Saturday, September 18

Fiscal policy in Kansas: The bigger picture

Kansas Legislature

By William Ruger and Jason Sorens of Mercatus Center.

The turbulent end to Kansas’ legislative session is only the most recent example of how budgetary politics has become a bareknuckle battle in the state. In 2012, Governor Brownback reluctantly signed a bill that significantly cut income tax rates without offsetting spending cuts. Naturally, this opened up a hole in the new budget, which kept policymakers in Topeka as they hammered out an agreement during the extended session. Some argued that tax and spending cuts will attract investment and create jobs. Others say they compromise necessary services. Kansans can better evaluate these claims when they consider the long-term fiscal trend and compare their political and economic situation to those of comparable states.

In our study, Kansas ranked 26th on overall freedom, or about average. But from 2001 to year-end 2010 (the latest date for which full data is available) it had the fifth-largest decline in the country.

So, to paraphrase Kansas’ famous newspaper editor and political figure William Allen White, “What’s been the matter with Kansas?”

Why the decline in overall freedom?

  • Fiscal Policy: The biggest problem has been its worsening fiscal policy, especially since the Sunflower State does pretty well on regulatory and personal freedom. State and local debt exploded from 13.6 percent of the economy in fiscal year (FY) 2000 to 26.2 percent in FY 2010. Government spending, employment, and taxes also went up.
  • Crony capitalism: Three-quarters of this new debt came from local governments, often in the form of crony capitalism. “Public debt for private purposes,” including taxpayer-funded debt incurred for commercial development, malls, convention centers, stadiums, and the like, more than tripled. Kansas’ total state and local tax burden now stands at 9.7 percent of income, slightly higher than the national average.
  • Outmigration: Meanwhile, more residents left Kansas than moved in during each year between 2000 and 2012. Over those 12 years, 3.1 percent of the state’s 2000 population, on net, moved to another state. These sorts of migration numbers worried White in 1896 and should worry Kansans today. Is the decline in freedom related to the outmigration? It’s certainly possible.
  • Migration to Neighboring States

    States with more freedom in 2001 attracted more residents than their less free counterparts over the next 10 years. True, Americans have been moving from colder to warmer states for decades, and Kansas isn’t exactly Phoenix. But South Dakota has a harsher climate (and hasn’t had the shale-oil boom of its northern neighbor) and it has still enjoyed net in-migration over the last decade. Not coincidentally, South Dakota also ranked as the second-freest state.

    States also attract fewer residents when their neighbors are especially free. So part of Kansas’ problem is that neighboring states like Missouri and Oklahoma are relatively free places.

    Oklahoma was the most improved state in the nation between 2001 and 2011, and is currently our fifth-freest. It attracted new residents from other states amounting to 1.6 percent of its 2000 population. Meanwhile, Missouri ranks seventh overall and also benefited from positive in-migration over the last decade.

    Room for Savings

    It is too early to tell what the last two years’ reforms will mean for Kansas. The legislature will need to make sure that changes to the tax code don’t add to the already-high debt. But government in Kansas is bigger and more expensive than it is in many other states, suggesting there is room for savings.

    In short, Kansas’ relative slide in freedom may be the modern answer to Mr. White’s famous question. Reversing it will go a long way towards making the state a more attractive option for its current residents, and a place where outsiders might decide to settle — just as so many have done in the past.

    Original article is at Fiscal Policy in Kansas: the Bigger Picture.