April 2003
April 24, 2003
(Distributed to Kansas newspapers April 21, 2003)Story-behind-the-story
Ending balances are probably the dullest of subjects for the Kansas Legislature to fret about, one of the dullest subjects to explain to constituents at eggs-and-issues breakfasts and at least this year, are politically explosive.
Ending balances are just that...what’s left over at the end of the state’s fiscal year, after all the bills are paid.
But those ending balances are a life jacket for a governor when the best-made predictions of the state’s revenues for the coming fiscal year go south for any reason whatsoever.
While legislators and the governor wrestle over "revenue packages" that are mostly borrowed money and put-off debt, the issue-under-the-issue is ending balances.
When ending balances are strong, when revenues dip a bit, you just spend some of those ending balances. It’s handy, relatively painless, and there is no serious political blood being spilt. It is easier to use ending balances to continue to finance programs and jobs that the Legislature passed than it is to kill those programs, fire those workers.That’s the reason that Gov. Kathleen Sebelius put forth a revenue package that proposes about $180 million in ending balances for the fiscal year that starts July 1. Under her proposal, she’d have $180 million in the bank to plug holes if the state’s revenues sour.
The Republican proposal for revenue-raising without raising taxes would leave $67 million in the bank at the end of next year.
The difference is far greater than the $110 million-plus that the hard figures compute to.
The real difference is the length of the leash Republicans want to put on Sebelius’ neck...and the responsibility for making mid-year budget cuts.
And, let’s not forget that once this year’s Legislature adjourns, the 2004 election year cycle begins, and it begins with a Democratic governor who has the proven ability to raise stunning amounts of money for her own campaigns, and who will be able to help the Kansas Democratic Party raise substantial amounts of money for legislative campaigns around the state.
A powerhouse in the governor’s office might well mean Republican losses in the House of Representatives and the State Senate, and a shift in political power that works to the advantage of a governor who now has just four votes more than she needs to prevent nearly anything she does from being overridden by the Republican-controlled Legislature.
Why is all this complicated politics important? Because when the ending balances are above $100 million, the governor and the State Finance Council, again dominated by Republicans—gets to weigh in on mid-year budget cuts. At below $100 million in balances, it’s the governor’s call...er, blame.
So, that mundane subject of ending balances turns out to be the biggest issue—politically—facing the Legislature when it reconvenes April 30.
Now, sure, nobody wants more budget cuts and nobody wants the state’s revenues to fall further and the state to be in an even bigger budget mess.
But...if it happens, and the chances increase the lower the ending balance, Republicans are politically ahead of the game if the governor has to make cuts in programs all by herself.
It’s like one of those times that your house burns down, but you clearly asked the spouse if she was sure she turned off the stove. Sure the house is gone, but you aren’t the one who left the stove on.
So, while we’re watching the Statehouse in early May, and the talk is about patching the revenue shortfall that the state faces, it’s not going to be all about whether the governor and Legislature can think up enough tricks to just close the books on the next fiscal year with a couple bucks left in the bank.
It’s going to be about whether the governor can convince the Legislature to close the books on the next year’s budget with enough money that she isn’t going to have to do something icky sometime around September or October or November, all by herself.
Now, that’s the political story-behind-the-story that may make the wrap-up session of the 2003 Legislature interesting to watch even for people who aren’t tracking the budget of the Barber Board...
April 17, 2003
(Distributed to Kansas newspapers April 14, 2003)The principles of borrowing
We may be headed into one of those strange wrap-up sessions where the way to balance the state’s budget is caught up in a bunch of issues of principle.
No, we’re not talking about Sunday sales of liquor, but how to balance the state’s out-of-balance budget. The fight will come about two weeks after the Kansas government does something that is relatively unprecedented.
See, the governor proposed, the Legislature passed and the governor is about to sign a budget bill that is about $230 million more than the state has.
That’s fairly unusual for fiscally conservative Kansans.
But, once you get past that, the real business of the Legislature during its veto session that starts April 30 will be to find the money to make the budget work. As a baseline, the state needs probably $105 million to close the books on the current fiscal year which ends June 30 and likely $125 million for the year which starts July 1 to pay for the spending that everyone has already agreed to.
Already K-12 education is in play. Legislators will undoubtedly delay a payment of about $200 million to schools this year, making the current fiscal year appear flush with cash that will be spent just days after the new fiscal year begins. Gov. Kathleen Sebelius had a plan to use schools as a budget-buffer next year by requiring Kansans to pay their property taxes a month early in 2004, but that plan is too complicated. In Legislative-speak, Sebelius’ plan had "too many moving parts." It’s been killed and won’t be resurrected.
The other big wad of cash needed either this year or next year is the one that will bring the debate.
