OPINION: Legislature should be careful about fixing the mess.

Tuesday’s general election, combined with the August primary, has resulted in big changes that mean a more moderate anti-Brownback Kansas Legislature next year.  This new majority of moderate Republicans and Democrats will be anxious to undo the state’s financial mess. But the 2017 Legislature should proceed with caution.

Part of the solution is to reverse the much-debated business income tax exemption.  There are two problems with that, other than the objections of Governor Brownback.

Even if lawmakers reverse the business exemption the first day of the session, it won’t bring any significant revenue to the state budget for another year.

The second problem is that the state’s revenue shortfalls were not solely caused by the business exemption.  About 70 percent of the revenue forgone since the income tax cuts came from the rate reductions granted to the remaining Kansans who pay individual income tax.

Then there are the problems with the Kansas tax structure that existed before the 2012 income tax cuts and continue today. Cited most often is the sales tax on food, but there are others.

For example, a 2011 study of business taxes in the region by Ernst and Young for the Arkansas Chamber of Commerce concluded Kansas has the highest effective tax rate in the region on business services, nearly 20 percent.  The excessive burden was the result of high sales and property taxes.

That disproportionate tax load has been intensified by the income tax cuts and the two state sales tax increases since 2012.

How should Kansas proceed?

An excellent model is the 1995 Governor’s Tax Equity Task Force authorized by executive order of Governor Bill Graves.  It was in response to strong anti-property tax sentiment following reappraisal and classification in the early 1990s.  Although now dated, it was, and still is, the most comprehensive overview ever done of the Kansas tax structure.

The 280 page all-inclusive study incorporated 14 research papers by respected Kansas authorities who were experts in specific fields of Kansas taxation.

The 21 member Task Force came up with a list of tax policy objectives that have stood the test of time, such as, “The state and local tax system should be balanced and diversified,” a warning since ignored.

The report said, “Because all revenue sources have their weaknesses, a balanced tax system will reduce the magnitude of problems caused by over reliance on a single tax source.”

We violated this standard by trying to eliminate the income tax and becoming overly reliant on a single revenue source, the sales tax.   With no action, that reliance will grow.

In 2012, Kansas hired celebrity economist Arthur Laffer for $75,000 to tell us to cut the income tax. In 2015, the legislature hired the consulting firm of Alvarez and Marsal for $2.6 million to do an efficiency study to tell us what we can do to try to live with the tax cuts.

As we look at tax policy solutions, we must take sufficient time and make thoughtful efforts to formulate the best answers toward finding our way out of our state’s fiscal disaster.

Something like the Tax Equity Task Force would be a good start to sorting out the solutions.

Bernie Koch of Wichita is the Executive Director of the Kansas Economic Progress Council.





KEPC WEEKLY UPDATE: Breaking News! Subcmte reverses hwy cuts, rescission, income tax, liquor/tobacco, KPERS, farm property taxes, KanCare, E-verify, Unemployment

In this issue …

  • Subcommittee reverses highway cuts
  • Rescission bill signed
  • Governor’s income tax changes introduced
  • Liquor/tobacco tax increases introduced
  • KPERS bonding out of committee
  • Bill would increase farmers’ property taxes
  • KanCare expansion bill is printed
  • E-verify bill introduced
  • Unemployment Insurance re-do discussed


Subcommittee reverses highway cuts

A legislative subcommittee has voted to reverse Governor Sam Brownback’s proposed cuts to transportation in his 2016/2017 budget.

Thursday, the House Appropriations Subcommittee on Transportation/Public Safety deleted the transfer of $140 million in each of the next two years from the highway fund to other purposes. The motion to make the changes came from Representative Russ Jennings (R-Lakin). His amendment was passed on a voice vote.

The recommendation now goes to the full House Appropriations Committee, where its fate is uncertain.

The Kansas Department of Transportation disclosed this week in the subcommittee that it needs an adjustment to the current law 18% bonding cap for FY 2016 and 2017. KDOT is seeking a proviso in the mega appropriations bill for the 2016/2017 two year budget to allow that to happen.

The bonding cap change is necessary for KDOT to bond $250 million in Fiscal Year 2016.

It appears that the amendment deleting the highway fund transfer, that bonding cap change will not be necessary.

Subcommittee members Rep. J.R. Claeys (R-Salina) and Rep. Melissa Rooker (R-Fairway) reportedly expressed concern earlier in the week that the state would be using KDOT bonding authority to circumvent the state cash basis law.

