibus Budget Bill can read: To receive State General Fund per pupil dollars, a school district in Kansas must enroll at least 10,000 students or more by September 20th, 2011. This amendment needs to be passed this legislative session. It puts in Statute two key factors—FTE student enrollment plus a date certain for local boards to work together to reorganize to set district boundaries within their regions. School Board elections for the new districts will follow. By acting now, small districts around the state will have time during FY2010 to work out compatible boundaries and merger details. To facilitate passage, I and others will be glad to testify during legislative committee hearings on how to implement this reorganization and save money. 2) INCREASE PRODUCTIVITY OF K-12 TEACHERS AND POST-SECONDARY FACULTY BY LEGISLATING A FAIR DAY’S WORK FOR A FAIR DAY’S PAY Since education costs are 80% for personnel, a significant way to reduce expenses is to increase productivity. This fact is true for both business and government agencies. Stated simply, it is A Full Day’s Work For A Full Day’s Pay!! Having Team Time, Teacher In-service, and Planning Periods when students are in school increases class size and leaves classrooms empty during the day. In some schools, as much as 1/3rd of each school day teachers are not teaching students. So, by inserting the following language into KSA 72-5413(l) and KSA 72-5417(3), local boards of education and post-secondary administrators will have statutory authority to lower costs, reduce student-teacher ratios and make optimum use of classroom space. Below is sample wording for such an amendment for K-12 school districts. To receive a full-time salary, each Kansas K-12 teacher must be in the school building not less than eight hours per day. While students are in the school building, each K-12 teacher must teach each class period. After the students leave the attendance center at the end of each school day, the teachers shall remain in the building to grade papers, hold parent-teacher conferences, collaborate with other teachers, attend in-service training, tutor students, sponsor after school clubs or supervise other activities such as intramural sports. The problem of low productivity is even more expensive at most post-secondary colleges and universities. Full time faculty are paid to teach 12 credit hours. But many large classes of Freshmen and Sophomore students are taught by graduate teaching assistants. So the number of students taught per semester by full time faculty is often 50 students or less. Furthermore, since most university and college classes are taught in the morning, this leaves faculty free during the afternoon for endless meetings, class preparation, and grading papers. The classrooms are empty most of the day so many faculty simply leave campus to do personal errands or go home. Below is sample wording to increase the productivity of post-secondary faculty. To receive a full time salary for teaching at a Kansas Post-secondary college or university, faculty must teach a minimum of 12 credit hours with at least 100 FTE students per academic semester. Graduate teaching assistants will only be paid to lead discussion groups, grade assignments and tests or prepare laboratories and classroom space for faculty but not to teach course content. Students and parents are paying ever increasing tuition to learn from experienced faculty. Kansas taxpayers and the State Legislature also expect faculty to teach. So, by assuring that faculty are actually teaching students, existing classrooms will be used more effectively plus students and taxpayers will receive full benefit from the faculty sharing their knowledge and experience. 3) ELIMINATE STATE PAYMENTS ON UNISSUED SCHOOL BONDS: As you know, SB20 bill has been introduced this session in the Senate Ways & Means Committee. It is very responsible, practical legislation. If passed, it will temporarily stop the use of State revenues to pay for new school bonds sold after January 1st, 2009. This bill will impact the over $800 million in new bonds approved by voters on November 4th, 2008. It will save Kansas taxpayers +/-$400 million over the life of the bonds if the school districts decide to sell these bonds between now and 2011. In most cases, it will also cause the local districts to set priorities and cut the fat out of their construction plans so that local property tax payers are not paying more than was on their ballot. Many of these building projects will not improve student achievement. For example, contributors in Wichita who supported the $370 million bond election were not parents or major employers—they were contractors and architects who wanted huge contracts funded by the taxpayers. This was pure greed. They “bought the election” by purchasing massive TV ads and over 10,000 yard signs. They also distributed thousands of 25% buttons with the implication that the State of Kansas had free money to help pay these bonds. In many small districts, the State’s portion would be 30% to 50% of the bonds sold. The State can no longer fund “wish lists” put together by small committees, sports busters, contractors and architects. These State tax dollars are needed elsewhere. 