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Posted by Todd Davidson on Friday, May 25, 2012

The Winfield Daily Courier recently called out proponents of Kansas' recent tax reforms; stating the reforms were based on a discredited economic theory. 

Perhaps if the Winfield Courier wasn’t convinced by our tax reform analysis, we should jump across the pond and see what those folks are saying.  The Centre for Policy Studies, based out of London, recently published this gem:  Small is Best: Lessons from Advanced Economies.

They found:

Econometric analysis of advanced OECD countries for the period 1965-2010 finds that a higher tax to GDP ratio has a statistically significant, negative effect on growth. For example, an increase in the tax to GDP ratio of 10 percentage points is found to lower annual per capita GDP growth by 1.2 percentage points. A similarly statistically significant negative effect on growth is found with a higher spending to GDP ratio. 

In layman's terms; higher taxes hurt economic growth. Also...

There is little evidence that small government countries have worse social outcomes:
  • Health outcomes are mixed: in the past 10 years, life expectancy in small government countries has been higher than in big government countries. Infant mortality has been lower in big government countries.  
  • Statistical evidence from the last 10 years suggests that small government countries achieve higher academic outcomes. 

They even made a video to go along with it:

For further reading check here and here.

Posted by Todd Davidson on Wednesday, May 23, 2012

There’s good news for those who are understandably concerned about the state’s ability to fund core services with implementation of the just-signed tax reform legislation. The billions in deficits that have been predicted in future years will never happen.

The standard analysis performed by Kansas Legislative Research Department (KLRD) makes no allowance for the Constitutional requirement to have a balanced budget. Spending adjustments required in 2014 would have long term effects that are not accounted for in that methodology, thereby artificially inflating future deficits.  KLRD also assumes that State General Fund (SGF) spending would grow by more than $700 million over the next few years, so a lot of the predicted deficits are driven by the assumption of large spending increases. (It’s standard methodology to change just one variable; we’re not here to criticize KLRD, only to take their analysis one step further.)

Below are three spending and revenue scenarios; the first is KLRD’s baseline scenario and the other two show the real world application of having a balanced budget.

Scenario 1: We have numbers pulled directly from KLRD.  As you can see revenue is projected to dive in 2014 and climb to $6.3 billion in 2018 while spending is projected to continuously grow unchecked; resulting in a $2.4 billion ‘deficit’ in 2018.

Scenario 2 uses KLRD’s revenue projections but reduces spending in 2014 by $670 million… enough to leave a $450 million ending balance ($450 million was chosen for math simplification and it’s in the ball park of the 7.5% ending balance requirement). Spending is then allowed to grow in lock step with revenue so long as $450 million is left in the bank.

Scenario 3 illustrates what happens if we implement aggressive efficiency programs and reduce spending by 6.5% in fiscal year 2013. That’s a smaller one-time reduction and still allows more spending than in FY 2011. The ending balance dips lower than recommended temporarily but controlled spending increases allow it to gradually rebuild. 

Rest assured these tax reductions will not result in a spiraling debt, but they will result in common sense spending restraint, economic growth and job creation.  As we have shown before a low tax burden is an essential component of economic competitiveness and the key to a low tax burden is spending restraint.

Posted by Dave Trabert on Monday, May 7, 2012
Today’s Wichita Eagle Blog wants readers to believe that now is the time to increase funding on public K-12 education:

When the economy crashed and the state made large budget cuts to education funding, lawmakers urged school districts to be patient. “The common goal is restoring that money, and we will restore that money,” Rep. Steve Huebert, R-Valley Center, told Wichita superintendent John Allison in 2010. Well, the economy is growing again and the state now has a significant budget surplus. Yet the House has resisted a Senate proposal to restore about 10 percent of the base state aid that was cut over the past four years.

When the economy crashed and the state made large budget cuts to education funding, lawmakers urged school districts to be patient. “The common goal is restoring that money, and we will restore that money,” Rep. Steve Huebert, R-Valley Center, told Wichita superintendent John Allison in 2010. Well, the economy is growing again and the state now has a significant budget surplus. Yet the House has resisted a Senate proposal to restore about 10 percent of the base state aid that was cut over the past four years.

The data for Kansas and the nation in general shows no connection between higher spending and better achievement.