The Topeka Capital-Journal quotes Jennings as saying, “It’s time we bring this to some level of curtailment. This would be the equivalent, to me, of running my credit up to the limit and then calling the bank and saying, ‘Oh, yes, by the way, there are a few more things I’d like to buy. Can I have some more credit? I think I’m going to be able to pay for it.’”

Meanwhile, there are reports that the transportation cuts are driving one Kansas construction company to move many operations out-of-state.

Wichita’s Sherwood Construction is moving several employees to Oklahoma and Colorado. The company built a new repair facility in Tulsa and has moved into a Tulsa office, while continuing to maintain a presence in Kansas.

Company founder Howard Sherwood told the Wichita Business Journal the company’s chief financial officer, technology personnel and estimators have moved to Oklahoma. “As the Kansas (highway) program quieted down, our emphasis has been more in Oklahoma where there is a more robust highway program,” Sherwood told the Business Journal.


Rescission bill signed

Governor Sam Brownback signed the rescission bill (H. Sub for SB 4) Tuesday, which deals with much of the budget shortfall for Fiscal Year 2015. A deficit of about $800,000 remains, but the intention is to clean that up with some actions in the big two-year mega-budget bill for Fiscal Years 2016 and 2017.

The bill was necessary because the consensus revenue estimates of November identified a $278.7 million shortfall for the fiscal year ending June 30. Additionally, January revenues were down $47.1 million.

Without action, Kansas would not have been able to pay its bills in February.

Because Kansas operates on a cash basis, and cannot run a deficit, the Governor issued an allotment plan totaling $280 million. It reduced expenditures by $66.4 million. It also included recommendations to transfer funds and adjust non-state general fund expenditures an additional $219.9 million.

The biggest piece was a transfer of $158 million from the state highway fund.

You can read a detailed summary of the rescission bill and where it gets the money from the legislature’s web site.


Governor’s income tax changes introduced

The Governor’s suggested changes to the income tax law have been introduced in the Kansas House (HB 2307). The bill adjusts current income tax rates, provides a tax amnesty, creates a budget stabilization fund, speeds up the reduction of tax exemptions, and sets up how future income tax rates will be determined.

The bill eliminates the requirement of a 7.5% ending balance, which has been routinely ignored in recent years.

When revenues grow over 2% of the previous year, the amount between 2% and 3% goes into a budget stabilization fund.

The language setting up an elaborate system for reducing future income tax rates is totally eliminated and a new system substituted:

  • Revenue growth over 3% goes into a tax reduction fund before August 15th, following the end of the fiscal year.
  • At the beginning of the next regular legislative session, the amount in the fund is reported to the governor and legislature.
  • The governor may recommend what income tax rate cuts go into effect for the next tax year, based on what’s in the tax reduction fund, subject to legislative approval.
  • If the governor doesn’t make a recommendation, the legislature can establish the tax rates.
  • If the individual income tax has dropped to 0%, the governor may recommend reductions in taxes on corporations, banks, and savings and loans. But the rate changes can only be established by an act of the legislature.

Here’s a link to the entire 16 page bill.


Liquor/tobacco tax increases introduced

The governor’s bill increasing taxes on cigarettes, tobacco products and alcoholic beverages is House Bill 2306.

It was introduced on Wednesday. Word late Thursday was that hearings on liquor and tobacco taxes would be held sometime next week.

Tax legislation and the 2016-2017 budgets will have substantial activity in the next week and a half. Next week is filled with subcommittee hearings on agency budgets and House Appropriations and Senate Ways and Means Committee meetings to work parts of the budget.

Lawmakers may need to know what tax adjustments will have a chance of passage before they can work the budget.


KPERS bonding out of committee

The legislation Governor Brownback requested to issue more bonds for KPERS is barely passed out of the House Committee on Pensions and Benefits.

The bill authorizes the issuance of $1.5 billion of pension obligation bonds to finance a portion of the unfunded actuarial liability of the Kansas Public Employees Retirement System. Critics have called the idea “borrowing to circumvent the cash basis law.” That’s much the same criticism heard over KDOT bonding.

The measure is House bill 2095. The vote was tied when committee Chairman Steven Johnson (R-Assaria) cast the tie breaker. The vote was 7 to 6. That may indicate the legislation could have problems when it comes to the floor of the House of Representatives.


Bill would increase farmers’ property taxes

As we have been predicting for several months, the 2012 and 2013 income tax cuts and the resulting revenue reductions are causing lawmakers to visit use value appraisal of agricultural property in an effort to find more money for public education.

Senate Bill 178 was introduced in the Senate Ways and Means Committee Tuesday and referred to the Senate Assessment and Taxation Committee on Wednesday. It was proposed by Johnson County Senator Jeff Melcher (R-Leawood).

