Tag: Sam Brownback

  • In Wichita, revealing discussion of property rights

    In Wichita, revealing discussion of property rights

    Reaction to the veto of a bill in Kansas reveals the instincts of many government officials, which is to grab more power whenever possible.

    When plunder becomes a way of life for a group of men living together in society, they create for themselves in the course of time a legal system that authorizes it and a moral code that justifies it.
    — Frederic Bastiat

    Kansas Governor Sam Brownback’s veto of a bill that gives cities additional means to take blighted property has produced reaction from local officials in Wichita. The bill is Senate Bill 338.

    As has been noted in numerous sources, cities in Kansas have many tools available to address blight. 1 What is the purported need for additional power?

    In remarks from the bench, Wichita City Council Member Pete Meitzner (district 2, east Wichita) said there is no intent to be “aggressive in taking people’s property.” 2 But expanding the power of government — aggression, in other words — is what the bill does. Otherwise, why the need for the bill with its new methods and powers of taking property?

    And once government is granted new powers, government nearly always finds ways to expand the power and put it to new uses. Even if we believe Meitzner — and we should not — he will not always be in office. Others will follow him who may not claim to be so wise and restrained in the use of government power.

    In particular, government finds new ways to expand its powers through enabling concepts like blight. Did you know the entire suburban town of Andover is blighted? 3 Across the country, when governments find they can take property with novel and creative interpretations of blight, they do so. 4

    It’s easy to sense the frustration of government officials like Wichita Mayor Jeff Longwell. In his remarks, he asked opponents of SB 338 “what they would do” when confronted with blight. That is a weak argument, but is often advanced nonetheless. Everyone has the right — the duty — to oppose bad legislation even if they do not have an alternate solution. Just because someone doesn’t have a solution, that doesn’t mean their criticism is not valid. This is especially true in this matter, as cities already have many tools to deal with blight.

    Proponents of SB 338 also make unfounded accusations about the motivation of opponents of the law. Because someone opposes this law, it doesn’t mean they are in favor of more blight. Those who fight for freedom and liberty are used to this. Advocating for the right to do something doesn’t necessarily mean that one is in favor of actually doing it.

    The nature of rights

    Much of the discussion this issue concerns the rights of people who live near blighted property. People do have certain rights, but rights have limits. Regarding property, Roger Pilon writes: “Thus, uses that injure a neighbor through various forms of pollution (e.g., by particulate matter, noises, odors, vibrations, etc.) or through exposure to excessive risk count as classic common-law nuisances because they violate the neighbor’s rights. They can be prohibited, with no compensation owing to those who are thus restricted.” 5

    Note that Pilon mentions “excessive risk” as something that injures a neighbor. Some of the activities the city wants to control are things like drug dealing, drug usage, and prostitution that may take place on blighted property. And, I suppose it is a risk to have gangs dealing drugs out of the house across the street, blighted or not. But these activities are illegal everywhere, and there are many laws the city can use to control these problems. There is no need for new laws.

    It is important to draw a bright line as to where property rights end. Pilon: “By contrast, uses that ‘injure’ one’s neighbor through economic competition, say, or by blocking ‘his’ view (which runs over your property) or offending his aesthetic sensibilities are not nuisances because they violate no rights the neighbor can claim. Nor will it do to simply declare, through positive law, that such goods are ‘rights.’” 6

    In today’s world, however, where new rights are seemingly created from thin air, people want to exercise their purported right to control how their neighbor’s property looks. But we have no such right, writes Pilon: “The principle, in fact, is just this: People may use their property in any way they wish, provided only that in the process they do not take what belongs free and clear to others. My neighbor’s view that runs over my property does not belong free and clear to him.” 7

    Opposition in the Legislature

    When the Kansas House of Representatives and Senate voted on this bill, several House members submitted explanations of their vote. In the Senate, David Haley filed a protest and message explaining his opposition to the bill. These statements follow.

