Tag Archives: Fiscal responsibility

Fiscal Responsibility

Trickle

Fiscal responsibility means managing resources effectively and investing for the future. Kansas’s experiment with the trickle-down theory did not work , and it put the state $7.1 billion in debt.  It is time to create an equitable tax structure which takes care of the state’s needs and allows Kansas to pay back the money it has borrowed from the pension funds and the highway funds.

Kansas has borrowed $3.2 billion from KDOT and has been unable repay it. This means we have not had money to invest in new roads, and the infrastructure we have is suffering from deferred maintenance. How can our cities and businesses function with decaying and crumbling infrastructure?

Our citizens’ health is another asset which Kansas has not managed responsibly. Our failure to expand Medicaid has deprived the state of $3.1 billion, which is mostly our money since we paid it in federal taxes. But the greater cost is that 150,000 of our citizens do not have health insurance. This has greatly hurt our hospitals and medical care providers who are often not paid for their services, particularly in rural areas which have seen hospitals and clinics close.

One of the best investments we can make in our future is to educate our children and young adults. The state did not have money to adequately and equitably fund our schools or our universities, leading to devastating budget cuts. The social costs of poor education often show up as increase costs in welfare and our penal system.

Kansas needs to develop a tax structure which will fund our needs, allow investments in our future, and pay off the debts we have accumulated. On a positive note, the Governor has just appointed bipartisan leadership for a committee to study the entire tax structure.

We Must Make Taxes Equitable

In 2012, the Kansas Legislature eliminated Kansas individual income taxes on business income earned by pass-through entities such as sole proprietorships, partnerships, LLCs, and S-corps.  The rationale was that the businesses would use the money to create more jobs and stimulate the economy. It did create jobs for attorneys and accountants, as the 191,000 small businesses it was to help soon proliferated into 330,000 exemptions as businesses rushed to restructure so as to take advantage of the tax break.

The tax cuts did not stimulate the economy as hoped as many companies did not use the money from the pass-through tax cuts to create jobs. The tax cuts did cause a hole in the Kansas budget which grew by about $70 million each month as time went by, eventually reaching $7.1 billion.  Rather than rescind the tax cuts, the legislature  borrowed against KDOT funds, which  cost the state about 80,000 high-paying construction jobs. It also made cuts to programs which actually create jobs, such as in public service, education, and healthcare.

In 2015, the legislature tried to fill the budget hole by passing the largest tax increase in the state’s history. The increases fell mostly on low-income workers and their families, demanding more from those least able to shoulder a higher share of the cost of funding schools, roads, and hospitals.  The 2015 tax increase raised cigarette taxes and sales taxes, increased fees for many government services, and eliminated some tax deductions for property tax and mortgage interest payments. Governor Brownback’s budget director made the case for sales tax hikes by warning that refusal to do so would force another round of stiff cuts to schools funding, Medicaid reimbursements, and criminal justice. Kansas sales taxes are now the 8th highest in the nation and low income workers must pay a larger share of their income to buy necessities and food.

Together, the 2012 tax cuts and 2015 tax increases drove tax rates up for the poorest 20 percent of Kansans, slightly reduced the tax liabilities for middle-class earners, and gave about $20,000 a year back to the richest taxpayers. Does that sound equitable?

Finally, in August of  2017, the Kansas Legislature overrode a veto by Gov. Sam Brownback and did away with the LLC loophole. The Legislature also increased Kansas income taxes to form a more equitable tax structure and put the state on a firmer financial basis. However, no provisions were made to repay KDOT or the KPERS funds.

On a positive note, the 2019 budget had a small surplus though it did not pay back most of the money borrowed in the past. This summer, the Governor and the leaders of the House and Senate plan to meet and examine the entire tax structure. The Governor has now appointed  bipartisan leadership for the panel,

Kansas Must Pay Back KPERS

In 2014, Kansas reduced it its contribution to KPERS, the state’s pension system, by $40.7 million. It did this by dropping the employer contribution rate to 9.5 percent from 12.1 percent. KPERS, at that time,  had an unfunded pension liability of $7.4 billion which, before cuts, was projected to go down to zero over the next 20 years.The cut did not affect payments to current retirees, but it meant  that the state wouldn’t be able to pay all it owes in future pensions.