Agriculture organizations hotly oppose the bill because it will increase property taxes on farmers, which is its intent. Some early estimates indicate ag land taxes could skyrocket.

As the result of the agriculture crisis of the 1980s, the Kansas Constitution was changed to require agricultural land to be valued for taxation based on its income or productivity. This is commonly called “use value” appraisal. The change was implemented in 1989, when farm values around urban areas skyrocketed because valuations were based on their development value.

Land values are now calculated based on the inherent capabilities of the land and agricultural income. They do not represent fair market value, nor is fair market value used in the calculation of the values.

The system uses an eight-year average to determine value, as well as net income. House Bill 178 changes that to a five-year average, based solely on cash rental rates.

This is already heating up.

At a meeting of the Senate Commerce Committee this week, economist Dr. Art Hall of K-U was giving lawmakers a briefing on the various economies of the state (manufacturing, service, etc). Toward the end of the meeting, the conversation evolved into an in-depth discussion of use value appraisal of farmland, with many urban Senators (including Melcher and others from urban areas) expressing strong support for changing the way agricultural property taxes work.

The Senate Tax Chairman, Les Donovan (R-Wichita) is said to be not interested in pursuing the bill. There is strong speculation such legislation would split conservative Republicans.

A similar measure is expected to be pursued in the Kansas House.


KanCare expansion bill is printed

A 19-page bill expanding Medicaid in Kansas, now known as the KanCare II expansion act, was introduced this week after several days of discussion about the issue in the House Vision 2020 Committee.

The measure is House Bill 2270. It’s unclear if it will get out of committee or see the light of day on the House floor, but the vast majority of the medical community is hopeful.


E-verify bill introduced

House bill 2294 requires the state or any local government that does more than $5,000 in business with any entity to require a sworn affidavit that it is registered and a good faith participant in the federal e-verify program.

E-verify requirements have long been opposed by a large coalition that has been watching immigration issues in Kansas for about four years. The coalition includes businesses, business organizations, agricultural organizations and local government and their organizations. The Kansas Economic Progress Council is part of the coalition as well.

E-verify is an internet based system that compares information from an employee’s Form I-9, Employment Eligibility Verification, to data from the U.S. Department of Homeland Security and Social Security Administration records to confirm employment eligibility.

Even with an error rate less than 1%, many workers get caught in a bureaucratic limbo trying to prove their right to work.

The cost to small businesses is estimated at over $2.6 billion per year nationwide to run the program.

E-verify is said to be prone to errors among young workers, women who change their name, Hispanics with multiple surnames, naturalized citizens, and legal immigrants. Many believe the affect of e-verify is to cause employers to avoid these groups when hiring.


Unemployment Insurance re-do discussed

Most Kansans don’t realize that unemployment insurance (UI) taxes paid by Kansas businesses total more than the individual income tax collected on businesses in 2012 (the year before the income tax cuts went into effect).

Legislators are hearing a proposal that would make major changes to the system, where employers pay a tax, which ultimately goes to pay unemployment benefits for laid-off workers.

Several reforms took place in Kansas over the past several years as the system went “bankrupt” due to the Great Recession. Federal dollars were loaned to Kansas (as well as many other states) to pay unemployment benefits and a system to pay back the feds was put into place.

The new proposal moves from an “arrayed” system to a “fixed” system. It is said to be based on an employer’s experience rating that reflects their usage of the unemployment system. Many businesses have complained they have had no claims or few, yet pay big UI taxes.

Natalie Bright, representing the Kansas State Council of the Society for Human Resource Management (SHRM) told the Senate Commerce Committee this week, “In essence, employers who have never had a benefit drawn on their account continued to see significant rate increases. In addition, an amount assessed against an employer would often vary greatly year to year.”

Bright was testifying in favor of SB 154. She said a working group came up with the bill, “which replaces the current arrayed methodology (where experiences are spread across all employers), to a fixed rating system (where tax is based on employer’s individual experience).”

The committee heard that 44 other states have a fixed system.

The issue is somewhat complicated and the committee will take time to make sure they understand it before taking action. The hearing on the measure will continue Monday.

KEPC UPDATE: State borrowing; Jordan: Revenue drop in June; Fiscal Cliff/Capital Gains; Medicaid expansion

  • State borrowing nearing Great Recession level
  • Jordan says revenue will drop again in June
  • Memo hints revenue drop was not all fiscal cliff/ capital gains
  • Medicaid expansion with a Kansas twist


State borrowing nearing Great Recession level

Former Kansas Budget Director Duane Goossen told a meeting of the Newton Area Chamber of Commerce last Friday that the internal borrowing recently authorized by the Kansas Finance Council is nearing the same level as during the Great Recession.

