Tuesday, March 21, 2017

Name Your Budget Cuts

Kansas budget cutters: the time has come to get real and very specific. Which expenses can be cut to balance the state budget? What’s your plan? Put out the details so that Kansans can judge the best course of action.

Despite multiple rounds of budget cuts over the last years, some legislators and groups like the Kansas Chamber of Commerce and Americans for Prosperity have continued to make vague, abstract pronouncements that Kansas has a spending problem. They suggest that financial trouble in Kansas can be solved by getting rid of “inefficiencies.”

That kind of talk nurtures a popular stereotype of government, but does it at all ring true in Kansas anymore? If true, those saying such things should have no trouble naming the spending that needs to be eliminated. Surely, with the financial health of Kansas on the line, would-be budget cutters can muster specificity.

In the wake of a new court ruling, what part of school funding can be cut? Saying “put students first” is not an adequate answer though.

How about chopping Medicaid? Doctors, hospitals, and nursing homes providing services had their Medicaid reimbursement rates cut 4 percent this year. Can that cut be made deeper?

Vast amounts of money have been lifted from the highway fund, causing many road projects to be cancelled. Should Kansas spend even less on highway maintenance and bridge repair?

State employees have not had a raise in 9 years. How about making it 10? Or maybe cutting their health benefits can save money.

Without specifics, claims of an inefficient, overspending state government come up empty and lead nowhere.

When explaining his recent veto of a revenue-raising bill, Gov. Brownback chided lawmakers for not considering more expense cuts, but his own budget does not show the way. His main proposal to reduce spending shorts the required payments into the already precarious public employee retirement fund. That’s like a homeowner skipping mortgage payments. It doesn’t actually eliminate the expense, just piles it onto the obligations in future years.

Kansas faces a festering budget gap between income and expense that now exceeds a billion dollars. Only two approaches can effectively solve the problem: cut expenses—in a real way—or raise revenue. Lawmakers have not done enough of either to cure the structural imbalance in the budget.

Instead, they have resorted to short-term patches that kill Kansas financially—blowing through the reserves, borrowing, putting off bill payments, raiding the highway fund, trying to sell assets. With each of these maneuvers, Kansas has become poorer, but without fixing the problem. These misguided efforts have to stop.

If there was ever a time for serious budget cutters to shine, this is it. Put your proposals out on the table and explain them. But if you are only able to talk in generalities, don’t waste everyone’s time. Either offer credible ways to reduce expenses, or let the Legislature proceed to rollback the 2012 income tax cuts.

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

Friday, March 10, 2017

Open Letter to Kansas Lawmakers: Evacuate from Fiscal Hell

Last week’s Supreme Court ruling requiring increased funding for Kansas schools did not surprise many people, but it still complicated an already challenging legislative session.

So, now what?

Here are three observations from a budgetary perspective:
  1. The goal post moved…a lot. Lawmakers must adjust accordingly. House Bill 2178 was a good first attempt at fixing our broken tax code, making needed structural reforms to stop future revenue hemorrhaging. But it only generated $460 million annually — far short of closing the $900 million structural shortfall created by Governor Brownback’s tax policy. Many still supported it (myself included) because a school finance ruling was likely to offer a later opportunity to finish the job. Now that the school finance ruling is upon us, lawmakers must restore $500-$800 million to schools in addition to filling the $900 million structural shortfall. House Bill 2178 generates far too little revenue to still be considered a responsible solution.
  2. Comprehensive tax reform should still come before any budget action. Many reports continue to characterize the gap as $350 million in 2017 and then $580 million in 2018. That’s only accurate if lawmakers raise $350 million in recurring revenue this year or make another $350 million in cuts. There hasn’t been much appetite for either of those options. It seems more likely the Legislature will borrow its way out of 2017 instead, as proposed in House Bill 2052 (the House rescission bill). If that happens, Kansas will face a $932 million gap in 2018. Just look at the basic numbers: the 2018 revenue estimate is $5.536 billion. Meanwhile, delivering the current level of services in 2018 is projected to cost $6.468 billion. Bear in mind that figure does not account for any payback for a Fiscal Year 2017 loan. Nor does it include any additional investment necessary to comply with the court’s order. There is simply no way to proceed without first stabilizing the revenue stream.
  3. Ten hundred million one way, one billion the other. Absent hundreds of millions more in budget cuts, Kansas faces a minimum structural gap of $1.4 billion. Billion. With a “B.” A tax reform package that fails to close this minimum gap guarantees yet another devastating shortfall next year – even if a school finance formula is phased in over time. Is that really how we want to spend 2018? This is the moment to end the crisis in its entirety.
Governor Brownback’s tax experiment dumped Kansas into a fiscal hell. Now even he reportedly seeks an emergency evacuation plan. Except – assuming it’s true – the Governor’s plan would only save himself. Kansas is on its own.

If even Governor Brownback can’t summon the courage to stay and fight for his failed tax experiment, why should any lawmaker defend it – or preserve any part of it – at the expense of Kansas schools and communities?

These are jaw-dropping figures, leaving no good options. Legislators deserve our thanks for not jumping ship and for demonstrating courage to put Kansas back on a practical path forward. Please keep going. It won’t be easy, but please do not stop short of ending this experiment once and for all.

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

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