Tuesday, January 23, 2018

Fixing Kansas, Step Two

To release Kansas from the financially troubled Brownback years, state legislators first had to reverse the governor's disastrous tax experiment. That was step one, last year's job. Now they must move to step two: properly fund public education.

Kansans have long prided themselves on having top-notch public schools. Excellent schools serve an important economic development role by attracting and keeping families. In many smaller communities across the state, the public school provides the bedrock for a town's economic and cultural activity.

Given the importance of schools to Kansas and the fact that they are the largest state budget obligation, lawmakers simply must get the dollars right. Until school funding is deemed adequate, equitable, and predictable, Kansas finances cannot emerge from turmoil and stabilize.

"Adequate" and "predictable" hardly describe school funding in the last decade. Base state aid per pupil has dropped from $4400 in 2009 to barely over $4000 today. No wonder the Kansas Supreme Court ruled lawmakers are not living up to their constitutional requirement to adequately fund schools.

To address the issue, Gov. Brownback opened the 2018 legislative session with a budget proposal to boost state spending on public schools by $600 million over the next 5 years. Had the proposal come from a governor with a different name, it might have seemed a reasonable start. From Sam Brownback, however, it struck a note of great dissonance. After all, just a few months ago he blasted legislators for overturning his income tax cuts, and sharply criticized them for overspending. Now he was recommending a budget that used every penny of the new tax revenue, contained virtually no spending cuts, and added $600 million of expenses on top.

Legislators from his own party immediately cried foul, arguing that Brownback's proposed $600 million takes the budget way out of balance. Last session's reversal of the Brownback tax plan-step one in fixing Kansas finances-brought Kansas out of crisis mode, but did not fully close a huge gap between revenue and expenses. Adding $600 million of additional spending into the equation widens the gap further.

But therein lies the challenge of step two. Legislators must both add money and balance the budget. Brownback is correct in part. New school money has to be budgeted. But to do that realistically and responsibly requires more revenue, if not during this session, then definitely in the next. Brownback skipped over the hard part, and kept mum about his own culpability in creating revenue problems for the state in the first place.

So, just as in the last legislative session when they overrode Brownback's tax veto, it appears a bipartisan coalition of legislators will have to again go it alone without leadership from the governor. That makes the task much harder, but that's the next step. The success of the 2018 legislative session will be measured by how well lawmakers achieve step two.

—Duane Goossen formerly served 12 years as Kansas Budget Director.

Tuesday, December 19, 2017

Can't Kick Kansas Around Anymore

Hello United States. Hello from Kansas. It appears that Congress and the President are about to enact a Kansas-style income tax cut for the nation. Good luck with that.

Kansas went down that road six years ago and ended up with a budget-busting, economic-deadening disaster. Our reputation got kicked around for it, too. The national press focused on telling the story of the Kansas tax experiment, and, as our financial decline deepened, we had to absorb disdain and snickering from around the country: "Haha, what were you all thinking? How could you harm yourselves like that? Don't ever do what Kansas did."

But now as the whole United States is about to do just that, Kansans are done taking guff about self-destructive tax policy.

You see, in Kansas we dealt with our trouble. "We mopped up our mess." Kansas citizens educated themselves, saw the mistake, and corrected it. Kansans did not figure it out in time to keep from narrowly re-electing Sam Brownback in 2014. By 2016, though, Kansans were upset enough to change the Legislature and give the tax experiment the big boot.

To be sure, much work remains to bring Kansas back to financial health. And while surveys show that a large majority of Kansans now believe our tax cuts were wrongheaded, not everyone owns up. Note, for example, our out-of-touch congressional delegation casting votes for the U.S. tax plan. Or the hometown Koch-funded Kansas chapter of Americans for Prosperity spending a million dollars to mail Kansans mega-numbers of postcards bashing legislators who successfully voted to reverse the Brownback tax plan.

Even so, our hard-won experience and newly-achieved turnaround allow us to offer lessons:

First, tax cuts don't pay for themselves. The revenue loss from the Kansas tax cuts was steep, immediately throwing the state budget badly out of balance. The U.S. tax cut plan will add more than a trillion dollars to the national debt and threaten Social Security and Medicare, just as the Kansas plan threatened public education and highways.

Second, tax cuts for the wealthy don't trickle down. The Kansas plan primarily cut taxes for the wealthiest, while lower-income Kansans ended up paying more. Promised new jobs never arrived. Likewise, corporations and people with substantial "pass through" income benefit most from the national plan.

Finally, and more hopefully, rotten tax policy can be corrected by an engaged citizenry working together in a bipartisan way.