The comments came a day after Governor Brownback and legislative leaders approved $675 million in borrowing from idle funds over the 2015 fiscal year to help the state by expected tight times caused by lower than predicted revenues.

Internal borrowing in the 2009 fiscal year was $775 million. Last year it was $300 million.

Goossen, now the VP for Fiscal and Health Policy at the Kansas Health Institute says the increased borrowing is a signal that the state is entering a period of “defensive budgeting.”

Governor Brownback and Republican legislative leaders are taking strong exception to some of the reporting on the revenue drops and the borrowing.

You can get a flavor for the debate by listing to a story by Stephen Koranda of Kansas Public Radio at the University of Kansas.  Listen to the audio report on the State Fiscal Council meeting last week where the idle fund borrowing was authorized.


Jordan says revenue will drop again in June

Kansas Secretary of Revenue told the Topeka Capital-Journal this week that he expects state revenues collections to fall about $10 to $20 million below official estimates for June, following a drop of $310 million below estimates in April and May.

The Administration has attributed the drop to investor fears about federal tax changes that caused a surge in investment sales to take advantage of lower capital gains taxes. Officials pointed to a report by the Rockefeller Institute of Government to support their claims.

However, as we reported on June 7, Rockefeller Institute economist Lucy Dadayan told the Wichita Eagle her research was misrepresented by those administration claims.

“The large declines in Delaware, Kansas, and North Dakota are mostly attributable to the legislative changes that cut income tax rates as well as restructured tax brackets,” she said.

Dadayan also said in that story that Kansas might have to make budget cuts in the near future.

Memo hints revenue drop was not all fiscal cliff/capital gains

A memo to the Kansas Legislative Budget Committee dated Monday, June 9th, has a slightly different analysis regarding what caused the $310 million drop in estimated revenues coming in to the State of Kansas.

Funds flowing into the state’s treasury in April and May were $310 million less than the official estimates published in mid-April.

The biggest piece of the estimate that went askew concerned individual income taxes. They were $282 million less than expected, or 12.3 percent, according to Legislative Research.

The memo agrees in part with what the Administration says caused the difference.

“The reduction in individual income tax receipts was believed to be at least partly attributable to a taxpayer behavioral adjustment that occurred late in 2012. This development was known but the impact had been underestimated in Kansas and a number of other states.”

The memo goes on to say:

“In addition to the aforementioned Fiscal Cliff/capital gains issue, it appears that some of the fiscal notes associated with various income tax law changes enacted in 2012 and 2013 were understated. Additional study will be needed to provide updated information for the Consensus Group in November on the magnitude of the shortfall relative to the most recent estimate – regardless of the reason or combination of reasons that caused the shortfall.

Read the entire memo. And, you can also learn more from a KHI special report.


Medicaid expansion with a Kansas twist

The Kansas Hospital Association will propose Kansas-specific legislation in 2015 to expand Medicaid in the state, according to a report by the Kansas Health Institute News Service.

The report says in part:

“The legislation being drafted by the hospital association will be tailored specifically to Kansas, though it will borrow elements from so-called private sector expansion proposals in other states. Pioneered in Arkansas by a Democratic governor attempting to overcome opposition from a Republican-led legislature, the private-sector approach has been adopted by an increasing number of Republican governors seeking an alternative to expanding public coverage.”

Here’s a link to the story on the KHI News Service.

KEPC UPDATE: Weather, tax debate, constitutional amend passes Senate, fixtures bill, deadline, income tax cuts don’t cause growth

In this issue …

  • Weather shortens the legislative week
  • Tax plan will be debated in Senate
  • Education constitutional amendment passes Senate
  • Legislative Post Audit released on fixtures bill
  • Deadline coming up
  • Study: income tax cuts don’t grow small business
  • Find your legislator


Weather shortens the legislative week

This has been a very short week.  Due to the weather, the legislature and much of state government was closed down Thursday.  There will be little activity on Friday.  Much of next week will be spent on the floor of the House and Senate debating bills.  Much of the committee work scheduled for Thursday and Friday will be pushed into next week.


Tax plan will be debated in Senate

Most of Governor Sam Brownback’s proposed tax plan is expected to be debated in the Kansas Senate next week after coming out of the Senate Taxation Committee this week.  House Bill 2059 will cut Kansas individual income taxes even more in the future, but raise revenue sooner to fund the budget.