    Explanation of vote in the House of Representatives

    MR. SPEAKER: I VOTE NO ON SB 338. KANSAS ALREADY HAS SUFFICIENT TOOLS IN PLACE TO ADDRESS BLIGHT. SB 338 circumvents our current eminent domain statutes by redefining “abandoned property” and by allowing our local governments to expeditiously confiscate, seize or destroy law abiding citizens’ private property without compensation, adequate notice, and a legal property title. This is an egregious overreach that deprives some citizens of their private property rights without sufficient due process and it will cause irreparable harm to our most vulnerable citizens that do not have the resources to protect their property.
    — GAIL FINNEY, BRODERICK HENDERSON, RODERICK HOUSTON, BEN SCOTT, VALDENIA WINN, JOHN CARMICHAEL, KASHA KELLEY, BILL SUTTON, JERRY LUNN, CHARLES MACHEERS

    Protest of Senator David Haley against Senate Bill 338

    February 23, 2016

    In Accordance with Article 2, Section 10 of the Constitution of Kansas, I, David Haley, a duly elected Senator representing the Fourth District of Kansas, herein PROTEST the action of this Legislature in the promulgation and passage of Senate Bill 338: An Act pertaining to Cities.

    In my 23 years as a Kansas Legislator and as but one of only three attorneys in the Senate, this is the first PROTEST I have ever lodged on any measure of the thousands I have considered.

    This Chamber now further denigrates real property rights to which every Kansan should be heir.

    SB 338 which purports to grant authority to cities and nonprofit organizations to petition courts to possess vacant property for rehabilitation purposes will, simply, but legalize grand theft.

    The Senate Commerce committee as is its charge (and not the Senate Local Government committee where, justifiably, similar language as SB 338 had over many years failed time and time again) recognizes and advances business and financial opportunities for our State.

    First, the question of a city, redefining definitions of “abandonment” and “blight” as these terms apply to real property, land and or improvements, is the expertise of deliberations of a committee membership dedicated to the auspices of municipalities not the principles of profit.

    The principles of real property ownership should always inure to the rights of the citizen not to a developer’s bottom line or even a desire to enhance appraised valuations for tax purposes.

    Diabolical in its spawning, methodical and tenacious in its steady lurch forward, SB 338 adheres to two tiered definitions of “abandoned property;” both ingenuous and neither accurate. One definition of “abandoned property”: vacant for 365 days and having a “blighting influence” on surrounding properties; the other definition vacant for 90 days and 2 years tax delinquent.

    There are numerous every day scenarios whereby a real property owner has in no way “abandoned” their property though that same property may be vacant for 90 to 365 days, be tax delinquent for 2 years or may have need of rehabilitation to conform to a local standard, real or perceived. But SB 338 alleges “abandonment” and triggers governmental intrusion, harassment and potentially leads to a taking of real property by the government for the benefit of an organization which profits from the taking and kick back higher taxes to the city.

    “Commerce,” yes, but a shameful way to run a citizen responsive “Local Government.”

    The specious argument in favor of this legislation portends neighborhood beautification, tax viability and repopulation of or demolition and rebuilding of older houses. By eradicating “blight,” the entire community, even the city, is greatly enhanced.

    With that premise, I, David Haley, could not agree more.

    Today, with no need for warping and putting into statute time-honored definitions of “blight” and “abandonment” or presupposes new postulates for passages of time periods to correlate to real property owners’ interests or genuine concern with their legally owned land(s), there are tools already available to every municipality to address blight. “Code enforcement” departments can post notice and bring to environmental and district court negligent property owners. Subsequent to insufficient response, steep fines and even jail time can be issued now. Today in current statute, a property with two or more years of delinquent property taxes may be sold by the Sheriff of each Kansas County in a “Delinquent Property Tax Sale” also known as a “Sheriff’s” sale or as property “sold on the Courthouse steps.” Again, these are current tools available to curb or cure blight and to put real property into fiscally responsive ownership.

