Budget & Tax

No, the Sky Is Not Falling in Kansas

February 1, 2017

Steve Anderson

If you’ve read anything lately from liberal think tanks or journalists about tax reform in Kansas, you may think there has been a “failed Kansas experiment.” Many folks are saying that Gov. Sam Brownback’s 2012 income-tax cuts—which started the state towards a statutory goal of no individual income tax while immediately wiping out the income tax on small business—have not resulted in job growth and have caused state services to suffer. They say the state is in a disastrous revenue decline, services are being eliminated for needy citizens, education funding has been cut, and roads are in disrepair.

The facts tell a different story. As someone who served as budget director for Gov. Brownback, let me give you a view of the Kansas experiment you won’t hear from our friends on the left.

Why Did Kansas Embark on Tax Reform?

Kansas is still only at the very beginning of this complete change in direction for the economy. Why did Kansas embark on this new path? For one thing, citizens had been voting with their feet. Kansas had been losing population relative to the remaining states at one of the fastest rates in the nation. And who was leaving was just as troubling as the sheer numbers leaving: nearly $4.5 billion in annual adjusted gross income (AGI) since 1992 left with those productive individuals, according to Internal Revenue Service migration data that you can view at HowMoneyWalks.com.

Remember, prior to the 2013 tax year, Oklahoma, Colorado, and even Arizona had a significantly lower tax rate than Kansas—and Texas and Florida did not tax incomes at all. The flow of wealth to Kansas was all from higher-tax states. The lesson that cannot be ignored is that taxes do matter when there is a significant difference in income to the individual concerned. Even more troubling for Kansas was that these same migration data showed since 1985 nearly 80,000 earners had left the state—with one-third of those going to no-income-tax Texas.

The diminishing population and a transfer of wealth to lower-tax states was a trend we knew had to stop. A tax system that rewarded those with lobbyists on their payroll was a policy that had to change.

In FY-2012—the year the tax cut passed—the amount of special exemptions, deductions, and credits was $8.3 billion. That’s $8.3 billion that did not make it to the state coffers. As a result, only about $6.0 billion was available for appropriations.

This tax policy was not successful. As Allysia Finley wrote in an October 26, 2014 piece in The Wall Street Journal (“Why Kansas Drives Liberals Crazy”): “Economic growth in Kansas has trailed the Great Plains region and nation for decades. Between 1982 and 1997, Kansas’ private GDP growth ranked 43rd in the country—ahead of only West Virginia, Oklahoma, Montana, Louisiana, North Dakota, Wyoming, and Alaska. While some of those states have since boomed, Kansas has plodded along. Between 1997 and 2012, Kansas’ private economy grew by 4% a year compared with 4.3% nationally, 4.9% in Colorado and Nebraska, 5.3% in Oklahoma, and 6.1% in Texas.”

We concluded, sensibly, that fighting every special-interest lobby over their particular piece of the pie was a losing strategy. But focusing on eliminating the value of those special giveaways by eliminating or reducing the income tax was a doable goal. And, as William Boyes and Stephen Slivinski point out in another article, citizens are already starting to reap the benefits.

Education, Transportation Spending Not Suffering

Even so, liberal think tanks and journalists have bombarded citizens with a litany of half-truths and some outright fabrications. Let’s start with the claim that K-12 public education funding has been cut.

It hasn’t. Using financial data from the Kansas State Department of Education, David Dorsey of the Kansas Policy Institute pointed out in October 2016 that “Per-pupil spending once again exceeded $13 thousand in the 2015-16 school year and the 2016-17 year is expected to be another record year for total and per-pupil expenditures.”

Granted, he writes, “after four consecutive years of record spending, per-pupil funding dipped to $13,015 in 2015-16. However, the decrease can be explained by two factors. First, schools increased their cash reserves by $57.6 million to a record $911 million. In other words they chose not to spend that money, which would have increased per-pupil spending last year by $125 per student to $13,140, which would have been another all-time high. The other factor to consider is the delayed payment to KPERS. According to budget director Shawn Sullivan the delayed amount is $97.4 million. Had that payment been made, it alone would have increased per-pupil spending to $13,225.”

Moreover, as the table below indicates, spending on transportation projects in 2015 and 2016 was the highest in the last 10 years. Not only was spending up, but the Kansas Policy Institute noted that “the condition of interstate highways and bridges remains above minimum KDOT standards and is consistent with previous years. Other state highways are actually in their best condition since at least 2009.”

If it’s a budget problem you’re looking for, note that almost without exception state agencies were growing their fund balances at astronomical rates. The Kansas Policy Institute discovered through an open-record request that “statewide carryover cash has grown by more than 172 percent since fiscal year (FY) 2003 (from over $918.5 million in FY 2003 to just over $2.5 billion in FY 2016). In short, carryover cash balances have come to make up much higher percentages of the state’s operating budget than historical norms might dictate.”

Steve Anderson (MBA, University of Central Oklahoma) is an OCPA research fellow. A Certified Public Accountant with more than 30 years of experience in private practice, he is currently a partner at Anderson, Reichert & Anderson LLC. Anderson spent two years as a budget analyst in the Oklahoma Office of State Finance, and most recently served as budget director for the State of Kansas. At one time he held 17 state teaching certifications, ranging from mathematics to physics to business.