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Posted by Todd Davidson on Friday, June 22, 2012

Once again, it doesn't seem unreasonable to call this unsustainable

While Kansas government spending rose 47% private sector GDP per capita only grew 8.9% over the same period.

From Nick Kasprak at the Tax Foundation.

This week's map shows the growth of state government spending over the past decade. These percentages show the growth in direct spending between 2000 and 2010, in real dollars per capita (to eliminate the effects of population growth and inflation). Oklahoma leads the pack with a 74% increase in state government spending over ten years; Alaska, whose state government only grew 17% faster than its population, is at the bottom.

The map doesn’t specify what type of spending this represents but the Tax Foundation blog says it is Direct Spending, which Census defines as Total Expenditures (for this purpose, Expenditure does not include a government's payment of its debt, or purchases of investment securities, loans it has granted, agency or private trust transactions, nor correcting transactions) less Intergovernmental Expenditures.  Direct expenditures therefore would be somewhat less than the All Funds Budget.   For 2010, Census lists Kansas’ Direct Expenditures at $12.4 billion.


The data behind my private sector calculation comes from the Bureau of Economic Analysis (Real GDP Private Industry, Kansas) and population data from the Census Bureau.

Here's the math:

2000: ($83,338,000,000)/(2,688,925) = $30,993.05

2010: ($96,334,000,000)/(2,853,118) = $33,764.46

($33,764.46 - $30,993.05)/($30,993.05) = 8.9%

Posted by James Franko on Thursday, June 21, 2012

Government subsidies of one form or another have become as American as apple pie. Everyone goes to Washington with their hand out and politicians looking for votes are more than happy to oblige with other people’s money.

Too often, this practice becomes so entrenched that Americans can hardly be blamed for thinking this is the only way to do things. Can you imagine life without Social Security or the mortgage interest tax deduction? Probably not.

It should come as no surprise, then, that farmers throughout the U.S.  can’t get their mind around operating without federal farm subsidies. As the U.S. Congress debates a new “farm bill” – an all-encompassing legislative package they pass every five years dealing with agriculture and food policy – the debate will be less about whether rural America can exist without federal subsidies and more about how much Washington can throw at favored programs. In fact, the term “farm bill” is probably misleading because 80% of the funding cover in the bill went to things not ag related last year. The lion’s share of the bill is spent on food stamps and other non-ag programs.

FYI, the farm bill passed the U.S. Senate today by a vote of 64-35; committee action in the House is scheduled to begin on 11 July.

With federal spending and deficits driving the discussion in D.C., the Senate version is being hailed for "saving" $23 billion, compared to current policy. That may sound like a lot at first glance, but it pales in comparison to the projected federal deficit of $1.3 trillion or the total cost of the bill itself, $969 billion over ten years.

Pending any last minute amendments, it spends $193 million for farmers to grow crops for biofuels, extending a program that was previously cited by the USDA’s inspector general for extending unequal and improper benefits to farmers, and over $200 million to retro-fit refineries to produce biofuels. Biofuels are but one of numerous examples.

As currently written, this bill does little to help America tackle our budget deficits and does less in freeing Kansas farmers to capture the entrepreneurial and risk-taking heritage that saw our state  turn into the “World’s Breadbasket.” Fortunately, a modern example exists which shows what a subsidy-free agricultural sector can look like.

From the Cato Institute during the 2002 farm bill debate:

In 1984 New Zealand's Labor government took the dramatic step of ending all farm subsidies, which then consisted of 30 separate production payments and export incentives. This was a truly striking policy action, because New Zealand's economy is roughly five times more dependent on farming than is the U.S. economy, measured by either output or employment. Subsidies in New Zealand accounted for more than 30 percent of the value of production before reform, somewhat higher than U.S. subsidies today. And New Zealand farming was marred by the same problems caused by U.S. subsidies, including overproduction, environmental degradation and inflated land prices. New Zealand's plan was initially met with protest marches on parliament and organized resistance by farmers. Bolstering opposition was the government's own prediction that 10 percent of all the country's farms would go out of business. But the subsidies were ended, and New Zealand farming has never been healthier.

So, what does New Zealand’s agriculture sector look like nearly 20 years after they stopped subsidizing it? In a word, bountiful. According to the World Bank, in 1980 New Zealand’s ag sector produced $2.3 billion in value-added product. By 2009, that same number was $4.9 billion – a 111% increase (all numbers in 2000 dollars and are most recent available). Over the same time frame, the World Bank’s production indexes for both livestock and food have also showed tremendous gains in New Zealand. Maurice McTigue, a farmer by trade and member of the New Zealand Parliament when subsidies were kiboshed, has this to say about things in NZ...McTigue is also the vice president of the Mercatus Center at George Mason University in Virginia...

"In 1985 the [NZ]  government removed all subsidies form agriculture whether they were price support, subsidized insurance, input subsidies or production controls. This was a tough love approach with all the subsidies disappearing over the succeeding 9 months...[we] can look back on the last 25 years as probably the best in the history of New Zealand farming.

