Kansas Center for Economic Growth Blog

Show Us the Money: Kansas' Income Growth Slowed After Tax Cuts

By Kansas Center for Economic Growth

Kansans looking at their paychecks couldn't be blamed for wondering when, if ever, the supposed windfall from state tax cuts is going to show up.

It's plain to see that Kansas' personal income growth has slowed since the tax cuts took place. Today, Kansas ranks near the bottom of the nation in that category. And that's no surprise, because the occupations that have added the most jobs since the tax cuts haven't seen much wage growth. In many cases, they don't pay enough to get a family of three above the federal poverty line.

One thing repeatedly mentioned by defenders of the tax cuts is that they would stimulate Kansas' economy and leave everyone's wallets fatter than before. Upon further investigation, though, that is simply not the case. In the three years before the tax cuts, Kansas' personal income growth was fifth in the region and was beating the nationwide growth average. Since the tax cuts, Kansas has dropped to sixth in the region and was overtaken by the U.S. average. You might say a drop from fifth to sixth isn't that dramatic, but keep in mind the tax cuts promised big gains, not small declines.

In fact, the dimensions of the decline can be seen more starkly by a national comparison. Kansas was 12th nationally in personal income growth before the tax cuts and is now 41st. That's not a small decline.

Disappointing income growth is related to the types of jobs Kansas is growing. Job growth is greatest in work that pays too little for families to make ends meet. Here are the facts:

This information shows what a bad job the tax cuts have done in delivering shared prosperity. Kansas' personal income has grown after the tax cuts, but is slow relative to the region and the nation. And whatever growth in income that is occurring sure isn't going to hard-working Kansans who struggle to make ends meet. So if you are waiting to see the economic boost from Kansas tax cuts in your pocket, it could be a while - a long while.

KS Association of School Boards on Reducing School District Balances

Committee to continue looking into proposal to reduce school district balances, but several members opposed to the idea

House Education Budget Committee Chairwoman Amanda Grosserode, R-Lenexa, on Thursday said the committee would continue looking into the issue of reducing school district cash carryover balances, but several committee members said they weren't inclined to support such a proposal because schools may face budget cuts.

The state's government efficiency consultant, Alvarez & Marsal, has said many school districts have "excess" cash balances and the state could reduce that amount by $193 million over five years to reduce state funding of schools.

Here is a link to KASB's response to the A&M recommendations.

At one point during the discussion, Grosserode said she was hesitant to move forward on this recommendation because schools may be looking at budget cuts because of the state's revenue problems. Total tax receipts to the state fell $54 million short of estimates, a 15 percent miss.

Vice Chairman William Sutton, R-Gardner, said he had a problem "punishing" school districts "for saving up for a rainy day. Guess what, it's raining."

And Rep. Jerry Henry, D-Atchison, warned that because of the revenue crunch, the recommendation to lower school district balances may come up at the end of the session and many legislators would be pressured to approve it.

Grosserode decided the committee would continue to seek more information about ending balances of school districts.

The committee also decided to continue looking into two more A&M recommendations and asked that preliminary language for legislation be drawn up for them.

Those include a recommendation that calls for more collaboration between school districts and the state in purchasing services and equipment and expanding participation of the school districts in a property and casualty pool.

KASB Report on State Revenue Collapse & Possible Additional School Cuts

State revenue collapse prompts higher ed cuts; talk of school cuts

Legislators reconvened the 2016 session today with the state budget in disarray.

Gov. Sam Brownback on Tuesday cut appropriations to Kansas public universities by 3 percent, or $17 million in the current fiscal year, and a key legislative leader called for an across-the-board cut, which would affect public schools.

Brownback’s action came after February tax receipts fell $54 million, or 15 percent, below already lowered estimates.

Brownback also vowed opposition to attempts to increase taxes on small businesses. Some legislators have called for an end to the tax break for owners of certain kinds of businesses, such as LLCs, that were part of huge income tax cuts implemented by Brownback.

In response to the bad fiscal news, Senate President Susan Wagle, R-Wichita, called for an across-the-board reduction in state spending.

“We cannot continue to address ongoing revenue shortfalls with budget maneuvers, accelerated borrowing and sweeping fees and reserves. The time has come to cut every government funded entity. The reduction will be small when equitably spread across the board. Taxpayers are not in the mood for another tax increase. We must further reduce spending,” Wagle said.

Since K-12 funding makes up approximately half of the state budget, such a cut would impact schools.