It’s basically the Governor’s tax plan.  It raises money by extending the temporary statewide sales tax increase enacted in 2010.  It also eliminates the individual income tax deduction for mortgage interest, a change strongly opposed by the Kansas Association of Realtors.  The bill does NOT include elimination of the real estate property tax deduction, as proposed by the Governor.  That was removed in committee.

House bill 2059 was originally the cleanup trailer bill to last year’s income tax bill.  It corrects the tax basis problem and fixes the unexpected $2.5 million tax increase on individuals who are owners of bank holding companies.

The Senate Taxation Committee amended Senate Bill 78 (most of the Governor’s plan) into House Bill 2059.  This is widely seen as a parliamentary maneuver to send the bill to the House and put it into a conference committee.  Such a move would avoid a full debate in the House of Representatives where amendments could be debated and voted up or down.


Education constitutional amendment passes Senate

By a vote of 27 to 13, a constitutional amendment designed to sidestep the recent school finance court decision has passed the Kansas Senate.  The court decision requires Kansas to put $480 million more into K-12 education.  It is being appealed to the Kansas Supreme Court.

Senate Concurrent Resolution 1608 would change the Kansas Constitution to make it clear that education financing is exclusively a legislative power.  Constitutional amendments must be approved by a 2/3 vote of both the House and Senate in order to go to the voters.  If approved by the Legislature, the vote would take place in the April statewide elections this year.

It now goes to the Kansas House of Representatives, where its chances of passage seem slim.   Speaker of the House Ray Merrick is quoted as saying it’s a “tossup” whether the resolution could get the 2/3 majority needed to pass.

84 votes is a 2/3 majority in the House.  42 votes would stop it.  All 33 House Democrats are likely to oppose it.  All it would take is at least nine Republicans to vote no.  It’s believed there are a minimum of a dozen moderate Republicans.


Legislative Post Audit released on fixtures bill

The Legislative Post Audit report on the machinery and equipment vs. fixtures issue has been released and was reviewed by the House Taxation Committee on Wednesday afternoon.

The audit stems from a legal dispute between Montgomery County and a nitrogen fertilizer company over the firm’s 2008 tax assessment.

Machinery and equipment acquired after 2006 is exempt from property tax in Kansas.  The appraiser said some property previously classified as machinery and equipment was actually fixtures, and thus real property subject to property tax.  The quarrel started after the Kansas Court of Tax Appeals upheld the Montgomery County Appraiser’s valuation and classification. 

Major findings of the Post Audit report:

  • Targeted review of three ethanol plants identified a number of problems with how county appraisers classified certain property (including problems within the same plant).
  • Inconsistencies in the way county appraisers valued property.
  • Although the state’s computer assisted mass appraisal system works well for most properties, it does not work well for complex manufacturing plants. This contributed to the classification and valuation issues identified.
  • The state’s Division of Property Valuation does not provide sufficient oversight and guidance for appraising complex manufacturing plants.
  • Last year’s Senate Bill 317 would reduce property taxes between $170 million and $500 million annually, over the long term.  It would have broadly redefined commercial property.
  • The Post Audit report makes a number of recommendations to the Division of Property Valuation aimed at improving their assistance and guidance on how to classify and value complex manufacturing plants.

During the House Taxation Committee meeting on the Post Audit report, the auditor provided some additional information, saying that last year’s SB 317 would have affected apartments, day care facilities, and other non-manufacturing properties.  Local government officials say the audit supports their concerns about property tax shifts.

Meanwhile, a hearing on this year’s fixture bill, House Bill 2085, has been postponed until Monday afternoon.  It had been scheduled for a Thursday hearing, but was cancelled due to the weather.


Deadline coming up

An important legislative deadline is coming up next week that will mean many bills will not move forward in the Legislature.  March 1 is the “turnaround” or “House of Origin” deadline.  That means House bills must have passed the House, and Senate bills must have passed the Senate.  If not, they are dead for the rest of the session, but can carry over into 2014.

There are exceptions for bills that come from certain committees, such as Taxation, Federal and State Affairs, and the budget committees.


Study: income tax cuts don’t grow small business

A study released this week by the Center on Budget and Policy Priorities cites extensive evidence that state income tax cuts do not grow small business.  The paper pounds away at the assertion that state income tax cuts, such as those that have passed in Kansas and are proposed elsewhere, have a positive impact.

Some legislators who have read the CBPP report say the evidence presented is stunning.