"Why would this be so? The major effect of subsidies is that they kill off or water down innovation...An example of this unfettered innovation is that the dairy industry in New Zealand in 1985 produced 35 products from milk by 2005 the dairy industry was producing 2200 products from milk and the dairy industry is the boom industry of New Zealand farming. The conclusion, subsidies keep farmers poor."

While the Kiwi’s were busy not subsidizing farmers their rural population grew by 11.6% (1980-2011), here at home our rural population decreased by 8.4%, once again from the World Bank. Certainly, more was at play than subsidies, but you get the point – the rural populations can thrive without government handouts.

The Federated Farmers of New Zealand (picture our National Farmers Union) might have said it best in that New Zealand has "thoroughly debunked the myth that the farming sector cannot prosper without government subsidies."

The 2012 farm bill, as currently written, is only the most recent example of someone in Washington saying one thing and doing something completely different. You’ll hear talk about helping family farms and supporting rural America, but the key thing to remember is that the farm bill is little more than a bunch handouts to politically connected industries (hello biofuels!) and an extension of federal food stamps. It isn’t about an individual farmer in Finney County and certainly isn’t about less government spending or intrusion in the market.

Listen to a good George Strait song as he extolls the virtues of the Heartland and hard work.  The people he is singing too aren’t asking for a government handout, but Washington has distorted the market for so long that it is hard to imagine farm life without subsidies and mandates. Farm profits continue to grow in spite of government manipulation - not because of it.

Pull off I-70 on your way to your next trip to Breckenridge or Estes Park and ask a farmer or rancher if they want more government involvement in their operation. The answer will almost certainly be no. Hopefully, someone in Washington is listening, but if the bipartisan comments following today’s Senate vote are any indication, I’m not holding my breath.

Posted by Dave Trabert on Monday, June 18, 2012

Schools for Fair Funding, the coalition of schools suing Kansas tax payers, has spent nearly $1.3 million in 2010 and 2011 according to their 990s, posted on That amount is likely much higher now that the trial has begun.  

What do you think? Should local school boards spend taxpayer money to sue taxpayers for more money?

Posted by Todd Davidson on Friday, June 15, 2012

It doesn't seem unreasonable to call this unsustainable

From Matt Mitchell at the Mercatus Center:

em>State and local governments depend on the private sector for their survival. Almost every dollar that these governments spend is either borrowed or taxed from the private economy. Yet, for more than half a century, these governments have continuously outpaced the growth of the private sector on which they depend.

In the chart below, Mercatus Center senior research fellow Matthew Mitchell uses inflation-adjusted data from the Bureau of Economic Analysis to illustrate the unsustainable growth of [US state and local] governments. The blue line shows the size of the private sector as a multiple of its 1950 value and the red line shows the size of state and local government spending as a multiple of its 1950 value. 

Posted by Dave Trabert on Friday, June 15, 2012
It's always interesting to see how government's view of the world is so much different than the private sector's.  Last week President Obama said the private sector was 'doing fine' even though there are still 6 million fewer jobs than at the beginning of the recession.  Now the City of Wichita says a 0.4% budget shortfall is 'pretty grim'.  Finding $2.4 million in a $549 million budget is barely a rounding error.

In 2011, the City spent $3.4 million on overtime.  Wichita spent $706,343 in payroll on gardeners and $822,037 on tree maintenance workers (5 supervisors for 15 workers).  Did you know the City employs a Tennis Pro for $93,972?  Add about 35% to each of those numbers for payroll tax and benefits.  Details are at available at

I seriously doubt that we need a Tennis Pro on the city payroll; gardening and tree maintenance are classic examples of things that can be provided by the private sector at lower costs (remember the $1 million or so saved by privatizing parks maintenance?).

It took me about 15 minutes to find these few examples.  Why is City Council and staff agonizing over closing a 0.4% budget gap?  Sounds like we are being set up for a tax increase.

Posted by Todd Davidson on Thursday, June 14, 2012

Wichita’s hotel developments are beginning to follow the same path that many government induced supply surges took before them.  From the Wichita Eagle today:

Wichita hoteliers are struggling to recover after hitting bottom in 2010 because the market keeps adding hotel rooms…

Hotels downtown are seeing a lot of new or upgraded rooms in the last three years with the assistance of local and state tax incentives.

These include the $11.5 million Fairfield Inn & Suites Wichita Downtown, which opened last year; and the $29 million renovation of the Drury Plaza Hotel Broadview, also completed last year. 

If that’s not enough taxpayer funded rooms for your upcoming family reunion, you are in for a treat when the new 117 room, taxpayer supported Ambassador Hotel opens in December.  All of this on-top of the 303 room, city-owned Hyatt Regency.  With occupancy rates hovering around 50% it’s only a matter of time before hotels begin closing up shop.

This is an all too common story of government incentives.

Homeownership enjoys an indulgence of government incentives at the Federal, state, and local levels.  These incentives helped boost housing supply to bubble proportions.  When the glut of housing was realized the bubble popped and we are still reeling from The Great Recession.

