Jesse Murphy
October 14, 2015

The League of Women Voters held a forum on Tuesday featuring Annie McKay, executive director of the Kansas Center for Economic Growth, who spoke about the economic factors that are in play in the state.

McKay presented information about the tax policy changes the state made in 2012 and 2013, namely the pass-through exemption, which she said — before the legislation — had accounted for roughly 50 percent of the state’s revenue. The current policy’s aim is to get that number to zero.

She said that residents are seeing the effects already, and that the state’s financial situation will be in trouble if the policies don’t change. KCEG is a non-profit, nonpartisan organization that conducts economic research.

“I think a great place to start would be looking at that small business pass-through exemption,” McKay said. “Those 330,000 small businesses are not all in a position to add jobs. That was the expressed intent of that policy. We know from data that was put forward last session that’s not happening.”

McKay referred to what Governor Sam Brownback predicted to be a “shot of adrenaline” to Kansas’ economy, while pointing out that the jobs haven’t showed up — Kansas is behind the region and well behind the national job growth average — and the $430 million tax increase is hurting Kansans.

“Does it affect every Kansan?” McKay asked. “Absolutely. Because we raised the sales tax, it is — and I would argue — impossible to live in this state and avoid paying sales tax. It impacts every single Kansan. We’re all standing in the same line to pay for this unaffordable, unsustainable tax policy.”

McKay said that the policy was a reaction to the recession of 2008, but she said evidence over the last three years since the policy went into effect shows that it simply is not working.

“I might compare to a frog in a pot of boiling water,” McKay said. “We’ve gone from a slow simmer as a state coming out of the recession. Kansas relied heavily on budget cuts through the recession, and then coming out, we haven’t been able to reinvest in those things. So we went from simmer to full-on high flame boil.”

She said that the higher sales taxes typically cause residents that live along the border to go to the neighboring state to shop.

Taxes increased by $777 million in 2013, and even with the 2015 hike of $430 million, there is still roughly a $400 million difference between revenue and expenses.

Even with the higher taxes, the revenue has consistently been less than expected. McKay said that along with the tax increase, $300 million taken from state programs and $63 million in additional budget cuts equal a bad sign.

In 2015, the state borrowed $870 million internally to put into the general fund for operational costs, and the state’s credit rating has been downgraded twice since 2012 due to “plummeting revenue.”

“There were no other states around us having to make mid-year budget cuts,” McKay said. “We found ourselves in that place last February because of unsustainable tax policy.

“And then just one month into the new budget year, you have to already make cuts; that’s what happened in July. That’s because we’re not hitting revenue marks, so yeah, it’s pretty serious when we talk about not only the short term but the long term — what the future holds for our state.”

State Rep. Don Hill attended the forum, and said afterwards he thought it was a good summary of the situation.

“It’s validating the difficulty of the situation we’re in,” Hill said. “Talking with a lot of my legislative colleagues, I can certainly say that what we’re doing is not sustainable and something is going to have to give.

The governor in the last week or so has indicated that he doesn’t have any intention of proposing or probably wouldn’t support a tax increase or significant budget cuts.”

Hill said he anticipates that there will be plenty of conversation about the financial situation when they resume session in January.

“We do have discussions going on amongst our colleagues about all of the above,” Hill said. “All of the above is revenue, cuts. We hope that there’s some growth, but frankly when the budget revenue estimating group meets in November, they are going to cut projections. And it’s an election year. It makes it interesting for sure.”

McKay said when the legislature gathers to talk about economics, they should heed the warnings that experts have been giving.

“In the short term, we have to face reality,” McKay said. “Our policy makers and leaders have to face the reality that the tax changes that were made are not the right path for Kansas. They’re not sustainable, they’re not going to build a bright future for all of us to prosper.”

McKay said that beyond the concern is discourse on how to reverse the negative trends.

“It’s coming to terms with that and saying what do we need to do differently, what grows our state?” McKay said. “We had a balanced, reasonable approach before. When we were coming out of the recession, we didn’t need to do anything extreme, we just needed to let it ride out. It’s not too late, but we have done serious, serious damage to our economy.”

McKay added that, in her opinion, the time is now to do something about the tax policies, budget issues and the Kansas economy in general. More information — including topics discussed during the forum — is available at www.realprosperityks.com.

“We have gambled with Kansas’ future; we’ve rolled the dice and it’s clear that we’re losing,” McKay said. “We have an opportunity to turn it around, but every year that passes costs us more and more of our future and will take longer to repair.”

Read more from the Emporia Gazette here.

Lisa OwenEMPORIA GAZETTE: Economist discusses impact of Kansas tax policy