The study concludes, in part:

“There is almost nothing in economic theory or empirical research to support an assertion that cutting state personal income taxes will have a significant impact on the emergence, success, or job-creation performance of small businesses. The vast majority of any revenue forgone from such tax cuts will flow to people who don’t own businesses, and of the limited tax savings that does happen to flow to business owners, the vast majority will be received by people with no intent or authority to hire additional people.”

Read the full study here.


It cites studies by the U.S . Small Business Administration, the Kansas City based Kauffman Foundation, and even a 2006 study published in the journal of the libertarian Cato Institute to support its conclusions.


Find your legislator

Want to contact your legislator by letter, phone call, or e-mail to let them know what you think of legislation?

Here’s a quick and easy way to do it.  Just go to:  http://openkansas.org/

Enter your full address.  This site will give you contact information on your legislators, including office and home phone and e-mail.

KEPC UPDATE: Moody’s warning, NY Times, cash vs. confidence, Sen. Haley

In this issue …

  • Moody’s warns about Kansas tax and government cuts
  • NY Times features Kansas vs. Maryland
  • Lots of cash, no confidence
  • Sen. Haley is a Pro-Jobs Transportation Leader


Moody’s warns about Kansas tax and government cuts

In two separate reports recently, Moody’s, the bond credit rating organization, has expressed concerns about the Kansas income tax cut legislation and slow economic growth in the state caused by shrinking government payrolls.

In a June 13 Moody’s report on the income tax reduction bill, Moody’s says the cuts will have a manageable impact on the 2013 budget, but a more serious problem after that.  Their forecast:

“No improvement in economic growth as a result of the tax cuts is assumed by the forecast, although improved economic growth is the legislation’s policy goal.”

“Unless it is able to implement corresponding spending cuts or achieve faster economic growth than currently anticipated, the state forecast shows out-year operating budget deficits and depletion of fund balances, which would cause downward credit pressure.”

Here’s an excerpt from a July 5 Moody’s report on the overall economic health of Kansas:

“A shrinking public sector poses the biggest hurdle to a more solid recovery. Further, lackluster performance in goods production has kept the state’s growth below average.”

“Prospects of additional public sector retrenchment will remain the biggest threat to the recovery. Federal government payrolls were hit especially hard last year, with state and local employment declines not too far behind.”


NY Times features Kansas vs. Maryland

Wall Street isn’t the only place in New York that’s noticed Kansas income tax cut.  A July 11 story in the New York Times compares Kansas (which has cut income taxes) with Maryland (which has raised them) and some other states.

Part of the story quotes Governor Brownback:

Mr. Brownback said that he initially had hoped to pay for some of the lost revenues — which are expected to reach a little over $800 million, or 13 percent of general fund revenues, next year — by ending a number of popular tax deductions, and by phasing in the cuts slowly. But he could not find support for that, so, even as other states are beginning to add spending again, he has been looking for savings and more cuts to offset the projected loss in tax revenues.  “We are going to be going through everything with a fine-tooth comb,” he said.

Read the full story here.


Lots of cash, no confidence

Companies are continuing to hold onto their cash rather than invest in new equipment or new employees, unsure of what will happen to the economy.

That’s the conclusion of a survey of private company Chief Financial Officers by the American Institute of Certified Public Accountants.

The survey, which was released June 7, surveyed 1,250 senior executives.  Of those, 36 percent said cash assets have been increasing from the first quarter to the second quarter of 2012.  The same percentage also said they were up at least 31 percent in cash and liquid assets from the second quarter last year.

However, 24 percent of those responding to the survey said they were uncertain about using the excess cash.


Sen. Haley is a Pro-Jobs Transportation Leader

We recently reported that Economic Lifelines named 68 Kansas legislators “pro-jobs/transportation leaders in recognition of their strong support for transportation’s role in creating jobs and economic development.”

Their selection was based on votes taken to support the Kansas T-WORKS program and against efforts to take funding from the program.

Economic Lifelines inadvertently left Senator David Haley (D-Kansas City) off the list and we repeated the error when we re-published it.

Thanks to Senator Haley for his strong support of transportation.

KEPC UPDATE: “dynamic scoring,” response to cuts lukewarm, OK tax cut may fail, correction, About Bob

In this issue …

  •  Administration’s “dynamic scoring” implies low growth
  • Business response to tax cuts appears lukewarm
  • Oklahoma income tax cut may fail
  • Correction
  • About Bob


Administration’s “dynamic scoring” implies low growth

At the ceremony where  Governor Brownback signed the large income tax cut bill Tuesday, officials once again circulated “dynamic scoring” documents predicting the tax cut will add 23,000 new Kansas jobs by 2020, over and above normal growth.  Administration officials also indicated their analysis showed 35,000 people will move to Kansas as a result of the tax cuts by 2020.