But alas, it looks like the U.S. will pay little heed to Kansas's lessons. The die appears cast. Just don't ever say one more derogatory thing about Kansas.

Kansas is a special state and a fine place to live. The prairie is beautiful. We place high value on public education. Kansans are friendly and hard-working. And practical. Deep down we know we have to have enough income to balance our budget and pay for the quality of life we value. We lost that balanced approach during our tax experiment, but we got it back.

Best wishes to the United States.

—Duane Goossen formerly served 12 years as Kansas Budget Director.

Tuesday, November 14, 2017

Congressional Republicans Repeat the Kansas Mistake

Congressional Republicans have released their "tax reform" plan. Words flow from their summary sheet like seductive whispers: "More Jobs. Fairer Taxes. Bigger Paychecks." What's not to like? The economy will boom. It's for everyone. We can afford it.

Listening to their rhetoric transports many Kansans into the past, to 2012, when we heard those same sweet nothings. Back then Kansas succumbed. Our tax experiment was launched. And what happened next?

Income tax revenue dropped like a rock, creating a perpetual budget crisis that threatened public education, highways, and a host of other services. The promised jobs and economic shot of adrenalin never materialized, leaving Kansas' economic performance lagging neighboring states and the nation. And the poorest Kansans ended up paying more while the wealthiest Kansans got big breaks.

By 2016 Kansans figured things out and changed their Legislature. Then a bipartisan supermajority of lawmakers rescinded the tax cuts with a veto override and started Kansas toward recovery.

After all that, how can it be that every member of the Kansas congressional delegation-every single one-now supports a Kansas-style tax cut plan for the nation?

Lynn Jenkins, your proposed plan includes a huge LLC loophole, something Kansans came to understand as deeply unfair. Actually, the proposed loophole is worse. It may be advertised as benefitting "small business," but it only applies to individuals with "pass through income" in the top income tier.

Kevin Yoder, your bill gives corporations enormous, permanent tax breaks, but does not require one job to be created in return. The Kansas tax cuts had no job creation requirements either. Look how that worked out.

Ron Estes, you were State Treasurer during the Brownback years and never said "boo" about the tax-cut-caused budget trouble. Surely though, now a Congressman, you must realize that the financially unsustainable plan you support adds $1.5 trillion to the national debt, placing huge financial burdens in our future.

Roger Marshall, yes, your plan lowers individual income tax rates for most earners. Kansas did that too. But remember the offsets-personal exemptions, college tuition breaks, and medical and other deductions gone. Netted out, millions of Americans will actually get a tax increase. Any remaining middle-class tax cut amounts to window dressing. Can't you see? Your plan is skewed to benefit the wealthiest, as was the Kansas plan.

Jerry Moran, you managed some plain, honest talk with Kansans on health care earlier this year. Why not do that on taxes too? We've been schooled, and can handle a real discussion.

Pat Roberts, many say you've become out of touch with Kansas. Support for this tax plan certainly proves that true.

The stance of the Kansas delegation highlights a brokenness in national politics. In front of their noses lies a crystal-clear example of a "trickle-down economics" disaster, but to a person the delegation appears unable to understand and engage the very thing that roiled their home state. Instead they read from Sam Brownback's old script and fall into soulless formation with party, apparently intent on dragging Kansas (and the nation) through another tax fiasco.

Our Kansas delegation's behavior is perhaps predictable, but that doesn't make it any less depressing or unforgivable.

—Duane Goossen formerly served 12 years as Kansas Budget Director.

Tuesday, October 10, 2017

Kansas Tax Roller Coaster

Kansans, we have been riding an income tax roller coaster! In 2012 the "Kansas experiment" brought lowered income tax rates and a full tax exemption for business income. Last June those policies were rescinded. Income taxes went down, then up.

Some have been calling the June tax changes the biggest tax increase in Kansas history, completely ignoring what has happened in Kansas over the last 5 years. True, people with business income must now pay tax, but that just brings things back to the way they were before the experiment. Yes, income tax rates have moved higher, but they still remain below 2012 levels.

When a bipartisan supermajority of legislators overrode Gov. Brownback's tax bill veto in June, they did not have a realistic alternative. Kansas was broke. For the whole period of the tax cuts, Kansas lacked enough revenue to pay bills. A promise of economic prosperity created by tax cuts had instead turned into a lingering budget disaster.

Think about what might have been possible these last 5 years if lawmakers had not put Kansas into that tax roller coaster car, if income tax policy had just been left alone in 2012.