Sebelius, remember, wanted the state to issue bonds tied to money that the state is scheduled to receive from tobacco companies for, well, whatever transgression it was that led to a multi-billion dollar national settlement with states that provides more than $2.1 billion to Kansas over the next 29 years.
The idea there: Issue $175 million in bonds and repay them from annual tobacco receipts that the state hasn’t yet figured out how to spend. It requires the state to pledge its own credit, but if things work out well, no check will ever have to be written from the State General Fund to repay those bonds.
The Republican alternative plan is to delay refunds of taxes to Kansans who wind up with too much money withheld from their personal income taxes, who made corporate and business tax over-payments to the state and others.
Now, that’s probably a small price to pay, a delay in getting a refund on your income taxes...except if you are standing in line to vote in the primary election in August 2004 and still haven’t gotten your income tax refund, and are trying to remember the name of your incumbent state senator and state representative so you can vote against them.
Or, maybe you finally got your refund sometime after July 1, 2004, too late to spend it on vacation or too late to have your house painted so visiting in-laws wouldn’t say that their daughter married a hillbilly.
And, we learn, to stop the program of delaying tax refunds after the two-year GOP plan would cost the state about $260 million. That’s the amount of taxes that would be delayed in the second year of the Republican plan.
Now, how does this compare to Sebelius’ plan to issue bonds? Almost identical in cost, except that in Sebelius’ program, while the state’s credit would be on the line for $261 million, there’s a good chance that tobacco companies will pick up all of the expense over 15 years, at least until they go out of business. Anyone believe that everyone is going to stop smoking in the next 15 years? We didn’t think so.
OK, where are we? The Republican plan essentially borrows $260 million from taxpayers.
The Sebelius bond plan borrows $175 million at a cost of $260 million paid by somebody else over 15 years.
So, either Kansans pay $260 million under the GOP plan, or Kansans, if everything goes wrong and nobody smokes anymore (and that’s not all bad), pay whatever portion of the $260 million cost of the Sebelius plan is left when someone, somewhere stubs out the last cigarette smoked in America.
Both those gambits get the state over the hump. One, Sebelius’ is a bit of a gamble, the GOP plan isn’t, because, well, the Legislature has Kansas taxpayers by the neck, and it’s a sure thing.
So we’re gambling on what? That the state might grind a few million out tobacco to buy down the cost of the bond program?
Oh, but there’s that principle at play here, that the state doesn’t borrow money for routine operations.
Or, is it borrow from whom?
April 10, 2003
(Distributed to Kansas newspapers April 7, 2003)Sunday dinner at... Nick Nolte's?
The best part of watching the Kansas Legislature is taking a long view of what it is trying to accomplish or prevent.
The Legislature is now on a three-week hiatus, during which legislators and city councils and commissions and county officials are going to be talking about Sunday sales of liquor.
The reason is that the Senate, just before lights-out for its break, rejected a House bill that would have authorized Sunday sales of liquor at liquor stores...oh, and Sunday beer sales everywhere beer is sold.
The issue is fascinating because liquor in itself is controversial, and nearly everyone suits up in a hair shirt to discuss it.
One side paints a bucolic picture of a family, just home from church, ready to sit down to a Norman Rockwell style Sunday Dinner, when someone notices that they have no wine. That side makes the point that it would be nice if Father could go to the local liquor store and buy a small bottle of wine which the grown-ups could drink in moderation while they wait for Lassie on TV.
The other side of that, of course, is the family where after reading the Sunday comics, mom announces that the chicken nuggets are about ready to come out of the microwave, and would one of the kids ride his or her bicycle to the liquor store to pick up a plastic bottle of gin before the special edition of "Junkyard Wars" where ex-convicts try to make weapons of mass destruction from old washing machine parts.
What’s the difference here between a Norman Rockwell Sunday dinner and Sunday at Nick Nolte’s house?
It’s the child riding the bike.
A Wyandotte County District Court Judge (they elect judges in Wyandotte County, though that might or might not be strictly relevant here) decided on March 18 that the state’s decades-old Liquor Control Act is not uniform in application statewide. And the Kansas Constitution says that cities and counties can exempt themselves from the provisions of law (note the difference here: Constitution vs. statute) that are not uniformly applicable.
A statutory enactment cannot trump a constitutional provision, the judge notes, in affirming the decision of the voters of Kansas City, Kan., and Edwardsville, who voted not only for Sunday sales of liquor, but also his election.
This might look like an IQ test for judges, but it turns out that a lot of lawyers think the judge is right.
The bike deal? Well, if Sunday liquor sales are possible because the state’s Liquor Control Act is not uniform, then it seems there’s no reason a city or county couldn’t decide that the age limit of 21 is a little arbitrary, too. Presumably, a city could enact an ordinance on sales like those signs at amusement parks...you know, the ones that say you have to be "this tall" to go on the ride? Or, maybe that you have to weigh 100 pounds to buy booze, regardless of age.
