December 26, 2015
Lawmakers don’t want to debate it, and Gov. Sam Brownback doesn’t want to deal with it.
Republicans are hoping to avoid a debate over taxes during the upcoming session, but that doesn’t mean arguments about the governor’s signature 2012 policy are settled. Not by a long shot.
The fight over the tax cuts has gained a new ferocity in recent weeks as all sides in the debate jockey ahead of expected budget adjustments from Brownback in January. The battle plays out in reports, news interviews and on social media.
At the heart of the matter: whether the sharp cuts to income taxes in 2012 have been successful. But what constitutes success is far from settled.
Brownback points to economic indicators he says are favorable and show the tax policy is working. Opponents are quick to highlight the problems that less-than-expected tax revenue have wreaked on the state budget, causing the administration to shift funds around and lawmakers to increase sales taxes earlier this year.
The differing definitions of success mean lawmakers, advocates and lobbyists — and regular Kansans — likely will be arguing for some time to come. Although Brownback isn’t on the ballot in 2016, many lawmakers will be up for re-election and the legacy of the tax policy likely will play a role in many races, as voters mull over who is right.
Brownback’s message on the tax cuts is clear: They are working.
During a recent interview with The Topeka Capital-Journal, the Republican governor did acknowledge three “bigs” within the Kansas economy were having trouble: oil and gas, aviation and agriculture.
Oil and gas revenues are down as oil prices have remained low and appear set to only go lower in the forseeable future. The state’s airplane manufacturers aren’t selling small jets in decent numbers. And grain prices are down, the victim of a strong U.S. dollar, he said.
“In spite of that, we’re at a 14-year low on unemployment, so the tax plan’s working,” Brownback said. “Small business growth is taking place.”
He added: “The target of the tax plan is job growth.”
Brownback and supporters have highlighted the state’s unemployment rate in recent days. Figures released earlier this month show that, in November, Kansas added about 7,000 jobs from a year ago. The seasonally adjusted unemployment rate now stands at 4 percent, down from 4.1 percent in October and 4.2 percent a year ago.
But Kansas lost about 2,600 jobs in November when compared to the previous month. The state is among the lowest in percentage of growth in seasonally adjusted employment in the nation. According to the federal Bureau of Labor Statistics, Kansas’ over-the-year change is 0.5 percent positive growth.
Only two states had lower positive growth, and growth in five states had shrunk. Kansas did rank ahead of neighbor Oklahoma, however. That state’s jobs shrank to 0.1 percent compared to the previous year.
To draw attention to labor numbers Brownback sees as favorable, the governor’s office went as far as tweeting out a play on the new installment in the “Star Wars” movie series that said: “The Kansas Labor Force Awakens.” It said Kansas had a new record number of people employed: 1,442,137.
But where Brownback sees an awakening of the force, others see a disturbance.
Nathan Madden, research analyst for the Kansas Center for Economic Growth, said in response he guessed the governor used “Star Wars” iconography to brush aside poor job growth. Brownback’s tweet came a day after the KCEG released an analysis showing the state has lagged behind the national average in both private and nonfarm job growth since the Great Recession ended in 2009.
But beyond disputing the economic consequences of the tax plan, the center’s analysis also shows how different perspectives make the tax debate a battle over more than just what the economic data show. KCEG and other tax cut opponents, such as Democrats and some moderate Republicans, often invoke the budgetary consequences of the tax policy in arguing against it.
“The loss of revenue is limiting what we can invest in quality schools, safe communities, public health, and roads,” the KCEG report said. “These are the tried and true building blocks of job creation and economic growth, without which it will be very difficult for Kansas to catch up to — and eventually surpass — neighboring states and the entire country as we recover from the deep impacts of the Great Recession.”
Many Republicans argue funding to one of the state’s core services — education — has been expanded. Conservatives highlight a record $4 billion going to education in the state budget.
But judges over the years have been skeptical about arguments the state meets its constitutional requirements to provide adequate and equitable education.
Past court rulings have found the Legislature has failed to sufficiently fund K-12 education. Lawmakers could face a new ruling in 2016 from the Kansas Supreme Court ordering lawmakers to boost funding. Such an order could complicate efforts to balance the budget.
Brownback has engaged in little hand-wringing over the budget. Last year, during the longest legislative session in state history — 114 days — lawmakers balanced the budget by hiking taxes and ending some deductions. After presenting his initial budget last January, he largely avoided public involvement in the budget process until the 100th day of session, when he unveiled a new plan.
The Legislature increased the state sales tax rate to 6.5 percent from 6.15 percent, boosted taxes on cigarettes 50 cents per pack and enacted other changes.
The revenue package lawmakers passed has so far failed to salve the state’s revenue problems. A November revenue forecast put together by administration officials, legislative staff and university economists once again lowered projections for how much cash will flow into state coffers over the next several months. In total, Kansas now expects to take in $159 million less than expected during the current fiscal year, which ends July 1.
In response, the administration made a number of changes to shore up the budget — including taking $50 million from the state highway fund. Raiding the highway fund has been a repeated tactic used to prop up state finances.
Senate President Susan Wagle, a Wichita Republican, spoke to the Pachyderm Club in her home city last week and indicated additional changes to the budget will be made when lawmakers return in a few weeks.
“It’s an election year. We have had a shortfall of funds, I’m sure you’ve read over the last few months revenues haven’t been exactly what we thought and anticipated them to be,” Wagle said.
“The governor has made some adjustments to the budget in the last few months,” she said. “He has cut spending, he’s moved some money around, and I believe when we come in January he will present to us a balanced budget. Taxes will not be on the table. And we should be able to agree with the governor and the House quickly on some budget amendments and ways to adjust the budget to make the ends meet the means and I believe, overall, it should be a short session.”
Without taxes on the table, lawmakers will likely have to address spending — and legislative leadership has been signaling it plans to do exactly that.
Consultants this fall have been scouring state finances (as well as some school districts), preparing an efficiency study for the Legislature. Lawmakers approved $2.6 million for the study, which is being conducted by the firm Alvarez & Marsal and will be completed after the new year.
Lawmakers expect the report will recommend a number of changes that, if enacted, would save the state a large amount of money. Alvarez & Marsal has declined to specify a figure so far.
Democrats suspect the study will act as a precursor to cuts.
“I think the efficiency study is out there to give legislators cover to make more extreme cuts,” said Sen. Laura Kelly, D-Topeka. “And they felt it was well worth their $2.6 million investment, really, in some ways to cover themselves.”
Kelly wants lawmakers to revisit the state sales tax on food. Kansas doesn’t currently have a lower sales tax rate on food compared to other purchases. That means food is taxed at a minimum 6.5 percent before local taxes are included.
The rate on food is among the highest in the nation, and potentially the highest in some areas when state and local rates are taken together. Legislators discussed lowering the rate during tax debates this past spring, but ultimately took no action.
While Republican statements dismissing a debate on taxes may rule out changes to the food rate, Kelly said lawmakers need to lower it.
“I think we have to talk about the issue,” Kelly said. “Whether or not we’ll be able to do anything about it is, of course, dependent upon having a conversation about taxes, because we would need to have the revenue to pay for it.”
Read more from the Topeka Capital Journal here.