A review of Kansas labor and census information strongly suggests such growth would be extremely low by historic standards and contradicts the administrations claims that the legislation will be “a shot of adrenaline into the heart of the Kansas economy.”

Current Kansas employment in April was 1,357,100, according to the Kansas Department of Labor.  An addition of 23,000 new jobs would be less than 1.7%.

In fact, a May 18 news release by the Labor Department said Kansas job growth was over half the touted 23,000 new jobs in just one month:

“Private sector employment grew by 13,900 jobs since March 2012, a 1.3 percent increase. These gains were caused by seasonal changes, showing a pause in the overall improvement of the labor market.”

Here’s how Kansas employment grew in the five year period after the September 11th downturn and the beginning of the Great Recession in 2008.  Figures come from the Kansas Department of Labor web site.

2003-2004                   11,800

2004-2005                   8,100

2005-2006                   20,700

2006-2007                   26,200

2007-2008                   10,600

That’s an increase of 66,800 jobs in the period, or 5% growth of employment before the recession hit.  An additional 23,000 jobs over the next seven years would certainly be welcome, but it’s hardly “a shot of adrenaline” compared to what Kansas has been able to do in a normal recovery.

So, what about the projection that Kansas will add 35,740 new residents?

Kansas current population, according to the U.S. Census Bureau, is 2,871,238.  The addition of 35,740 new residents by 2020 would only be a 1.24% increase.

According to U.S. Census Bureau estimates, Kansas beat that percentage population growth in eight of the ten years of the decade from 2000 to 2010.

Here are the estimated Kansas population growth rates from 2000 to 2010.

2000                8.5

2001                0.5

2002                0.9

2003                1.2

2004                1.6

2005                2.0

2006                2.5

2007                3.2

2008                4.0

2009                4.8

2010                6.1

Kansas population grew by 164,294 during the decade beginning in 2000.

That’s 6.1 percent.  An additional 1.24% increase in population would be welcome, but it’s hardly “a shot of adrenaline into the heart.”  Maybe more like a cup of regular coffee.


Business response to tax cuts appears lukewarm

The headline in the Business section of the Wichita Eagle Thursday morning was contradicted by the story:  Kansas small-business owners say elimination of income tax is a big help.

The actual story seems to indicate a tepid reaction to the tax cut.  An accountant points out the downsides, including the fact that a state tax cut will increase federal taxes.

A pharmaceutical company says the lower income taxes will not create more jobs at his firm.  “Tax policy doesn’t affect when we hire,” said Brian Williamson, president and CEO of JCB Laboratories.  “We’re hiring when the business dictates we need to hire.”

The President of the Wichita Independent Business Association, Tim Witsman, said the cuts are helpful to small business, but other variables have a significant effect on job creation.  Witsman was the first President of the now-defunct Kansas Inc., the state’s economic development research agency.

Read the full story here.


Oklahoma income tax cut may fail

Oklahoma law requires the legislature to complete its work by 5 p.m. on Friday of this week, and it’s looking more like Governor Mary Fallin’s call for an income tax cut will not happen this year.

There are not enough votes in the Oklahoma House to support a previously agreed to proposal.  The agreement fell apart after the Oklahoma Tax Commission released information showing 24% of tax filers would have an increased tax liability.

The Speaker of the Oklahoma House of Representatives, Kris Steele, says the House has kept tax cuts alive by offering up an alternative proposal.  The Senate and Governor Fallin are resisting what they consider a lesser offer.


In a previous KEPC Update, our report on education funding erroneously implied that a bill to increase local option budget authority for school districts might have passed.  It did not.

The legislature added $40 million from the state general fund to the base state aid per pupil.  There is no local taxing authority expansion.  We regret the misunderstanding.

About Bob

Like so many others, we were shocked and saddened by the tragic death of Representative Bob Bethell (R-Alden).  Bob was a moderate Republican and a great friend of the Kansas Economic Progress Council.

Tagged by many as a RINO (Republican In Name Only), he proudly displayed a mounted fake rhinoceros head on the wall of his office.  He wore a Mickey Mouse tie every day, yet was deadly serious in his concern for those who suffered from health problems, poverty, and disability.

Respected by all, he even officiated at the funeral of Representative Judy Showalter, a Winfield Democrat, in 2005.  Knowing she was dying of cancer, Judy asked Bob to preside at her service, and insisted that he wear one of his signature Mickey Mouse ties.