    The property rights of legal property owners should not be infringed upon by this Legislature.

    Marginal or fragile property owners (traditionally average income or poor property owners attempting to hold on to inherited property or an entrepreneurial hope structure as often found in inner cities) will be set upon by keen-eyed, out of county based developers sheltered by an industrious “not-for-profit” which uses the city and district court as the leverage to harass and ultimately take the land, all in the name of “civic pride” or “community betterment.” Theft.

    The late Kansas City, Missouri civil rights leader Bernard Powell (1947-1979) envisioned and warned of the transfer of inner city property back into the same hands of those who fled the same a half century or more ago to the sanctity of the suburbs. Bernard Powell predicted the day would come when government, and the tools they elect and hire, will work hand-in-hand with “robber barons” to turn those out; those who have despaired in neglected, under represented, often high crime, poorly educated neighborhoods, those who have weathered poverty, hard times, civic and civil harassment but yet held a real property interest, a “piece of the pie” … to force them out. Bernard Powell spoke of prosperity returning to the inner city and nothing being tendered to the people who had paid the price for the most sought after of land.

    He called it government assisting the turning of the “ghetto into a goldmine.” How prophetic.

    Here I sit, practically alone in my opposition to this expansion of eminent domain targeted at poorer property owners ill equipped to “fight City Hall,” in this Kansas Senate and watch this unfold. Again, SB 338 came out of the Commerce committee as well it should.

    Government has redefined terms before to shape shift often dastardly need to justify ill deeds.

    I remember efforts to redefine “blight” for economic purposes in another eminent domain taking for use in building the Kansas Speedway and Legends in Wyandotte County. Succinctly, the new definition of “blight” was the ability for exponentially more taxes to be levied against the future use of the land than that which the owner who it was being taken from could be expected to pay in its current use. Remnants of that economically fascist philosophy resonate in SB 338. As more people flee the “golden ghettos” of suburbia, the inner city “ghettos” will be repopulated and turned into “goldmines” at the expense I fear, once again, of the poor and unsuspecting. Ironically, we celebrated and honored some of our Korean and Vietnam War heroes today in the Senate Chamber. Was the freedom to own real property without fear of unwarranted government intrusion something for which they fought?

    I protest the passage of Senate Bill 338 as is my Constitutional right as a Kansas State Senator under Article Two, Section 10 of the Kansas Constitution for reasons, beliefs afore-listed as well as others not so and hereby vow to continue to assist unnecessarily embattled real property owners in my home District as we together will face the challenges that this bill, when signed into law, will undoubtedly bring.


    Notes

    1. Todd, John. Power of Kansas cities to take property may be expanded. Voice For Liberty in Wichita. Available at wichitaliberty.org/kansas-government/power-kansas-cities-take-property-may-expanded/.
    2. Video. Wichita City Council speaks on blight. Available at wichitaliberty.org/wichita-government/wichita-city-council-speaks-blight/.
    3. Weeks, B. (2012). Andover, a Kansas city overtaken by blight. Voice For Liberty in Wichita. Available at wichitaliberty.org/economics/andover-a-kansas-city-overtaken-by-blight/.
    4. Nicole Gelinas, Eminent Domain as Central Planning. (2015). City Journal. Available at www.city-journal.org/html/eminent-domain-central-planning-13253.html.
    5. Pilon, Roger. Protecting Private Property Rights from Regulatory Takings. (1995). Cato Institute. Available at www.cato.org/publications/congressional-testimony/protecting-private-property-rights-regulatory-takings.
    6. ibid
    7. ibid
  • Wichita City Council speaks on blight

    Wichita City Council members speak in opposition to Kansas Governor Sam Brownback’s veto of Senate Bill 338, which would have given cities additional power to take property. April 12, 2016. View below, or click here to view at YouTube. For more on this issue, see Governor Brownback, please veto this harmful bill.

