Tax Study Released Today

A new study on the ramifications of lowering the state income tax was released today at a statehouse news conference. Bernie Koch, executive director of KEPC, and study author Dr. John Wong presented findings at the statehouse today. The study finds that, for every 1 job created, 1.63 are lost due to study released today finds that a lowering of the income tax would result in a loss of 1.63 jobs due to a reduction in overall state spending. The study was commissioned by the Kansas Economic Progress Council.

The press release is available here, and the ful text of the study is available here.

Dr. Wong’s slide deck is available here.

KEPC UPDATE: Moody’s moves KSU to negative, KEPC predicted tax probs, international interest

In this issue …

  • Few noticed Moody’s move of KSU to “negative”
  • 2012 KEPC study predicted income tax problems
  • International financial interest in Kansas revenue problems

 

Few noticed Moody’s move of KSU to “negative”

Moody’s Investors Service downgraded Kansas State University bonds last April and assigned a negative outlook to what had previously been stable.  The Moody’s report notes state actions on tuition limitation and the “stagnant” support from the state as contributing factors.

The change was covered by a few Wall Street publications, but appears to have received no media attention otherwise.  The legislature was in its First Adjournment break at the time and the news was dominated by the April 7th municipal and school district elections.

One of the sharp-eyed readers of this newsletter was reading the link we provided last week on our story about Moody’s research on the issuance of a billion dollars in Kansas pension obligation bonds.  Off to the side was a “Related Research” column with a link to information on the KSU downgrade.

The $60 million-plus bond issue is to build a new chilled water plant at Kansas State.  Construction reportedly includes underground piping to serve several campus buildings and upgrade of heating/ventilation/air conditioning.  The project would extend chilled water capacity, allowing future growth and renovation of older buildings onto the chilled water system.

On April 7, Moody’s Investors Service issued the rating change, saying:

“Moody’s Investors Service revises Kansas State University’s outlook to negative from stable and assigns a Aa2 rating to the proposed $61.7 million of Series 2015 Revenue Bonds…”

“The revision of Kansas State University’s outlook to negative from stable reflects a material slowdown in net tuition revenue growth attributable to flat enrollment and state limitations on tuition increases, contributing to weaker operating performance.”

The report discussed strong growth in student charges driving a healthy cash flow, along with the university’s strong fundraising profile as positives that were taken into consideration, but added:

“Offsetting these strengths are relatively stagnant state operating support and the spend-down of financial reserves as the state has started to use balances of other agencies to balance its budget.”

Here’s a link to Moody’s document.

 

2012 KEPC study predicted income tax problems

It’s no surprise to many that the Kansas income tax cuts do not appear to be growing the state’s economy, but it may surprise you to know that we at KEPC predicted problems back in 2012, before the legislation passed.

That’s when we commissioned economist Dr. John Wong to do a study, based on Senate Bill 1 in the 2011 legislative session, which eliminated state income taxes through a trigger mechanism.  That bill did not advance.

Dr. Wong currently serves as Associate Dean of Faculty Affairs and Professor in the College of Business at the University of Dallas.  He was previously a Professor in the Hugo Wall School of Urban and Public Affairs at Wichita State University and is very familiar with state finances in Kansas.

Dr. Wong’s conclusions in the report come very close to predicting that the income tax cuts and resulting spending cuts would hurt the Kansas economy.

For purposes of the study, Dr. Wong compared the affect on the Kansas economy of a reduction in state spending with an equal tax reduction.  He did an economic impact analysis using Impact Analyses and Planning (IMPLAN), a regional economic impact model that is widely respected.  It has sometimes been used by conservative groups in analysis.  IMPLAN follows money through the economy.

Here’s part of his conclusions:

“There are at least two reasons why a reduction in state spending would have a greater negative impact than an equal reduction in state taxes.  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.  In contrast, though most spending by Kansas residents takes place within Kansas, much of those monies quickly leave the state’s economy, particularly since so few manufactured goods are built within the state.

“Second, a tax reduction disperses the benefits throughout the state, both geographically and across 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 business 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.  A business failure will have a ripple effect across the economy.”