State Rep. Ron Ryckman, R-Olathe, who is chairman of the House Appropriations Committee, has said his committee will try to find savings based on the recommendations of the consulting firm of Alvarez & Marsal, which did a government efficiency study.

One of the top recommendations in the A&M report is reducing the cash balances of school districts in order to deduct future state funding. A&M says districts are carrying $193 million in "excess" cash balances.

The consultants say this amount could be drawn down over five years but add that a prerequisite to doing this would be stability of funding for the school districts by the state.

KASB has testified that state funding to schools has not been as stable as some claim.

Since 2009, school districts have faced mid-year reductions in funding in 2009, 2010 and 2015, and reduced funding from the prior years in 2010, 2011 and 2012.

Also, KASB believes local school boards know better than the state how much their district should hold in reserve for cash-flow, contingency, special projects and other purposes.

Democrats and moderate Republicans have said the revenue drop-off is further evidence of Brownback's failed tax policies and has endangered the state.

“Our schools, our infrastructure, our safety — the very future of our state is at stake,” said House Minority Leader Tom Burroughs, D-Kansas City.

But Brownback blamed the economy.

“These numbers reflect a declining national and regional economy. There has not been a single year of national GDP growth above 2.5 percent since 2006, and in the final quarter of 2015 the U.S. economy grew less than 1 percent. Across the Midwest, states are being affected by falling commodity prices, contracting sales growth and declining agricultural exports," he said.

“In balancing the budget, I will not support or call for a tax increase on small business in Kansas. My focus is on managing spending, not on raising taxes. Our goal is not to fund the growth of state government; it is to help the Kansas economy grow," he said.

Legislators reconvene the session today after a week-long break following the midway point.

Legislators adopted a budget before they left town, but it is likely they will have to change the spending plan because of the revenue shortfall. In addition to the immediate budget issue, the Legislature and Brownback have yet to address last month’s Kansas Supreme Court ruling that the school finance system is unconstitutional because it shortchanges equalization funding meant to help poor districts.

A No Confidence Budget By Kansas Center for Economic Growth Senior Fellow Duane Goossen

A No Confidence Budget

By Kansas Center for Economic Growth Senior Fellow Duane Goossen

Kansas lawmakers just passed a revised budget that covers the remainder of this fiscal year, but they showed little confidence that their budget would actually work. To hedge, they added provisions allowing the governor to "delay" the final retirement system (KPERS) payment, or simply cut appropriations at the last minute in order for Kansas to escape financially from FY 2016.

The KPERS provision allows the governor to make only three quarterly payments into the retirement system this fiscal year, if money runs out. The fourth payment must still be made, but not until next year, and then with eight percent interest tacked on. That means three payments in FY 2016, but five in FY 2017. In other words, the KPERS payment gets put on the credit card. The state slides by now, but pays big time next year.

Alternatively, or in addition, the governor can unilaterally make cuts to almost any part of the budget before the end of the fiscal year. Not enough money to pay expenses? Just don't pay.

These provisions have a "trigger mechanism" that has already triggered. The governor receives the authority to delay the KPERS payment or cut spending when the general fund balance falls below $100 million, a mark hit long ago.

Lawmakers gave the governor this authority knowing the unlikelihood of the state having enough money to meet budgeted expenses. These extraordinary provisions allow lawmakers to dump the situation back on the governor and leave town without addressing the real problem-a large structural budget imbalance caused by unaffordable income tax cuts.

Consider expenses. The revised budget sets general fund expenses at $6.298 billion. That budget already imposes many spending cuts, leaves school funding with inequities, accepts operational problems up and down state government, and shifts $106 million of school transportation costs to the highway fund for payment.

But Kansas will not receive enough revenue to meet that conservative set of expenses. Even though sales tax rates were raised to record levels, the official revenue estimate only forecasts $5.972 billion in recurring revenue, but Kansas is not currently on pace to garner that. To get the rest of the way, lawmakers have agreed to transfer more than $300 million from other funds. And when that's not enough, the governor can delay the last KPERS payment, or cut programs some more. 

Uncertainty prevails. Agencies and schools do not have assurance that they can count on their appropriations. Kansas lives day-to-day on the financial margin.

The fallout from the income tax cuts is exacting a high toll on Kansas finances, a crippling problem that will continue until lawmakers face the mistake that has been made.