  • Governor Brownback steps up for property rights

    Governor Brownback steps up for property rights

    Today Kansas Governor Sam Brownback vetoed Senate Bill 338. As explained by John Todd, this bill unnecessarily and dangerously increased the power of cities over private property rights. Thank you to the governor for understanding the harm of this bill and acting appropriately. Most of all, thank you to John Todd for recognizing the bill’s danger, for his committee testimony, and for his tireless work in helping inform the governor and his staff about this bill.

    Following, the governor’s veto message:

    The right to private property serves as a central pillar of the American constitutional tradition. It has long been considered essential to our basic understanding of civil and political rights. Property rights serve as a foundation to our most basic personal liberties. One of government’s primary purposes is to protect the property rights of individuals.

    The purpose of Senate Bill 338, to help create safer communities, is laudable. However, in this noble attempt, the statute as written takes a step too far. The broad definition of blighted or abandoned property would grant a nearly unrestrained power to municipalities to craft zoning laws and codes that could unjustly deprive citizens of their property rights. The process of granting private organizations the ability to petition the courts for temporary and then permanent ownership of the property of another is rife with potential problems.

    Throughout the country, we have seen serious abuse where government has broadened the scope of eminent domain, especially when private development is involved. The use of eminent domain for private economic development should be limited in use, not expanded. Senate Bill 338 opens the door for serious abuse in Kansas. Governmental authority to take property from one private citizen and give it to another private citizen should be limited, but this bill would have the effect of expanding such authority without adequate safeguards.

    Kansans from across the political spectrum contacted me to discuss their concerns that this bill will disparately impact low income and minority neighborhoods. The potential for abuse of this new statutory process cannot be ignored. Government should protect property rights and ensure that the less advantaged are not denied the liberty to which every citizen is entitled.

    There is a need to address the ability of municipalities and local communities to effectively maintain neighborhoods for public safety. However, Senate Bill 338 does much more. Though I am vetoing this bill, I would welcome legislation that empowers local communities to respond to blight and abandoned property that does not open the door to abuse of the fundamental rights of free people.

  • Kansas support for higher education

    How does Kansas state support for higher education compare to other states?

    In the Wichita Eagle, Chapman Rackaway contributes a satirical look at Kansas Governor Sam Brownback and his handling of Kansas government. And, the governor deserves many of Rackaway’s jabs. But there is something that needs clarification, which is the contention that Kansas is a backwater state when it comes to higher education funding, at least compared to Washington state. (Chapman Rackaway: How about Brownback as K-State president?, April 8, 2016.)

    Rackaway writes: “That Washington State could pay [departing Kansas State University president Kirk] Schulz so much more is unsurprising to anyone paying attention to states’ budget priorities.” He goes on to write that Kansas government has not prioritized higher education funding, and that Washington state recently committed to additional higher education support.

    There are organizations that collect and present data on this topic. State Higher Education Executive Officers Association publishes a report titled State Higher Education Finance (SHEF) study 1 The figures used below are for the most recent year for which data is available.

    According to this report, in fiscal year 2014, Kansas appropriated $5,648 per FTE. Washington’s figure is $5,700, or 0.9 percent more than Kansas. Over the past five years, Kansas appropriations per FTE fell by 15.8 percent. In Washington they fell by 20.6 percent. (Table 5)

    For fiscal year 2013, higher education support per capita in Kansas was $342. In Washington, it was $197. The same table also reports higher education support per $1000 of personal income. In Kansas the figure is $7.70, and in Washington, $4.13. For Kansas, these two figures are 132 percent and 133 percent of the national average. (Table 10)

    From these two data points — and these are not the only ways to compare — I think we can conclude that Kansas appropriates nearly as much as does Washington, on a per-student basis.

    Further, Kansans are much more generous in supporting its public universities, when measured by per-capita contribution. (Calling Kansans generous with their taxes is a falsehood, as taxation has nothing to do with generosity, except the generosity of politicians with money that belongs to other people.)