The student loan crisis is following this very same path.  Government induced the supply of college education with tax credits and cheap loans; the excess supply caused the value of degrees to drop; the bubble is bursting, (but the debt stays) and many of those with debt can’t find work to earn wages and pay down their loans because the economy continues to tumble.

Kansas STAR bonds program forced taxpayers to subsidize a massive outdoor shopping mall, which merely steals economic activity from other non-subsidized retailers, leading the less fortunate to closure.

Those calling for big empty office and manufacturing buildings should pay attention.  The economic fundamentals are simple, incentives lead to supply increases not matched by consumer demand.  The oversaturated market then leads to the shuttering of homes, shops, and hotels while taxpayers are left holding the bag.

Posted by Todd Davidson on Thursday, June 7, 2012
The Capitol Journal editorial board praised the Legislature and Governor Brownback's recent renewal of the STAR Bonds program – although the CJ did concede life would be merrier if we didn’t need the program.  The program allows Kansas municipalities to loan out a chunk of tax payer dollars to retailers, who then use sales tax revenue from the newly developed area to pay back the loan – instead of paying for schools, fire stations, and police services. I’m giving the Governor and Legislature zero stars for this renewal, as the program often does little more than supplant economic activity.

The CJ argued that the Wyandotte County boom would have taken place in Missouri if it weren’t for the fat loans.  Granted, the closer you get to a border the more effective the STAR bonds will be at stealing business from a neighbor. That would be A-OK if Missouri were the only neighbor losing business.

Growing up I often spent my Friday night at the West Glen 18 Movie Theatre at 435 and Midland. After the Legends Shopping Center was built I started going to the fancier Legends 14.  Is this new economic activity or just shifting my purchase at the expense of the sales tax paying West Glen theatres?  Would West Glen have installed Tempur-Pedic seat cushions if the Legends weren’t built, I don’t know, but any expansion by West Glen would have been futile in the face of the legendary STAR bond development to the north.

Another activity I enjoyed growing up was taking a stroll down Mass Street, in Lawrence, to buy sweet new jeans. However, shortly after the Legends Shopping Center was up and running, Mass Street was old news and my friends and I would travel to Village West instead.  Again, did we create new economic activity at the Legends, or just shift purchases from the sales tax paying businesses on Mass Street to the posh stores at the Legends?

A healthy economy must be vibrant and always changing as entrepreneurs seek to fulfill our ever changing wants and needs; that the Legends is new, stylish, and exciting should not be criticized, many people happen to like that stuff.  But asking the good people who earn their living at stores on Mass Street, or in movie theatres in Shawnee to pay for government services while their new hip competitors pay off loans is in a word, mean.

Posted by Todd Davidson on Monday, June 4, 2012

Jay P Greene’s Global Report Card has outlined some strong evidence in support of charter schools:

According to the Global Report Card, more than a third of the 30 school districts with the highest math achievement in the United States are actually charter schools.  This is particularly impressive considering that charters constitute about 5% of all schools and about 3% of all public school students.  And it is even more amazing considering that some of the highest performing charter schools, like Roxbury Prep in Boston or KIPP Infinity in New York City, serve very disadvantaged students. 

Greene did acknowledge that this correlation does not prove causality, and argued a series of academic studies that use 'randomized control trials' – the method used in medical experiments – more rigorously prove the efficacy of charter schools.

Here's a run down of the studies:

From Boston:

… a team of researchers from MIT, Harvard, Duke, and the University of Michigan, conducted a RCT and found:  “The charter school effects reported here are therefore large enough to reduce the black-white reading gap in middle school by two-thirds.

From Stanford for the National Bureau of Economic Research:

On average, a student who attended a charter school for all of grades kindergarten through eight would close about 86 percent of the ‘Scarsdale-Harlem achievement gap’ in math and 66 percent of the achievement gap in English. 

The same Stanford researcher also studied Chicago schools:

..students in charter schools outperformed a comparable group of lotteried-out students who remained in regular Chicago public schools by 5 to 6 percentile points in math and about 5 percentile points in reading…. To put the gains in perspective, it may help to know that 5 to 6 percentile points is just under half of the gap between the average disadvantaged, minority student in Chicago public schools and the average middle-income, nonminority student in a suburban district.

And lastly Greene summarized a study conducted Mathematica for the US Department of Education:

It found significant gains for disadvantaged students in charter schools but the opposite for wealthy suburban students in charter schools.  They could not determine why the benefits of charters were found only in urban, disadvantaged settings, but their findings are consistent with the three other RCTs that found significant achievement gains for charter students in Boston, Chicago, and New York City. 

For more on what it is that makes charter schools effective check out what the National Alliance for Public Charter Schools has to say.

Across the country, public charter schools are creating a wide variety of innovations, including:

  • Curriculum design (e.g., Montessori, Core Knowledge, Advanced Placement Courses, Foreign Language Immersion Programs, Science Technology Engineering and Mathematics)
  • Extended learning time
  • School cultures with high expectations for all students and adults
  • More structured and disciplined learning environments
  • Rewarding high-quality teachers with higher pay
  • Parent contracts
  • Multi-age programs