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

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KEPC UPDATE: Property tax problem, Kansas economy shaky

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

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

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

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

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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


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