    Notes

    1. State Higher Education Executive Officers Association. State Higher Education Finance (SHEF) study. Available at www.sheeo.org/sites/default/files/project-files/SHEF%20FY%202014-20150410.pdf.
  • Opinion: GOP economics devastated Kansas

    An op-ed on the Kansas economy needs context and correction.

    An op-ed about the Kansas economy needs a few corrections before the people of Illinois get a wrong impression of Kansas. The article is Opinion: GOP economics devastated Kansas, published in the Alton (Illinois) Telegraph. The author is John J. Dunphy.

    First, Dunphy refers to Sam Brownback as the “Tea Party” governor of Kansas. As far as I know, the tea party favors reducing not only taxation, but spending too. Given the choice, Brownback preferred raising taxes rather than cutting spending. Not very tea party-like.

    Dunphy: “Moderate Republicans who voiced objections to such extremist politics were targeted by the Tea Party and voted out of office in 2012. With the legislature now dominated by True Believers, Brownback was able to pass the largest tax cut in Kansas history.” I’ll leave it to others to judge whether the legislators voted into office in 2012 classify as “True Believers.” (My opinion is that True Believers are scarce in the Kansas Legislature.) But I do know this: The tax cuts were passed during the 2012 legislative session, which ended months before the 2012 primary elections. There seems to be a timing issue here.

    Dunphy: “With such drastically-reduced revenue, Kansas had to cut social services.” Except Kansas spending has continued to climb, although there have been a few cuts here and there.

    Dunphy: “Rather than admit that slashing taxes created a disaster …” Tax cuts allow people to keep more of what is rightfully theirs. That is not a disaster. That is good.

    Dunphy: “Trickle-down economics doesn’t work. Although most Republicans choose to ignore it, George H.W. Bush said as much while campaigning for the GOP presidential nomination in 1980.” Contrary to this assertion (made during a political campaign, and we know how much those are worth), the administration and policies of Ronald Reagan ushered in the The Great Moderation, a period of sustained economic growth.

  • Governor Brownback, please veto this harmful bill

    Governor Brownback, please veto this harmful bill

    Kansas Governor Sam Brownback should veto a bill that is harmful to property rights, writes John Todd. For more about this issue, see Power of Kansas cities to take property may be expanded.

    Senate Bill 338 has been passed by the Legislature and is now on its way for Governor Sam Brownback to consider. The Governor should veto this bill. This bill gives cities, in conjunction with their preferred nonprofit organizations, the ability to take possession of unoccupied residential houses that the property taxes are currently paid in full. This bill will clearly place vulnerable senior citizens and less affluent property owners in the position of being victimized.

    Cities in Kansas have all the powers they need to deal with property issues through current law. Over the past few years, the City of Wichita has bulldozed hundreds of houses for housing code violations. Enhancing the power of cities and their appointed nonprofit redevelopment organizations to take privately owned properties they do not own without compensation is wrong.

    I urge Governor Brownback to veto this bill!

    John Todd
    Wichita

  • Kansas transportation bonds economics worse than told

    Kansas transportation bonds economics worse than told

    The economic details of a semi-secret sale of bonds by the State of Kansas are worse than what’s been reported.

    The late realization last year that the Kansas Department of Transportation had issued $400 million in long-term bonds — largely under the radar — has been met with appropriate levels of indignation by some editorial writers. An example is Dr. Edward Flentje who wrote:

    Right-wing Republican lawmakers have operated under the radar to suspend all statutory limits on highway debt, and that unprecedented authority was recently used to issue record-breaking levels of long-term debt to pay for their reckless income tax cuts this year and next.

