LEGISLATIVE TESTIMONY: H.B. 2538, February 4, 2010

Submitted Testimony on House Bill 2538
Changes to PEAK
February 4, 2010
Bernie Koch
Executive Director, KEPC

Chairman Carlson and members of the committee, thank you for the opportunity to submit written testimony in support of House bill 2538.

The Kansas Economic Progress Council is a statewide not for profit organization of business, trade associations, and chambers of commerce. We support pro-growth policies for communities. House Bill 2538, which amends the 2009 PEAK legislation (Promoting Employment Across Kansas), fits our criteria for pro-growth economic development legislation and we endorse it.

It expands the type of businesses eligible for the incentive which allows businesses to retain payroll withholding.

In a time when many states are extremely competitive with economic development incentives, we believe Kansas must be vigilant in assessing our economic development “toolbox” on a regular basis, constantly tweaking what we have to make it as effective as possible.

When economic recovery comes, as we are certain it will, Kansas needs to be in a position to take advantage of the companies that also plan to take advantage of recovery through expansion.
Thank you for the opportunity to submit comments. We urge your favorable support of House Bill 2538.

An independent study finds that spending cuts will result in more job losses in Kansas than a one-cent state retail sales tax increase.

Kansas Economic Progress Council Executive Director Bernie Koch said the study was sought after January legislative testimony by Dr. Art Hall, a member of the unclassified professional staff at the KU School of Business. Hall’s testimony indicated a sales tax increase would cost over 19,000 jobs statewide. “We decided to seek a second opinion,” said Koch. “This study shows there are no easy choices, but the solution that causes the least economic damage is a revenue enhancement.”

The study was prepared for the Kansas Economic Progress Council by the Center for Urban Studies and Kansas Public Finance Center at Wichita State University. Dr. John D. Wong conducted the study. He is the Interim Director of both WSU centers and a member of the Kansas consensus revenue estimating committee.

The study results show that a $350 million reduction in state spending would result in the loss of approximately $420 million in output. This would also result in the loss of 5,177 jobs across the state.
A one-cent state retail sales tax increase would generate approximately $350 million in additional revenue, but would result in the loss of approximately $363 million in output. This would also result in the loss of 3,231 jobs across the state. Thus, the combined effect of maintaining $350 million in state spending with a one-cent sales tax increase is maintaining $57 million in total state output, $84 million in total value added, $102 million in labor income, and 1,946 jobs.

The study gives three reasons why a sales tax increase has a lesser negative impact.
“First, a high percentage of government expenditures initially stay within the state’s economy, going either to employees (state residents) in the form of salaries or to local businesses for the purchase of goods and services.”

“Second, the revenue enhancement scenario spreads the negative effects throughout the state, both geographically and across all 2.8 million residents. The effect on any individual and on any business is minor. In contrast, the spending reduction scenario severely affects a small number of state residents and businesses-state employees and those private-sector businesses that serve state employees and state government directly. The likelihood of a business failing under this scenario is much greater than in the tax increase scenario.”

“Third, a portion of the sales tax increase will be exported to tourists and other visitors to the state. The full effect of the tax increase is not felt within Kansas.
“We are pleased that Dr. John Wong agreed to do the study,” Koch said, “particularly because of his impressive credentials and outstanding reputation as a researcher and economist.” The study will be sent to every Kansas legislator.

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