Last year Americans for Prosperity's (AFP) Commonsense Budget warned that a storm was coming in Kansas' governmental finances. This financial disaster has been building as prior Legislatures depleted the ending balance despite a statutory requirement for at least 7.5 percent of the existing State General Fund (SGF) budget to be held for such emergencies. This requirement had been "suspended" for the last seven consecutive years despite the fact that in the majority of those years, revenues were growing. The patterns of poor fiscal policy and
government expansion that have played out in recent history have placed the state of Kansas in a state of fiscal jeopardy.

Already we hear the Governor and some legislators talking about raising revenue through increases in sales and tobacco taxes. Kansas legislators should not expect Kansans - who are already feeling the effects of the recession in their personal finances - to make up a deficit approaching $1 billion in Fiscal Year (FY) 2011. State and local governments already impose a heavy enough tax burden on Kansas residents.

AFP warned repeatedly this was coming and provided a strategy to avoid this crisis. Fixing the mess once it is already upon us is more difficult than preventing it, but our Commonsense Budget has a myriad of ideas that - if applied - would help Kansas move forward despite the pressing weight of the current revenue problems. However, it is instructive to look at how we got here to begin understanding how to fix the problems.

Kansas' graduated income tax contributed to the financial crisis by creating a boom of revenue and spending during prosperous economic times. In periods of rapid growth like we experienced prior to the
recession, income tax revenue increased faster than income. Just as has happened in every past "boom," legislators were pressured to increase state spending with new or expanded programs to match the growth in available revenue.

In fact, the unconstrained growth of state spending has by far outpaced the growth in personal income for the last three decades. SGF spending increased 8.6 percent, 9.6 percent and 8.6 percent in the three budget cycles prior to the recession, which created an unsustainable level of spending in Kansas government as agencies
expanded programs and hired additional employees.  The sharp increases in spending, taxes and debt have resulted in a decline in the state's business climate.

Throughout the last decade, Kansas has consistently ranked among the bottom group of states in business tax climate. Among the surrounding states, only Nebraska has a lower business tax climate ranking. When a boom finally comes to a period of recession such as we recently experienced, state revenues are greatly reduced. In a recession, income tax revenue falls more rapidly than government expenditures.

Politicians in the past have offset the shortfall with "temporary" taxes, fees and debt, for which we currently see the momentum growing. That additional revenue is then built into permanent spending programs, and the "temporary" taxes, fees and debt rarely disappear. With the exception of Nebraska, Kansas has already raised individual and corporate income taxes more than any other state in the region. To our south, Oklahoma aggressively reduced its tax rate over the last decade, from 7.25 percent to 5.5 percent (a trigger will soon reduce
that rate to 5.25 percent) after experiencing depressed economic growth following two decades of increasing tax burdens. It is not surprising that Oklahoma has weathered this current financial storm in better stead than the majority of the states and still holds nearly $600 million in its rainy day fund.

The opportunity to learn from past mistakes and make the corrections needed to ensure the prosperity of Kansas should not be taken lightly by the Legislature. Informed choices will need to be made on how to utilize limited resources. The errors of the past should be avoided even though they may appear to be the easy way out. This is a historical opportunity to reposition Kansas ahead of the other 49 states - and indeed much of the globe - in the competition for businesses and jobs.

Read the entire proposal here. Commonsense Budget Proposal

Filed Under : Solutions