    Six lines buried deep in a 700-page appropriation bill last spring gave the Kansas Department of Transportation unlimited authority to issue debt, and in early December, without public disclosure, the agency used that authority to issue $400 million in highway bonds. (H. Edward Flentje: Debt limits suspended to pay for tax cuts, Wichita Eagle, December 18, 2015)

    A few notes: The Secretary of Transportation has, in the past, been given broad — but maybe not “unlimited” — authority to issue bonds and borrow money. The series 2012C bonds were issued with this statement: “The 2010 Act Amendments authorized the Secretary to issue highway revenue bonds so long as the Secretary certifies that, as of the date of issuance of any such bonds, the maximum annual debt service on all Outstanding Bonds and on such bonds proposed to be issued will not exceed 18% of Revenues projected for the then-current or any future Fiscal Year.”

    In 2010 Kansas had a Democrat for a governor, which should caution us to not make this issue too political. As far as borrowing from the “Bank of KDOT,” it’s been done before, as explained in 2015 by KDOT. 1 And, payments on these loans have been deferred or not made.

    Instead of politicizing the issue, let’s concentrate on the facts and merits. And when looking at the Series 2015B bonds, there is plenty to criticize.

    KDOT outstanding bonds, showing interest-only issues. Click for larger version. Does not include Series 2015B bonds.
    KDOT outstanding bonds, showing interest-only issues. Click for larger version. Does not include Series 2015B bonds.
    First, the state will not pay any principal on these bonds until 2026. Until then the state will pay only the interest on the $400 million, which is $20 million per year. Then, starting in 2026, the state will make 11 annual payments of various amounts towards the principal. In all, KDOT’s schedule shows the state will pay $282,494,750 in interest on a loan of $400 million.

    I don’t think that most Kansans would appreciate the state borrowing so much money for such a long time without making any effort at retiring the principal. But before we politicize: The KDOT Series 2010A bonds ($325 million, dated September 1, 2010) don’t require principal payments until 2032. (These bonds are “Buy America Bonds,” a program of the 2009 American Recovery and Reinvestment Act, and the federal government will pay 35 percent of the interest.) The plan, as outlined in KDOT’s official statement, is that starting in 2032 the state will make five annual payments of between $61 million and $69 million, totaling $325 million, and then the bonds will be retired. 2

    There’s even more to criticize about the 2015B bonds. The actual proceeds the state will receive from the bonds (after costs of issuance and the underwriters’ discount) is $488,242,912. How, you may be asking, can the state issue $400 million in bonds but receive $488 million when it sells them? The answer is an “original issue premium” of about $89 million.

    To explain: Bonds similar to these ought to yield in the range of 2.00 percent to maybe 2.75 percent. But, KDOT is paying 5.00 percent interest. Therefore, bond buyers are willing to pay more than the face value (the $400 million) for these bonds, because they will be earning higher-than-market interest. 3 In fact, these bonds were sold at premiums ranging from 119 percent to 126 percent. Meaning that for every $1.00 worth of bonds bought (representing money the state must repay), the state actually received from $1.19 to $1.26. 4

    That sounds like a good deal for the state, but in exchange for the premiums, the state pays much higher interest. There are several different ways of looking at this, but the upshot is that the state is receiving additional money now in exchange for paying a higher interest rate for many years. About $89 million in extra interest, which increases the actual cost of these bonds beyond what we thought.

    (Again, before we politicize, the state under a Democratic governor has done the same.)

    The allure of borrowing large sums and spending now is not limited to transportation bonds. The state is currently using the recent $1 billion in proceeds from KPERS bonds as a rationale to skip KPERS contributions this year, and also suspend a rule that most proceeds from the same of surplus property goes to KPERS. See This is why we must eliminate defined-benefit public pensions.