On May 1, 2016, Kansas decided it would delay another $92.6 million in KPERS payments. The money was to to be repaid no later than Oct. 1 with an 8 percent annual interest, which was KPERS’s average rate of return. On May 03, 2016 Moody’s gave Kansas an issuer rating of Aa2 and revised its outlook to negative. The rating is important as it affects the interest rate at which Kansas bonds are issued. Moody’s  Aa2 rating recognized Kansas’ stable tax base and fundamental economic capacity to balance its budget and fund its pension liabilities. The rating also incorporated the state’s financial shortfalls caused in part by large tax cuts, as well as a long history of underfunding its pension plans. The payment to KPERS was not paid in October of 2016 as promised.

The 2019 Legislature made a great step toward repaying KPERS by passing SB 9, which paid $115 million into the pension fund. That repaid  the $92.6 million payment that was deferred in 2016, but required $13 million in accrued interest. The 2019 Legislature also followed through on a $56 million payment which was promised in 2018. Going forward, these payments will save us millions of dollars in interest and shows the state’s dedication to having a solid pension fund.

KDOT: How to Really Create Jobs

 t-works
Many of Kansas’ failed economic  policies were justified as “creating jobs”. They often had the opposite effect. Kansas’ long tradition of good, safe roads and the thousands of jobs necessary to build and maintain them, was crippled by the diversion of funds from KDOT.
In 2010, the Kansas Legislature enacted a  10year highway/transportation program to ensure job growth, economic development, safety and overall prosperity for our state. The  $8 billion, 10 year  program was funded through a variety of sources, including dedicating four– tenths of a cent in state sales tax to the highway fund and bonds.  About half was to maintain the state highways and half was was targeted for transit, air, rail, and transportation infrastructure.
To plug budget holes caused by the 2012 pass-through tax cuts, the state began“temporary borrowing” from state highway funds. That soon turned into seemingly endless transfers from KDOT to shore up the state’s general fund, as shown in the chart. Eventually, the legislature transferred a total of $2.4 billion from KDOT to plug budget holes. Dr. Michael Babcock, from the Department of Economics at Kansas State University, estimated that for each one million in construction value, 41 jobs are created. As a result, the borrowing from KDOT cost about 130,000 good paying Kansas construction jobs.
The dedicated four– tenths of a cent in state sales tax originally generated $570 million for the highway fund. The Legislature has now restored $378 million from sales tax, but that is certainly not adequate. The 2019 Legislature put an extra registration fee on EVs which is expected to raise about $600,000 annually, which is an insignificant amount. It is also not entirely fair as EV owners pay  in other ways such as sales tax on electricity, additional personal property taxes, and a reduction in pollution and its associated costs. The most reasonable way to fund our roads into the future would be to restore the 0.4 cent in sales tax diverted from KDOT. The Legislature should then  add the additional amount necessary to insure good roads, which would come partly from sales taxes and partly from the additional taxes paid by electric vehicle owners.

Cut the Sales Tax on Food

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The 2012 tax cuts left a $7.3 billion hole in the Kansas state budget. To make up for it, the legislature passed the largest tax increase in history and even that did not fill the budget hole, as it got deeper every month. The tax increases may have made the economy worse as it took money out of the hands of those who were most likely to spend it.

The worst tax increase was in sales taxes, particularly the increase in tax on food. That took money from the pockets of low income Kansans and those on fixed incomes . It was particularly unfair for senior citizens, as they have been paying income tax all their lives, and now they must pay more for food.

During the 2019 session, the Legislature passed  HB 2033 which would have reduced the sales tax on food about one cent. That proposal was bundled with a sales tax decrease on corporations, an Internet sales tax increase, and a proposal to allow Kansans to itemize deductions on their state form. The governor vetoed the bill and, though almost every legislator supported lowering the sales tax on food, there were not enough votes to override the veto as many people objected to other parts of the bill.

Though this year’s budget ended up with a small surplus, there was  not enough money to pay the debts we have accumulated, particularly in child and family services, prisons, pension funds, and infrastructure. Once those are paid, the Legislature should work on eliminating the sales tax on food.

Goals

Here are my goals for keeping Kansas a great state and the best reasons for them – our children and grandchildren.

jc moore election 2018_8117

Park city Parade

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