Taxpayer funding of public education increased from $3.1 billion in 1998 to $5.6 billion last year, but test scores on The Nation's Report Card (NAEP) show relatively no change.  Spending on public education in Kansas has grown much faster than inflation and enrollment.

The states with the highest NAEP scores in the region on each student cohort (White, Hispanic, Low Income, etc.) spend at least $1,200 per-pupil less than Kansas.  Colorado has the best scores for White students.  Texas has the highest scores for Hispanic and Black students; Texas also has higher scores than Kansas for White students and trails Kansas by a single point for Low Income...yet spends $1,400 less per-pupil.

Every state, including Kansas, has a lot of work to do to raise student achievement, but more money isn't the answer.

Okay, the economy is growing relative to what was happening in 2008 and 2009 but much slower than in most parts of the country.  Kansas continues to fall farther behind in job creation, wage and salary distribution and private sector GDP.  Kansas continues to have more U.S. residents choose to leave Kansas than to move here.

I'm sure Rep. Huebert meant what he said, but the 'being patient' part still applies.  Yes, the state finally has some small reserves but those reserves pale in comparison to those held by local school districts.  Kansas is attempting to have a 7.5% reserve balance and some see that as justification for increasing school funding.  But many of those same people say schools need every penny of their own 16% ending balance (which grew from 11.7% six years ago).

School districts enter the year with far greater certainty of their revenues than does the state.  School districts have added to their reserves every single year since 2005.  The last two years alone have seen reserves increase by $160 million, meaning that administrators either felt it was more important to increase reserves than spend that money on education services or the formula is giving districts more money than they actually need.  Or some combination of the two.

A review of the data indicates it's probably a little of both.  There is very strong evidence that the funding formula is providing more funding than is needed for Special Education, At Risk and Bilingual.  Districts surely are providing all of those services they believe are necessary, so the fact that they've increased reserves in those funds by $84 million over the last two years must mean that they are receiving more money than necessary.

Recognizing this, the legislature last year passed SB 111 to allow districts to transfer up to $232 per-pupil (about $154 million) from a dozen funds (including those mentioned) and use it for any purpose.  Most districts declined that opportunity; at last report, only $24 million of that transfer authority had been exercised.

Some districts don't have the ability to tap reserves because they don't have much set aside, but the vast majority can do so.  Dozens of districts consistently operate with less than a 10% carryover ratio (current operating reserves as a percentage of that year's operating costs).  Yet the state average last year was 16%, with many districts consistently operating with more than a 20% ratio.

That's just one reason that many legislators may be hesitant to increase school funding.  Another may be that Deputy Commissioner Dale Dennis' last estimate showed that 2012 will be a record-setting year for school spending at $5.672 billion, with per-pupil spending at $12,454 and only 1.6% below the 2009 record of $12,660.  With spending at or near record highs, operating reserves having increased more than $400 million since 2005 and most districts choosing not to use prior years' excess revenue, it's certainly understandable that some legislators might think it's not necessary to give schools more money right now.

Maybe someday we will see these facts in news stories.
Posted by Dave Trabert on Monday, May 7, 2012

Claims that Base State Aid Per-Pupil (BSAPP) has been cut back to 1990s levels are quite deceptive, as they ignore how state funding of schools has significantly changed over the years.  At one point, nearly all programs were funded out of BSAPP, but subsequent years have seen more money added on top of BSAPP for services that previously came out of the base.

Since student populations vary widely some districts receive additional money through ‘weightings’ on top of BSAPP ("At Risk, Bilingual, etc).  Quite a few ‘weightings’ have been added or expanded over the years, with the effect of reducing stress on BSAPP.  A full list of the weightings, their respective values and the complete formula is available on KansasOpenGov. 

The adjacent table demonstrates how those weightings and other state aid have changed.

In 1998, there was only $178 per-pupil in addition to BSAPP, KPERS and Bond aid.  This year’s estimate is more than 10 times that amount. 

It is correct to say BSAPP has remained relatively unchanged since the late 1990s, but that leaves out an increasingly large portion of State K-12 funding.  In 1998, BSAPP accounted for nearly all of State funding of Education (91%) while today BSAPP has been supplemented by allotments made via ‘weightings’ and now accounts for only 55% of State funding of education.

The only way to fairly compare the change in BSAPP over the years would be to deduct those items that once were paid out of the base but are now in supplemental funds (or vice versa; increase BSAPP each year on the same basis).