    Notes:

    1. FY 2002 Loan to State General Fund. The 2002 Legislature borrowed $94.6 million from the State Highway Fund for the State General Fund and directed that the funds were to be repaid to the State Highway Fund by June 30, 2003. The 2003 Legislature deferred the repayment of the $94.6 million loan into four equal annual installments beginning prior to June 30, 2007. In addition, the 2003 Legislature directed that the State Highway Fund transfer to the State General Fund $30.6 million for activities of the State Highway Patrol and the 2003 Legislature directed that this transfer also be repaid in four equal annual installments beginning prior to June 30, 2007. The first repayment installment was made in June 2007 and the second in June 2008. The 2009 Legislature delayed the June 2009 repayment to June 2011 and the 2010 Legislature eliminated the language authorizing the June 2011 repayment. At this time, there is no authorization for the final two repayments. The Department’s projections included in this Official Statement do not include receiving the final two repayments.
    2. EMMA (Electronic Municipal Market Access), $325,000,000 State of Kansas Department of Transportation Taxable Highway Revenue Bonds, Series 2010A at emma.msrb.org/EA407275-EA318568-EA714328.pdf.
    3. A bond will trade at a premium when it offers a coupon rate that is higher than prevailing interest rates. Investopedia at www.investopedia.com/terms/p/premiumbond.asp.
    4. EMMA (Electronic Municipal Market Access), $400,000,000 State of Kansas Department of Transportation Highway Revenue Bonds Series 2015B at emma.msrb.org/IssueView/IssueDetails.aspx?id=EP369775.
  • This is why we must eliminate defined-benefit public pensions

    This is why we must eliminate defined-benefit public pensions

    Actions considered by the Kansas Legislature demonstrate — again — that governments are not capable of managing defined-benefit pension plans.

    The Kansas Legislature is considering a bill that will allow Governor Sam Brownback to defer making payments to KPERS, the state’s defined-benefit pension system for public employees. The deferred payments would be made up in future years, although there is really no mechanism to enforce this.

    Also, the bill considers eliminating the requirement that when the state sells surplus property, that 80 percent must be used to reduce the unfunded actuarial pension liability of KPERS. There is also a moratorium on employer contribution to KPERS Death and Disability fund, which is much smaller than the retirement fund.

    KPERS funded ratio through 2014That unfunded liability is a big problem. It refers to the difference between what KPERS expects to pay compared to the revenue it expects to receive. In recent years the Kansas pension fund has been among the worst in the country, based on the funded ratio. The nearby charts shows the trend of this funded ratio through 2014, the latest date for KPERS valuation reports.

    Last year the state issued $1 billion in bonds to address a portion of the unfunded liability. While this helps KPERS, it simply means that the state owes another billion dollars on a different balance sheet. But it’s the same taxpayers that will eventually pay.

    Barry Poulson, Ph.D., Emeritus Professor at the University of Colorado — Boulder has written on the danger of borrowing to shore up state pension funds. As explained below, there is the “lack of nexus between the investment of the bond proceeds and payments for unfunded liabilities in the plan.” This means that the borrowed funds may be used for current spending rather than for correcting the KPERS unfunded liability.

    He further explains: “If legislators see that additional funds are available to pay off unfunded liabilities in the pension plan they may choose to allocate less general fund money to meet these pension obligations.”

    This is what is happening in Kansas. The borrowing of a billion dollars has let legislators and the governor feel — incorrectly — that there is breathing room, and that the state can slack off making the contributions it should be making this year. This is highly irresponsible and reckless.

    Following, from Dr. Paulson:

    A major flaw in the proposed issuance of pension obligation bonds is the lack of nexus between the investment of the bond proceeds and payments for unfunded liabilities in the plan. The experience in other states is that sometimes bond proceeds are earmarked for other state expenditures. The most egregious example of this problem is the state of Illinois which issued $10 billion in pension obligation bonds and then used the proceeds to meet current expenditures rather than to pay off unfunded liabilities in the pension plan.