4) PAY-TO-PLAY FOR K-12 VARSITY SPORTS American students are facing stiff competition for jobs from well educated and less expensive labor in other countries. Yet, only 1% of our State General Fund budget in Kansas is spent on vocational education courses. This lack of vocational funding is also true for local school districts. By contrast, as much as 3-4% of K-12 expenses are for varsity athletics. Students taught in other countries do not have expensive uniforms, paid coaches, massive sports complexes in each school. They go to school to learn and their taxpayers expect and receive academic excellence. Is it more important to watch a few students chase another student down the field with a football or make sure that each K-12 student in Kansas graduates with employable skills? It is time for those parents, sport-boosters and want-to-be jocks to pay the extra cost of coaches, uniforms, insurance, referees, utilities such as lights and heat, new additions to gymnasiums and sports fields. Tax dollars should instead be spent to pay teachers, purchase equipment and build facilities which will actually train our high school graduates with skills to get jobs at a living wage. Only then will they be able to afford to feed themselves, pay for a place to live and start a family. By shifting funding priorities, more students will stay in school because they see the relevance of what they are learning, employers will not have the expense of teaching new employees what students could and should have learned in public school and our economy will become strong again. 5) CHANGE THE DEFINITION OF AN AT-RISK STUDENT Basing the At-Risk weighting in the School Finance Formula on whether a parent’s low income qualifies their child for free or reduced school lunch has nothing to do with that child’s ability to learn. This is an artificial measure which greatly pads the budgets of school districts with large numbers of low income families and deprives school districts which have families with higher incomes of the funds needed to keep low achieving students from dropping out before graduation. Obviously, this weighting in the formula is broken and must be changed. Once corrected, State General Fund tax dollars can be targeted to teach students who actually need extra resources. Furthermore, all school districts across the state will benefit based on criteria that are reflective of learning needs of potential drop-outs instead of the income level of each student’s parents. ******************* I am only one member of the Kansas State Board of Education. But I have 40 years of experience as a businessman, former science teacher, college and university faculty, administrator and education budget director. The proposals listed above are my own and have not been discussed by the State Board of Education. Therefore, please contact me directly for clarification of any questions and suggestions for wording on legislation. I have helped draft and pass legislation in 5 states and the US Congress, so I am willing to work with you to find solutions which work!! As you can see, these recommendations are not Republican or Democrat. Bi-partisan efforts now will save Kansas taxpayers millions of dollars which are needed to prepare students to compete for jobs in the 21st Century. As always, your leadership and support are appreciated as we work together to “Do More With Less”!!! Respectfully yours, Walt Chappell, Ph.D. – Member Kansas State Board of Education 3165 N. Porter, Wichita, KS 67204 (316)838-7900(P) / (316)838-7779(F) ChappellHQ@chappell4ksboe.com http://www.chappell4ksboe.com EXAMPLES OF KANSAS SCHOOL DISTRICT REORGANIZATION COST SAVINGS Item Districts School Boards Superintendents Deputy Superintendents Board Clerks Asst. Board Clerks Payrolls Payroll Clerks/Secretaries Asst. Payroll Clerks Central Administration Offices * Elementary Attendance Centers Total Students Total Area in Sq. Miles *** Total Instructors & Cert. Staff Total Administrators 3A & 4A High Schools ** 1A & 2A High Schools Current 17 17 17 2 17 0 17 17 0 17 20 7621 6846 722 65 4 13 Proposed 1 1 1 2 1 2 1 1 3 1 17 7621 6846 722 41 4 9 $250,000 Total Savings $60,000 $6,000 $83,653 $75,000 $30,000 $25,000 $4,000 $30,000 $25,000 $25,000 $190,000 Cost Each Savings $0 $96,000 $1,338,448 $0 $480,000 ($50,000) $64,000 $480,000 ($75,000) $400,000 $570,000 $0 $0 $0 $1,440,000 $0 $1,000,000 $5,743,448 * Savings estimate, avg of Hardtner, KS and Scott Co. — Hutchinson News, April 7, 03 ** Savings estimate from Supt. Jones at Mullinville — Hutchinson News, Jan., 8, 03 *** May change with school reconfiguration Not reflected are potential savings from other duplicated services such as food service and transportation. From a January, 2003 report entitled Regionalization Concept For Reorganization of Kansas School Districts prepared by Dr. Sharol Little, Superintendent, Manhattan-Ogden U.S.D. 383 and Mr. Kenneth Kennedy, Superintendent, Pratt U.S.D. 382 with input from Dr. Morris L. Reeves, Retired Associate Superintendent for Business Services and Dr. Gary Norris, Superintendent, Salina U.S.D. 305
Does Kansas have a spending problem or a revenue problem?