Our political energy could have focused on future progress rather than crisis management. Public education could have been adequately funded rather than put at risk. Instead of cancelling highway projects, new jobs could have been created to maintain roads and bridges. Kansas could have moved confidently forward to expand Medicaid eligibility, attracting billions in federal matching dollars and providing health insurance to thousands.

And the onerous sales tax increase of 2015 which pushed the Kansas sales tax on food to the highest in the nation, would not have occurred. A temporary increase in the sales tax which helped Kansas through the Great Recession was set to expire in 2014. Instead, Gov. Brownback and his legislative allies made the temporary rate permanent and added yet another increase on top, all to offset a small piece of the income tax cuts.

The lawmakers who overrode Brownback were courageous and acted in the best interests of Kansas, but they have a lot more to do. Ending the tax experiment stabilized Kansas financially and started to turn things around. But during the experiment, Kansas spent all its reserves, and now the state needs to build back a rainy day fund. Lawmakers also ran up the state debt, and now will have to make payments. The budgets of state agencies, hospitals, and prisons were squeezed hard, and the results of that-a decertified hospital and prison riots-need to be remedied.

Kansas has endured a load of financial trouble and national shame. The most positive thing that can be said about our experience is that we acquired some education. We learned that our experiment in trickle-down economics did not work.

Kansas tax policy should have stayed practical, realistic, and flat like our geography. But that's not what happened. So now we must repair the damage and resolve not to get on the roller coaster again.

—Duane Goossen formerly served 12 years as Kansas Budget Director.

Tuesday, September 12, 2017

Revenue Reset

Gov. Brownback’s tax experiment brought havoc to the Kansas budget, and put the state’s general fund in severe financial distress. But in June, a bipartisan supermajority of lawmakers rescinded those policies in a dramatic veto override and put Kansas back on a more stable financial path.

The chart below tells the basic story:

Income tax receipts took a steep $713 million fall in FY 2014, the first full fiscal year that the Brownback tax cuts were in effect. From a high of $2.9 billion in FY 2013, receipts dropped to $2.2 billion and then stayed down at the $2.2 to $2.3 billion level all the way through the just completed FY 2017. Total tax receipts follow the same basic pattern, although sales and cigarette tax rate increases that took effect at the beginning of FY 2016 made up for a small portion of the income tax loss.

The newly passed tax bill, eliminated the LLC loophole, stopped the March to Zero (a formula in state law for future tax cuts), and moved income tax rates higher, though still below the rates in place before 2012. The new law had only a minimal effect on FY 2017 receipts, but official estimates forecast that income tax receipts and total receipts will now recover enough in FY 2018 to reach revenue levels from five years ago.

But a key question: Are the forecasts of new revenue accurate?

We will not know for sure until May. Big changes to tax law can be quite difficult to forecast with precision. Brownback’s tax policy made LLC pass-through income, self-employment income, rental income, and farm income tax free. But under the new law, income earned from those sources during calendar year 2017 will again be subject to taxation. Normally people owing taxes on that income would make quarterly payments in April, June, September, and January or face a penalty. However, in this changeover year, individuals can choose to skip the quarterly payments without risking a penalty, and make one large payment by next April 15 when they file their 2017 tax return. We will simply have to wait until all those returns are received and counted to know the accuracy of the new forecast.

In the meantime, it’s important to watch each monthly revenue report to understand whether receipts track above or below expectations. But those monthly reports should also be viewed with caution, knowing that a large share of the new revenue may not appear until next spring.

Even with the expectation of new revenue, Kansas finances remain very fragile. Kansas has endured years of structurally unbalanced budgets. Reserves have been decimated, the highway fund compromised, and debt levels dramatically increased. And with school funding costs moving up, basic state expenses will continue to exceed revenue.

By undoing the Brownback tax policies, lawmakers took a huge first step toward recovery, but repairing all the damage will take time. Much more work remains ahead to nurse Kansas back to financial health.

—This entry was originally published on the Kansas Center for Economic Growth website.

Tuesday, August 15, 2017

Make the Medicaid Ticker Stop

Kansas topped $1 billion in forfeited federal funds early in 2016. But the clock kept ticking. Now losses have surpassed $2 billion, and the clock still ticks.

Our failure as a state to adopt expanded Medicaid eligibility continues to cost us dearly, financially, and morally.

Stop reading for a moment, and just watch the live ticker there from the Kansas Hospital Association. This is a running account of funding foregone. Watch as the dollar losses mount—at breakneck speed in just moments. More than $1,000 dollars a minute. More than $1 million a day.

Starting January 1, 2014 Kansas could have allowed 150,000 more Kansans to become eligible for Medicaid health services. The federal government would have paid the whole tab for the first 3 years and then 90 percent thereafter. By now more than $2 billion would have flowed directly into the Kansas economy.