Now, that’s silly, but the point is, unless the state does something to make the Liquor Control Act uniform (and the non-uniform provisions are really no big deal), that sort of thing can happen. But the House is pretty adamant about wanting Sunday sales. (Oh, and it’s also a little tired of being bossed around by the Senate.)
So, if the Senate doesn’t find a way to accommodate the House, it appears that the bill to authorize Sunday sales and make the Liquor Control Act uniform at the same time may not get passed this year.
The Senate may be making the decision between Sunday sales and Sunday sales to children. Or, whatever frightening extension of liquor law manipulation that a wacky city attorney might think up.
The issue probably comes down to something simpler. Like, whether the Senate can raise state taxes on liquor to increase funding for elementary and secondary schools in return for not leaving the Liquor Control Act up for distortion.
What? Money for schools in return for not doing something that most of us don’t want done anyway?
That’s the magic of the Legislature, a whole different sort of place right here in Kansas.
Will the Senate get some money? Will Sunday sales of liquor be allowed?
Will we be tripping over bicycles on our way into the liquor store on Sundays, or any day?
Stay tuned...
April 3, 2003
(Distributed to Kansas newspapers March 31, 2003)Solving the budget crisis--for now
You’ll be hearing the wailing from Republican legislative leaders this week about one part of the governor’s plan to raise money to fill the roughly $230 million "hole" in the Kansas’ budget.
Wailing is probably buried somewhere in the job description of legislators, but there is really one big factor that makes the governor’s plan to finance the state’s spending, or some close variant of the plan, inevitable. That factor is the state’s elementary and secondary school industry, which Statehouse insiders habitually refer to as K-12, or Kindergarten-12th grade.
K-12 is the state’s $2.3-billion education business, and if Sebelius were to propose raising taxes by a dime, K-12 would be in there pushing for a $100 million or $200 million tax increase just for K-12, without putting a nickel toward solving the budget problem. It’s just the way K-12 operates; it’s the industry’s nature and can’t be changed.
So, the options are a tax increase that has to be inflated by whatever K-12 wants, or no tax increase and resorting to other less-direct methods to work the state past this year’s budget problem.
Now, the governor’s plan, or the only really necessary parts of the governor’s plan to get past this year’s budget crunch, is to essentially borrow against future payments that the state is due to receive from tobacco companies as part of the "Big Tobacco" master settlement agreement of 1998, and to speed up next year’s second-half property tax payments.
The tobacco portion is the part that’s drawing fire because the state would guarantee repayment of the bonds issued against the tobacco revenues. That’s troublesome to some conservative Republicans who don’t think that anyone, let alone a sovereign state, should borrow money to use for current expenses.
Those critics are right. Absolutely.
But this is the real world, and people do borrow against their credit cards to get through the month. It’s not pretty and we’d all prefer not to do it, but these things happen. You do what you have to do. Absolutely.
And, issuing those bonds, sending the money to the Kansas Department of Transportation (so the bonds can be legally sold as tax-exempt), and moving other money from KDOT into the state’s bank account is pretty complicated.
Some people call that money-laundering (through KDOT) to get the tax exemption for the bonds "Enron accounting." That’s bad stuff, fiscal conservatives say. Absolutely.
But by and large that is either something they’ve heard other people they believe to be bright say, or they know better but believe the Enron label to be chilling to casual newspaper readers and voters. Or they fail to understand the difference between a corporation and a state, which makes you wonder whether they really ought to be running some part of state government anyway.
States, of course, have taxing authority. It would be a real shame if the tobacco industry just closed up shop and quit making payments to states, and the revenues Kansas counted on to repay the bonds just didn’t come in, but chances are slim that’s going to happen. Just look outside any office building or restaurant or county garage and you’ll see people smoking. This industry isn’t going away.
But if for argument’s sake, you figure that the tobacco revenues needed to repay those bonds are just going to dry up, the state can tax its citizens, who by then will all be healthy nonsmokers, to repay the borrowed money.
Taxing authority, that’s the key. That’s the difference between a state and, say, Enron. The other major criticism of the plan is that the borrowing against tobacco revenues and the proposal to speed up by one month next year the second half property tax payments of all Kansans are "one-time" fixes.
Yes, they are.
The fixes get the state enough money to close the books on the current fiscal year and to have enough money to get through the upcoming fiscal year which starts July 1 and during which, we’re reliably informed, the Legislature will be meeting again.
Next year, if the fixes work, we’ll see how the revenues and budget look then, and Railsters are betting that next year someone is going to have a plan to continue to finance state government.
It’s worth noting here that all of the budget-juggling and strife might be necessary only because nobody’s ever taken a hard look at just what it is that the state is really obligated to do for Kansans, what it ought otherwise do for Kansans because, well, we’re Kansans, and what probably doesn’t need doing at all...