    Even if the state of Kansas would not commit this form of fraud on the taxpayers the fungible nature of state funding makes it impossible to guarantee the nexus between bond proceeds and the payment for unfunded liabilities in the pension plan. If legislators see that additional funds are available to pay off unfunded liabilities in the pension plan they may choose to allocate less general fund money to meet these pension obligations. The state has not allocated the annual required contribution (ARC) to KPERS for several decades and is not projected to do so for the foreseeable future. Legislators continue to promise pension benefits without allocating the funds required to meet these obligations. We should expect this moral hazard to be even greater with the issuance of pension obligation bonds.

    Even if the proceeds of pension obligation bonds could be set aside in a lock box and earmarked to pay off unfunded liabilities in the pension plan the state must still address the accumulation of unfunded liabilities in the defined benefit plan. Without fundamental structural change, including shifting public employees to some form of defined contribution pension plan, these unfunded liabilities will continue to accumulate. Legislators should not be diverted from this difficult task by non-reforms, such as the issuance of pension obligation bonds.

  • Spending and taxing in Kansas

    Spending and taxing in Kansas

    Difficulty balancing the Kansas budget is different from, and has not caused, widespread spending cuts.

    Across the state Kansas newspapers declare Governor Sam Brownback’s tax cuts a failure. There are two prongs of criticism. One is that the budget is not balanced; that is, the state is spending more than it has received in revenue. That has been true, especially for fiscal years 2014 and 2015. That problem can be fixed by either collecting more revenue, or by cutting spending. Last year the Governor and the Legislature decided to balance the budget by relying, almost entirely, on collecting more revenue. Raising taxes, in other words.

    The second prong of attack on the tax cuts is to hold them responsible for spending cuts. This is what really upsets the state’s liberals and moderates. Here’s an example. Former Kansas State Budget Director Duane Goossen recently wrote “The Brownback tax cuts brought the revenue stream down so significantly that truly damaging expense cuts coupled with a sales tax increase have not repaired the budgetary mess.” (emphasis added) (I will agree with Goossen that we have a problem with the budget, a problem that could be fixed with relatively small reforms in spending. But Goossen wants more revenue.)

    But have there been severe spending cuts in Kansas? “Truly damaging” cuts? While some programs have been trimmed, overall state spending continues on a largely upward trend (for all funds spending) or remains mostly flat (for general fund spending).

    Kansas General Fund spending, showing large deficits of revenue compared to spending in 2014 and 2015.
    Kansas General Fund spending, showing large deficits of revenue compared to spending in 2014 and 2015.

    So why are Kansas liberals and moderates upset? It is the spending of money by government that is important when considering how well the state is providing the services liberals and moderates (conservatives, too) look for government to provide. Taxation is merely one way to pay for government spending. And spending isn’t declining.

    Is this an important distinction?

    For the years when Kansas was spending down its bank balance, the state was experiencing the benefit of Washington-style deficit spending. That is, the state was spending more than it collected in revenue. The difference is that Kansas made up the revenue deficit by using savings rather than debt. (At least mostly so.)

    (Another difference between Kansas and federal spending is that Kansas can’t continue to borrow to support spending unless it engages in extraordinary measures, some of which may have happened. The federal budget, however, has been in a permanent state of deficit spending since 2000 and appears to remain in deficit for as far as anyone can project.)

    The takeaway is that problems with balancing the budget is not the same as spending cuts. We’ve had the former, but not the latter, when considering the entire budget.

    Nearby charts show Kansas government spending, from both the general fund and all funds spending. One chart shows total dollars spent, and one shows per-capita spending. Both are adjusted for inflation. On these charts it’s difficult to see where total spending has been cut or slashed in recent years. All funds spending continues its upward trend, with a few exceptions. General fund spending remains level or trending slightly upwards.

    Kansas Spending Adjusted for CPI 2016-01

    Kansas Spending, Per Capita, Adjusted for CPI 2016-01

    Notes for charts:
    Data is from Kansas Fiscal Facts 2015
    2015 through 2017 are approved figures, not actual spending
    2015 and beyond population are my estimates
    CPI is Consumer Price Index – All Urban Consumers, CUUR0000AA0