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: Waiting for supreme court, budget, highway disaster, negative ratings, higher ed warnings…and we told you so…

In this issue …

  • Waiting for the Supreme Court
  • Brownback has until Thursday to decide budget
  • The highway program disaster
  • Negative bond ratings
  • Higher education warnings on budget cuts
  • Hate to say we told you so

 

Waiting for the Supreme Court

As if Kansas public schools didn’t have enough to worry about these days with budget concerns, they are waiting for the Kansas Supreme Court to issue its decision on the equity question.

The court previously ruled that the Kansas block grant system for distributing funds to school districts was unconstitutionally inequitable.  The court gave lawmakers until June 30 to fix the problem or face a shutdown of schools.

The legislature took action, with a minimum of spending, but the plaintiff’s in the case argue the action did not fix the problem and more money is needed.

After hearing arguments on the legislature’s actions May 10, the court took the matter “under advisement.”

We can expect a decision sometime soon.  If the court rules against the State of Kansas, that would force a special session in order to keep schools open after June 30.

Best guess is that the scheduled June 1 “sine die” final adjournment could become something like a special session.  It could be extended beyond the usual one-day formality.  Technically, it would not be a special session, but a continuation of the 2016 legislative session.

 

Brownback has until Thursday to decide budget

Governor Sam Brownback now has until Thursday to decide what to do with the budget sent to him by the 2016 Kansas Legislature:  Senate Bill 249.

With this legislation (and assuming the Governor’s sweep of highway money and delay of KPERS), the ending balance is a slim $27.4 million (0.4%) for Fiscal Year 2016, which ends June 30.

The Fiscal Year 2017 ending balance would be $81 million (1.3%).

The Kansas Constitution says the legislature is responsible for providing the revenue to cover state expenses, which they did not do with this bill.  Lawmakers gave Brownback authority to make significant cuts himself.

It appears to make the budget constitutional, Brownback will make budget cuts before signing the document.

In some tantalizing public statements, the Governor has indicated previous cuts he’s proposed might be different from what he actually does.

 

The highway program disaster

What’s left of the 2010 T-WORKS transportation program is essentially gutted by the actions of the Administration and the Kansas Legislature.

Economic Lifelines Executive Director Mike Johnston calls it “an unnatural disaster” for transportation.

Johnston, former KDOT Secretary and Kansas Turnpike Manager, said, “The continued drain on earmarked transportation dollars by the governor and legislature has finally required KDOT to downsize T-Works about which we have repeatedly warned.”

Johnston noted that nearly $300 million in preservation lettings were “delayed” in FY 16 and 17.  These are essentially needed maintenance projects to keep existing roads and bridges in safe condition.  KDOT sources say 1200 miles of maintenance has become 200, while bridge maintenance is cut in half.

Now because of the state’s budget woes, 25 modernization and expansion projects totaling over half a billion dollars have also been “delayed.”  Some KDOT personnel are saying privately they may never be completed.

Johnston said, “Not only have these recent actions broken a promise to all Kansans, they also will have a profound negative impact on our state’s economy.  Jobs in the transportation industry create new wealth by using natural resources to create products that did not previously exist.”

The Kansas Legislature and the Governor have diverted an estimated $1.4 billion from transportation since 2011.

 

Negative bond ratings

Meanwhile, following the adjournment of the Legislature, Moody’s Investors Service adjusted Kansas highway revenue bonds outlook from stable to negative.  That’s due to $185 million being diverted from KDOT in sales tax that was originally earmarked for transportation.

Moody’s also changed the State of Kansas general outlook to negative.

“By continuing to balance its budget with unsustainable nonrecurring resources, including pension underfunding, it is accumulating large and expensive long-term liabilities that it will be paying off for a long time,” Moody’s said.

 

Higher education warnings on the budget

The higher education cuts in the budget are finally brining harsher reaction from the higher education community, which has been guarded in its criticism over the past few years.  That seems to have changed with the 2nd year of three percent budget cuts for Regents Institutions.

Some of the comments:

“It is disappointing to have already received $17 million in state appropriations cut to our six state universities in this current year.  To extend any cuts into next year would be detrimental to the future prosperity of Kansans.”

“Reducing state funding to our state universities transfers the cost of education to students and their families.”

– Kansas Board of Regents Chairman Shane Bangerter

Concerning a proviso in the budget on how cuts are distributed:

“In addition to harming the two universities and the state we serve, this type of funding decision sends a terrible message to the nation that Kansas does not value earning research grant funding and that our state actively penalizes our research universities when they succeed.  The reality is, the language in the budget does not raise any new revenue for the state and serves only to punish Kansas State University and the University of Kansas for being successful research universities.”

– KU Chancellor Bernadette Gray-Little and K-State Interim President Richard Myers in a joint letter to alumni groups

Regarding a proposed five percent tuition and fee increase to cover budget cuts:

“…a few more families can’t afford to send their son or daughter, grandson or granddaughter to get a four-year degree, and I think that hurts in the long run economically in the state.”

– Outgoing Kansas State University President Kirk Schulz

 

We told you so

In the midst of all of this bad news about the Kansas budget and arguments about the 2012 income tax cuts being the cause, we at the Kansas Economic Progress Council were contacted by a doctoral student this week doing a paper on the 2012 cuts.

Trying to be helpful, I was reviewing some of my testimony from 2011 and 2012 to Kansas legislative committees about what we here at KEPC were thinking at the time.

In June of 2012, just a month after the legislation passed, we published a several-page summary of the income tax cuts and their impact.  We were even asked to present the information to the Legislative Budget Committee in October, 2012.

Here are some of our predictions at that time:

  • “Kansas credit ratings will be impacted.”
  • “There are reports that many “C” Corporations are exploring a change in status to take advantage of the exemption.
  • “Many lawmakers who opposed the income tax cut believe the cost of the business income exemption is much greater than projected by the Department of Revenue.  If true, lawmakers may have to adjust the already-passed FY 2013 budget downward.”
  • “Expect to see proposals for ‘revenue adjustments’ designed to offset some of the income tax cut.  Possibilities include elimination of tax credits, income and sales tax exemptions, deductions, and a repeat of efforts to make the temporary one-cent sales tax increase enacted in 2010 permanent.
  • “However, these will not be enough.  As previously stated, we fully expect another attempt to take transportation funds to mitigate the damage to education, social services, and other important state operations. And of course, there will also be proposals to cut the budget.”
  • “Known by many as the ‘nuclear option’ income tax cut, the bill forces significant budget cuts in future years.”

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