His own funeral Thursday at Sterling, Kansas was attended by what appeared to be most of the legislature, Republican and Democrat.  Many wore Mickey Mouse items in his honor.

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.

STATELINE: Gov drives rightward shift

January 26, 2012
By John Gramlich
In Kansas, Governor Sam Brownback drives a rightward shift

TOPEKA, Kansas — For 14 years, Sam Brownback represented Kansas in the United States Senate, a chamber known for its slow and plodding pace. Now governor, Brownback is in no mood to wait.

The Republican, entering the second year of his term, is pushing what may be the boldest agenda of any governor in the nation. While Republican leaders in other states pursue narrower agendas or steer toward the political middle in a presidential election year, Brownback effectively is betting that Kansans want to see much more, not less, of the conservative vision he started building last year.

The governor’s to-do list amounts to a blueprint for fiscally and socially conservative state government. He wants lawmakers to slash and eventually eliminate the personal income tax while getting rid of 23 tax credit programs, including the Earned Income Tax Credit for the working poor. He wants to cap state spending growth at 2 percent a year, a rate that could force deep budget cuts if it doesn’t keep up with inflation or a growing demand for state services. He is planning to overhaul a school financing formula that has been in place for two decades, favoring an approach that could result in less state money for large, poor districts. [Read more…]

The American Prospect: What’s the Matter with KS, Tax Edition

January 25, 2012
By Abby Rapaport
What’s the Matter with Kansas, Tax Edition

The state aims to cut off deductions that benefit the middle class, all the while propping up big business.

While around the country, many Republican primary voters are up in arms that Mitt Romney only paid about 13 percent of his income in taxes last year, in Kansas, Governor Sam Brownback is pushing a proposal that would not only benefit wealthy Kansans but raise taxes on the state’s poorest residents. A new report released yesterday argues that the plan will benefit some large corporations but fail to create jobs.

The plan gets rid of a number of tax deductions—including those for home mortgages and charitable giving. It also takes away the earned-income tax credit and food-sales tax rebate. As the AP noted last week:

According to the Department of Revenue’s own figures, the only class of taxpayers that would see an increase in its aggregate income tax burden would be the one with people whose incomes are $25,000 or less, while the largest percentage cut would go to the group with incomes exceeding $250,000. As a group, the lowest-income taxpayers actually get a net payment from the state, so the tax change they face is calculated as an increase of more than 5,100 percent.

The new analysis left Brownback’s staffers doing spin control. Revenue Secretary Nick Jordan argued that included among the poorest taxpayers—41 percent of individual filers—are wealthy teens with after-school and weekend jobs. Shockingly, that particular line of defense doesn’t seem to have gained a whole lot of traction. Even an appearance from the father of Reaganite supply-side plans, Art Laffer, hasn’t been enough to quell concerns. [Read more…]

Pittsburg Morning Sun: Tax cuts and reactions

January 24, 2012
By Burdett Loomis
INSIGHT KANSAS: Tax cuts and reactions: a puzzle

PITTSBURG — Introducing a policy agenda that’s long and deep, Governor Brownback delivered a reasonable State of the State address last Monday, with a major tax reduction as the centerpiece.  Doing instant commentary after the speech, I saw it as an interesting, if somewhat awkward, attempt to broaden the tax base a bit and lower rates – an appropriate proposal from a fiscally conservative administration.

The devil, of course, is in the details.  Like getting the House to make permanent a so-called “temporary” sales tax increase.  Like doing away with tax deductions for home mortgages and charitable giving.  Like lowering to $30,000 the break point for the top tax rate.

In short, many moving parts make up an allegedly simple plan to reduce income tax rates.  Early analyses demonstrated how unevenly the cuts would hit Kansans.  And one thing become increasingly apparent – poor Kansans would be hurt the most, largely due to the elimination of the earned income tax credit, an idea the GOP once eagerly embraced.

I was in the capitol last Tuesday as the news broke – the Revenue Department analyses concluded that the poorest fifth of Kansans would pay $156 more on average under Brownback proposal. No matter what you believe on the substance of the issue, this is flat-out awful politics, especially when newspapers, opponents, and interest groups could trumpet this change as representing a 5,000 percent increase in the poor’s taxes, all based on the Revenue Department’s own figures.

The question is – were the governor and his top staffers ready for the pushback and the storm of unfavorable news stories that resulted, almost immediately, from these analyses?

If the answer is “yes,” the administration comes off as highly calculating, to the point of cynicism, in its pursuit of lower income taxes.  If the answer is “no,” it comes off as lacking in political savvy. [Read more…]