Kansas only needed to say “yes.” Yet year after year Gov. Brownback and his legislative allies have made sure the answer was “no,” not for logical policy reasons, but because expansion was part of Obamacare.

At first many Kansans were also skeptical. But their attitude toward the Medicaid portion of Obamacare shifted as a majority of states—including red states like Arkansas, Kentucky, and Iowa—moved to expand. By 2017 surveys showed a strong majority of Kansans favoring expansion. That sentiment played out legislatively last spring when a bipartisan majority of Kansas lawmakers voted to accept the federal funds, but Brownback quickly put his veto pen to the measure, and an override attempt fell just a few votes short in the Kansas House.

As Brownback issued his veto, he likely thought Medicaid expansion was about to die anyway along with Obamacare. President Trump and a Republican Congress had put Obamacare repeal on the front burner nationally. Yet “Repeal and Replace” and the starker “Repeal and Replace Later” have failed time and again, in large part because of the blow that would be delivered to Medicaid.

Medicaid expansion has proved to be an effective (and popular) way to reduce the number of Americans without health insurance. The Congressional Budget Office estimated that as many as 32 million Americans would lose health insurance as a result of repeal and replace legislation. Republican governors of expansion states opposed repeal. Kansas’ own Sen. Moran played a key role in keeping the possibility of Medicaid expansion alive for Kansas, after many of his constituents let him know how they felt.

So now Medicaid expansion appears here to stay, and our years of refusal seem more financially inept than ever. Kansans who could have had health care have been left without or shunted to emergency rooms, a moral stain on the Brownback administration and on Kansas.

In June the Kansas Legislature took an important step toward fixing the Kansas budget by rescinding Brownback’s tax policies. Expanding Medicaid eligibility should be the next step toward freeing Kansas from the troubles of the Brownback years, and that vote should occur immediately when the Legislature reconvenes in January.

Stop the ticker, lawmakers.

—This entry was originally published recently in a variety of Kansas newspapers.

Friday, July 28, 2017

The Tall Tale Being Told In Kansas

The recently overturned Kansas tax experiment was sold to Kansans with a tall tale: “Big income tax cuts bring economic prosperity without any pain.” Eventually most Kansans realized the story was false, and their legislators ended the experiment this year with a bipartisan veto override.

Then, very quickly, a new story began to circulate: “The tax experiment failed because Kansas spends too much.”

Legislators on the losing side of the override vote made speeches claiming Kansas had a spending problem, not a revenue problem. Sam Brownback denounced “excessive spending” even as he signed the newly passed state budget. Tax cut apologists at places like the American Legislative Exchange Council began arguing that tax cuts work, it’s just that in Kansas spending was not reduced enough to match revenue losses. And just days after the override vote, Kris Kobach entered the governor’s race, blasting the vote as an effort to “feed” state government spending.

It’s easy to discern that the too-much-spending rhetoric is the old tall tale morphed into a new form. 

Here’s the test: If the talk was credible, the talkers would be able to provide a coherent list of spending to be cut from the state budget. But they don’t. Brownback could have issued line-item vetoes to knock out the spending he considered excessive. But he didn’t.

If Kansas spends too much, what should be cut? Name it. Education? Highways? Health services?

Realistic spending cuts are produced by getting rid of inefficiencies, or finding less expensive alternatives to current practices, or convincing constituents that something does not need to be done anymore. That happens through the grind of the annual budget process, through vigorous and detailed debate. It can be hard, tedious work, far different from just declaring that spending is too high.

In the just completed legislative session, lawmakers created a reasonable budget. The process was open. They grappled with the recommendations from an efficiency study and seriously worked to address the school finance court case. The result they produced was not lavish. Many needs were left unmet. Even so, revenue had fallen so low as a result of the Brownback tax cuts that Kansas was almost $1 billion short of meeting expenses. Lawmakers had no choice but to end the tax experiment.

Expenses in the Kansas budget almost entirely go to education, human services, highways, and public safety. No easy cuts there. Citizens want and expect those services. Certainly lawmakers should always be on the lookout for ways to keep spending as low as possible, but future expenses are far more likely to go up than to go down as lawmakers work to get school funding back to an adequate level and undo the damage from raiding the highway fund.

Kansas has a good deal of work ahead to regain financial stability—but excessive spending isn’t one of the problems requiring a solution.

Those complaining of overspending in our state who cannot offer specific places that could be cut would lead the state nowhere. They tell a tall tale.

—This entry was originally published recently in a variety of Kansas newspapers.

Total Pageviews