Now that lawmakers have left Topeka after adjourning the 2009 legislative session, we have some time to reflect on their actions. As usual, there is both good news and bad news to report for Kansas taxpayers.
Being an eternal optimist, I think it is appropriate to start with the good news. There were no major tax increases in the recent budget that closed a projected $328 million budget deficit for fiscal 2010, which starts on July 1, 2009. There were, however, unsuccessful attempts by former Gov. Sebelius’ administration and some legislators to stop the phase out of recent pro-growth tax reductions. Thankfully the majority realized it would be pure economic folly to increase taxes on Kansans attempting to navigate the current economic downturn.
The American Legislative Exchange Council’s recent study, Rich States, Poor States ranks Kansas’ economic outlook at a mediocre 24th nationally. The study reminds policymakers that budget deficits are not a justification to increase taxes. For now, the scheduled phase down of the corporate income tax and the phase out of the franchise and death taxes will continue as planned. Over time, these actions will enhance Kansas’s business climate and make the Sunflower State a more attractive place for business development in the future — and that is indeed good news.
While the budget was at least temporarily balanced for the start of fiscal year 2010, many in the legislature have grave concerns that additional budget restraints were not adopted. The current plan leaves the state a token ending balance of $17,000. House Speaker Mike O’Neal, R-Hutchinson said “That will last us about a day, and then we’ll be under water.” Unfortunately the Speaker’s projection is likely to be correct. Few economists remain hopeful that state coffers will recover anytime soon, since the worst state budget deficits generally follow national economic downturns. (Editor’s note: Since this piece was written last week, we’ve already learned that state revenues have declined quickly, and spending adjustments mist be made.)
Another common complaint from conservatives in the legislature is how the budget relies on one-time federal stimulus money to balance the budget. Stalwart conservative Sen. Susan Wagle said, “We’re leaving the problem on the table. We are not fixing one darn thing. This is one-time money.” National observers have warned states that federal dollars are accompanied by numerous strings that could increase state obligations far into the future. When the federal dollars dry up in the next 18-24 months, states that have relied too heavily on stimulus funds could face some very difficult decisions. As the great Milton Friedman would point out, there is no such thing as a free lunch.
One crucial point, which has received for too little ink, is how Kansas’ budget shortfall could have been entirely prevented. There would be no talk of budget problems if lawmakers would have simply allowed government to grow at a sustainable rate of growth — similar to the private sector. If lawmakers would have restrained spending growth beginning in fiscal year 1992, by limiting the growth of government to the rate of increase of population plus inflation, this spending restraint would have cumulatively saved Kansas over $15 billion. That’s right, if lawmakers would have resisted the urge to overspend, the debate over tax increases and budget cuts would be completely irrelevant.
With a projected ending balance of merely $17,000 for the next fiscal year, lawmakers will clearly be forced to revisit the budget battles in the near future. Let’s hope they remember that no state has ever taxed its way to prosperity. Maybe the next time state revenues pick up, more legislators will be receptive to the idea of saving for a rainy day.
Jonathan Williams is a Fiscal Policy Fellow with the Kansas-based Flint Hills Center for Public Policy and Director of Tax and Fiscal Policy at the American Legislative Exchange Council (ALEC). A complete bio on Mr. Williams can be found at www.flinthills.org/content/view/24/39/, and he can be reached at [email protected]. To learn more about the Flint Hills Center, please visit www.flinthills.org.