One thing is for certain: spending in Kansas, as in many states, has risen rapidly in recent years. Tax revenue has too — until recently. Americans For Prosperity — Kansas explains and illustrates the present budget situation in Kansas.
Kansas State Spending: A Policy Primer April 2009 Kansas Government is out of money. There are now no more hidden funds or accounting tricks that can hide this fact. How did Kansas get put in this spot, was it a tax revenue problem or a spending problem? The chart to the right tracks State General Fund (SGF) tax receipts growth since 1999. Contrary to what many are suggesting, does this look like a state has seen a “crash” in tax revenue? Since 2002, SGF tax receipts have increased almost $2 billion; this is an increase of 38%. As recently as FY ’05, revenues were $4.8 billion and now as revenues are projected to run $5.38 billion for FY 2010, despite those who seem to believe that the state is hemorrhaging tax revenue. (If you add in federal stimulus money, then FY 2010 revenue is $5,777) The “massive budget shortfall” may make for great press, but consider that revenues are still projected to be flat from FY ’08 to FY ’09. If you include Federal Economic Stimulus Legislation (red line on chart) that Kansas is As the chart to the right shows, spending is at the heart of the fact that the state is now out of money. As tax revenues grew leaps-and-bounds from 2002, state spending kept up right along with it. However, as tax revenue growth began to flatten (as it always eventually does), note that spending kept right on increasing. SGF spending increased 48% from 2004 to 2008 while inflation during the same time was only 13% and population is increasing less than ½ of 1% a year (.45% annual). Now Kansas, one of only four states without a rainy day fund, is facing a situation where spending has outpaced receipts and we did not put any money “in the bank” to help weather this type of financial storm. SGF Tax Receipts Since 1990 SGF Tax Receipts and Expenditures (more on reverse) Americans for Prosperity-Kansas 2348 SW Topeka Blvd., Ste. 201, Topeka, KS 66611? 785-354-4237, 785-354-4239 (fax) 800 E. 1st, Ste. 401, Wichita, KS 67202? 316-269-4170, 316-269-4176 (fax) info@afpks.org Education has been a huge beneficiary of the massive spending increase Kansas has experienced. As this chart shows, Education spending has increased over $1 billion since 2003, despite student enrollment that statewide is flat. For example, in the states largest school district, USD 259 (Wichita), student enrollment since 2003 has decreased by 201 students. How many chances do they need? The Governor and Legislature have had many opportunities over the last several years to avoid this problem we face. For example, since just 2004: • • • As revenues continued to rise, surplus monies should have been put in a rainy day fund for use in more difficult budget times. As revenues began to flatten in ’07-‘08, increased spending should have been reduced (not cut!) just “less of an increase” to match revenues, not outpace them. This was not done. As far back as 2007, Legislative Research has been predicting what has just happened for FY 2010. In a memo dated 5/2/2007, Legislative Research predicted that by FY 2010, the state’s ending balance would be $-272 million. As it turns out, they were right about the potential negative ending balance, they just underestimated its size. What Happened to the Budget Surplus Still no Solution According to Legislative Research, Kansas ended FY 07 with $934 million in reserves. It is now projected that Kansas will end FY 09 with $29 million in reserves. That means the Governor and Legislature spent OVER $900 MILLION MORE THAN THEY TOOK IN during just two fiscal years. To put it another way, Kansas increased its budget $900 million in two years, but did it by draining the savings account to almost zero, instead of using income tax dollars. If we had just spent what the state took in tax receipts, we could enter this 2010 shortfall with over $900 million. This is why we have a problem, spending more than we took in from FY 07-09 and nothing else. You might think that with the Governor and Legislature in the midst of this deepening fiscal crisis, they would be working on crafting a longer-term solution to our budget problems. This would be wrong. A memo dated April 5, 2009 from Legislative Research shows that the current path the Legislature is taking is only a temporary fix. According to Kansas Legislative Research, the estimated FY 2011 ending balance will be $-240 million and the FY 2012 deficit will be $-822 million! This means despite all the talk of “serious cuts” that will “balance our book” the Legislature still has Kansas on a path that is estimated to spend over $1 billion more than we take in starting the with just the next Legislature’s budget, FY 2011.