The above would seem to explain at least some of the current problems with the Kansas economy and point to the income tax cuts as their source.

 

International financial interest in Kansas revenue problems

There has been a lot of national media interest in Kansas income tax cuts and budget problems of late.  As noted in the recent Moody’s downgrade of Kansas bonds, the financial markets are taking notice as well.

By way of anecdotal information which seems to corroborate the concern, we at the Kansas Economic Progress Council were contacted this week by a researcher from Deutsche Bank, the largest foreign exchange dealer in the world (21 percent of the market), and considered one of the most prestigious and influential banks in the world.

The researcher was seeking information on the extent that Kansas tax cuts stay in the state versus being exported outside the state.

We sent him a copy of Dr. Wong’s study (story above).

KEPC UPDATE: Moody’s on structural imbalance, cuts, transfers, Brookings on tax cuts

In this issue … Moody’s weighs in on state’s “structural imbalance” Cuts combined with revenue transfers to balance Kansas budget Brookings on tax cuts   Moody’s weighs in on state’s “structural imbalance” Moody’s Investor Services has given a below-average rating to Kansas pension bonds, saying the outlook for them is stable, but they make note […]

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KEPC UPDATE: THE SCHOOL FINANCE DECISION

Takeaways from the school finance decision By now, you’ve heard about the 87 page ruling on Kansas school finance by a three-judge panel on Friday.  The court ordered the state to pay about $50 million to local school districts by July 1. Many are still scratching their heads over what this means, particularly considering the […]

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KEPC UPDATE: Property tax problem, Kansas economy shaky

In this issue… Lawmakers face property tax problem at Friday session Kansas economy still shaky   Lawmakers face property tax problem at Friday session The tax package of two bills designed to balance the budget (including the sales tax increase) has an error that could have a significant impact on cities and counties and their […]

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KEPC UPDATE: Senate passes tax increase bill & budget, House returns on Monday

In this issue… Senate passes tax increase bill Senate passes a budget House returns Monday afternoon   Senate passes tax increase bill The Kansas Senate met Sunday afternoon and passed a sales tax increase and several other revenue enhancements that fill the hole in the state’s budget, at least for the time being. The bill […]

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KEPC UPDATE: House rejects tax bill, emergency budget, furloughs

In this issue… House overwhelmingly rejects tax bill Emergency budget waits in the Senate wings State prepares for weekend furloughs of state workers   House overwhelmingly rejects tax bill A compromise tax increase bill was overwhelmingly defeated in the Kansas House of Representatives Thursday by a vote of three to 108. A meeting of negotiators […]

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KEPC UPDATE: Legislature works through wknd, tax overview, tax debate Friday, running out of time, labor report, ed clean-up

In this issue… Legislature plans to work through the weekend The tax overview House tax debate scheduled for Friday Is the legislature running out of time? Monthly Kansas Labor Report indicates continued lackluster economy Education clean-up sent to the Governor   Legislature plans to work through the weekend After a week filled with stumbled starts, […]

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KEPC UPDATE: Tax debate Wednesday, tax overview, budget agreement, bioscience hearing

In this issue… Senate Cancels tax bill debate until Wednesday The tax overview Budget agreement tentatively reached Senate holds Bioscience Authority hearing   Senate cancels tax bill debate until Wednesday The Kansas Legislature went home Thursday and will return to Topeka Tuesday after a four-day Memorial Day weekend. The Kansas Senate had been scheduled to […]

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KEPC UPDATE: Biz tax cuts not working, cmte struggles with tax increas, block grant arguments & appeals, renewable energy, outlook

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KEPC NEWS RELEASE: Kansas’ own benchmarks lag the region

Indicators_Feb2015_nonfarm

Wichita, Kan. – Standards established by the State of Kansas and Governor Sam Brownback three years ago to measure the success of the Administration’s economic policies show the state’s economy trailing the rest of the region. The Kansas Economic Progress Council (KEPC) obtained a copy of the February 2015 report from the Governor’s Council of […]

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