A look at equitable tax levies for school districts in Kansas

Tuesday, February 16, 2016 by Dr. John Heim - Executive Director of the Kansas Association of School Boards

McFly Looks at Equity

I love me some history. Having taught the subject to teenagers, I know that my enthusiasm isn’t shared by all. We have all heard some variation of the axiom “Those who forget the past are doomed to repeat it.” Goodreads website attributes various permutations of this wisdom to folks ranging from George Santayana to Lemony Snicket to Jesse “The Body” Ventura. The ever-cynical Kurt Vonnegut offered an admonishment saying, “I’ve got news for Mr. Santayana: We’re doomed to repeat the past no matter what.”

Let’s see if we can’t change Kurt’s mind. First, I will attempt to make history interesting by making this lesson about something near and dear to everyone: your money. Next I will outline the dangers of falling into the trap of time as a flat circle.

It is time to get started, so crank up the DeLorean and fire up the flux capacitor: We are headed for 1988. Ronald Reagan is president and a Bush is running for president. (Check that dial again: 1988? This seems like déjà vu.) Denver lost the Superbowl. OK, that’s good. Bono and U2 are at the top of the charts and “Rain Man” is playing at the Cineplex. An Islamic woman prime minister is serving in Pakistan.

Locally, Danny and the Miracles will win the National Championship. That’s the good news. The bad news is that if you live in the Spring Hill School District your General Fund school mill levy is 119.3 mills. But the good news is that if you live in the Burlington School District your local mill levy is 6.9 mills. That’s right, the range of mills necessary to support local schools ranged from 6.9 to 119 mills. The median mill levy was 53 mills.

In 1988, the highest five mill levies in Kansas were:

District	1988 GF Mills	2016 GF Mills
Spring Hill	119.3	20
Blue Valley	93.4	20
Olathe	92.9	20
Desoto	91.2	20
Topeka	87.5	20

When equity was finally addressed in the 1992 law, all General Fund mill levies were set at 35 mills. The law also included assistance for low valuation districts in their bond and interest funds. For all but about 20 districts, the shift to 35 mills represented a huge decrease in local property taxes. The property tax decrease – and resulting revenue dip - was compensated for by increases in sales and income taxes.

Over the next few years, as the state’s economy improved, the General Fund mill levy was decreased a few more times until it reached the current 20 mill levy indicated above. The question of why the legislature passed the 1992 school finance bill is subject to some debate, but it cannot be denied that tax equity was a big part of the equation.

But why is tax equity such an important factor in a school finance case? The courts have held that a child’s education cannot be a function of his or her address. Because the taxpayers in the highest taxed districts were paying 17 times what those in the lowest were paying, issues of equity come into play. It is harder to raise the revenue in a high tax district than it is in a low tax district.

Without proper equity provisions in a school finance system, Kansas runs the risk of falling back into the trap of some districts paying significantly more locally than others. We don’t want to go back to Biff’s future where up is down and down is up.

How can we avoid this? That’s the topic for next week’s blog.

Save the Kansas Children's Initiatives Fund

Kansas Center for Economic Growth Blog on KS Slow Job Growth

Kansas' Slow Job Growth - Excuses, Excuses

By Kansas Center for Economic Growth

When proponents of the unaffordable tax cuts start talking about why Kansas' job growth hasn't taken off, it seems there is a different reason every time. The latest explanation offered for Kansas' anemic job growth: Kansas' low unemployment rate. Apparently, if fewer people are looking for jobs, then job growth will slow down. But, like the other reasons given for the tax plans failure to stimulate the economy, it doesn't add up.

An analysis of other states with lower unemployment rates than Kansas shows that this is false. In fact, of the eleven states with a lower or similar unemployment rate, most beat Kansas in job growth, whether you count total jobs or only private sector jobs.

 

What's more, all but two of these states started with lower unemployment rates than Kansas over the same 36-month span - meaning they had even less slack in their labor market.

Kansas' current low unemployment rate is not unprecedented either - it could be possible that low unemployment does equate to less robust job growth in the state. So, let's go back to the 36-month span between January 1997 and December 1999, where the unemployment rate was similar to the present - even slightly lower. This means we should expect even lower job growth than the present period.

What we see is the complete opposite of the story currently being told about Kansas' slow job growth: the growth in total and private sector jobs during the late 1990s is double that of what we're seeing today.

 

 

Also, we've previously noted that Kansas' unemployment rate isn't really much to brag about as we've been lower than the nation and on par with our neighbors for the past 25 years.

Instead of generating new reasons to try and explain away the tax cuts' failure to boost job growth, Kansans need to see solutions that address the stagnant economy. When Kansas last enjoyed a low unemployment rate and high private job growth, the state was making investments in the things that are proven to create a solid base for job growth - schools, safe and healthy communities, roads - and that keep and attract people and businesses to the Sunflower State.