This information is timely, as there are people — including our new governor Mark Parkinson — who want to “adjust” our tax system in ways that will harm the Kansas economy. The result is what’s termed “revenue solutions.”
Specifically, some want to delay the implementation of some tax reductions that were passed a few years ago by the Kansas legislature. It’s claimed that since these tax reductions are for Kansas businesses, it’s possible to take them back without harming the Kansas economy. This is false.
Also, some want to decouple Kansas tax law from the federal tax code, so that when Congress grants a tax cut to Americans, the state of Kansas won’t be harmed.
Kansas Tax Policy Talking Points • • • • • In 2008, the Tax Foundation ranked Kansas as having the 21st highest state and local tax burden and 33rd overall business climate. Kansas already ranks 38th nationally in Business Tax Structure, behind all of its peer states except Iowa at 45th. Peer states include all surrounding states plus Iowa. (Growth Economics Inc. Annual Competitive Index 2009) Kansas also ranks 38th nationally in Business Tax Burden. (Growth Economics Inc Annual Competitive Index 2009) The truism of “if you want less of something, tax it more” applies. The state should be growing our way out of this recession, not exacerbating it and slowing our recovery by taxing businesses. Halting these reductions will perpetuate the “unstable tax climate” associated with the state. Estate Tax Phase-out Repeal (HB 2047): HB 2047 would repeal the estate tax phase out by permanently freezing the tax at 2008 rates. This tax was scheduled to go away completely after this year. • Under House Bill 2047, businesses with under $1 million in assets remain exempt from the estate tax; however, assets over $1 million would be taxed as follows: o $1 million – $2 million would pay a 1% tax o $2 million to $5 million would pay $10,000 plus 2% of excess over $2 million o $5 million to $10 million would pay $70,000 plus 5% of excess over $5 million o $10 million + would pay $320,000 plus 7% plus excess over $10 million • Kansas will remain at a competitive disadvantage unless we allow this tax burden to expire as scheduled. o Kansas is one of only 10 remaining states with an estate tax and only Iowa and Nebraska are our peer states with it. o However, even Iowa and Nebraska have exemptions for direct descendents, which Kansas does not. • The estate tax is an obstacle for small and family owned business owners leaving their businesses to family members. o Family businesses can lose up to 55% of all its assets when it passes from one generation to the next. o 70% of families choose to cash out or abandon their businesses after one generation, often laying off workers. o Only 13% survive into the 3rd generation. (Source: U.S. Chamber of Commerce) Franchise Tax Phase-out Repeal (HB 2028): The franchise tax is a tax on a companies’ net worth. Companies pay this tax just for the privilege of doing business in Kansas. There are no offsets for corporate subsidiaries, which must pay the full franchise tax and are thus penalized under Kansas law. • Under the bill passed in ’07, the rate went to .09375% in ’08 and would have gone to .0625% in ’09 and finally to .03125% in 2010 before being completely phased out for 2011 and subsequent tax years. • In a recession, the worst thing the state can do is increase taxes on Kansas businesses. Decoupling Federal & State Depreciation Schedule: Changes to federal depreciation calculations also affect state taxable income because states conform to federal rules on depreciation in the calculation of their business income taxes. Decoupling prevents immediate revenue losses at the state level, but it increases complexity for states and taxpayers as businesses must conform to different depreciation schedules in different tax jurisdictions. • Most states have coupled their depreciation rules with federal guidelines. If federal officials adopt temporary accelerated depreciation provisions as part of a stimulus package, states can either decouple from the federal system, or be forced to raise revenues or cut spending to counter the loss in business income tax revenue. • Lowering the cost of capital will help spur the Kansas economy. Entrepreneurs will be more likely to invest in capital equipment, which will create jobs, income and a more desirable destination for investment. • Many in the Statehouse frame this issue as merely as a “cost” for the state. In actuality, the higher the so called cost, the greater the investments being made in Kansas and its future. If indeed the state would “lose” $77 million (estimated fiscal note of NOT decoupling), this represents $77 million in investments that will help create better, higher paying jobs. Corporate Income Tax Phase-out Repeal: As passed in 2008, HB 2434 reduced the top corporate income tax rate (incomes over $50,000) to a flat 7%, phased in over time as follows: 7.35% to 7.10% in tax year 2008; 7.05% in tax years 2009 and 2010; and 7.00% in tax year 2011 and thereafter. • Employers throughout Kansas are the very entities that help the Kansas economy. Let’s not make matters worse and punish those who create jobs, make investment and grow the state’s tax base by levying higher taxes on them. The Case Against Decoupling Kansas Tax Law The American Recovery and Reinvestment Act of 2009 extended for one year the depreciation rules of the Economic Stimulus Act of 2008 of 50% bonus deprecation. Decoupling would mean trading off a key long run economic development strategy for short-term revenues that will be nowhere near sufficient to cover the budget gaps currently projected. Kansas’ long-term strategy is to make it one of the most investment friendly tax environments in the nation. However, consistency is a key element of any investment related goal. Decoupling goes in exactly the wrong direction. It sends the signal that investors will be the first targets when budget problems arise. And it is questionable whether it would provide the tax revenue legislators desire. It is very unwise tax policy to have small businesses bear the brunt of the budget gap – especially when everyone considers the gap to be driven by K-12 education spending. Why, as a policy matter, should that not be all taxpayers in the state? Kansas is consistently in the bottom ten of states with regard to business formation. Using small businesses as a cash source will not help that situation. Decoupling has the potential to place the highest burdens on smaller businesses. And the franchise tax is essentially a small business property tax. Stopping the phase out does promise about $15 million per year, but that is based on pre-recession net worth levels, not 2009 levels. Bottom line: If businesses do start investing again in 2009, decoupling could make other states even more attractive vs. Kansas. Economic Benefits of the Holcomb Power Plant Expansion • The Project will maximize the value of the existing Holcomb Station site for the benefit of Sunflower Electric’s Member systems for generations to come. • The benefits created by the Project for communities located in the region include job creation, new tax revenues, and an increased demand for goods and services. • Fiscal notes associated with the rate reductions for each year are as follows: o FY09 ($13.3 M); FY10 ($15.9 M); FY11 ($15.9 M); FY12 ($18.6 M); FY13 ($18.6 M); 5-year total ($82.3 M) o Total Project Impacts, Two Units Jobs Temporary Impacts Western Eastern Kansas Kansas Out-of-State Western Eastern Kansas Kansas Out-of-State 1,501 967 2,466 11,857 274 53 329 280 $42.3 $35.9 $78.3 $321.9 $14.8 $1.4 $16.1 $7.4 $1.2 $.453 $9.3 NA Earning s Local & State Taxes o Dr. Ralph Gamble, a noted economist and former professor at Fort Hays State University, conducted an economic impact study of the Project. He found that the average number of jobs available in western Kansas will grow by more than 1,500 during the construction period. These workers will earn more than $42 million per year. The taxes collected will increase by more than $1 million, and construction crew spending in Kansas is expected to be more than $56 million. ? At full operation, the Project will add more than 250 full-time equivalent positions in western Kansas, earning nearly $15 million per year. It is estimated that about 2,500 jobs (direct and induced) will be created in Kansas with an annual payroll of $78 million during the construction period. Permanent Impacts $.300 $.054 $.684 NA • ? The Project will also result in the purchase of many goods and services for the power plant and by the workforce. Certain construction materials will likely be obtained locally, while major equipment will be obtained nationally and internationally.
AFP arranged for buses from both Wichita and Johnson County to bring grassroots activists to Topeka.
Most activists I talked to are very concerned about the level of spending in Kansas. The potential rollback of taxes reductions passed in previous years — a course recommended by the governor — is troublesome. Even though most of these activists are not business owners, they realize the important role that business activity and investment means to Kansas. The additional taxes that some want business to pay will mean that businesses will be able to employ fewer people.
Talking to legislators, I learned that most think the “veto session” so far has been mostly a waste of time. Even though the legislature has important and pressing matters to face, these are put off until the last few days the legislature is allowed to be in session. Then, often critical votes are taken at 3:00 a.m. when everyone is beaten down and too tired to care or reason.
In the Kansas House of Representatives, two votes were taken this year on HB 2014. The major purpose of this bill is to allow the building of a coal-fired power plant in Kansas.
The first vote, taken on February 27, 2009, was 79 Yes and 44 No. On April 3, 2009, the vote was 74 Yes and 48 No.
So what changed? I prepared the following table to spot the changes. For representatives whose votes changed, the word “Change” appears.
Two curious changes are Ray Merrick and Jason Watkins. I’m going to be in Topeka tomorrow, and I’ll try to track down these two and ask.