November 2007
Nov. 29, 2007
(Distributed to Kansas newspapers Nov. 26, 2007)
The future: Almost hereIt might be starting to look a lot like Christmas on the streets and in the homes in Kansas, but it is starting to look a lot like Fiscal Year 2009 budget time within the Statehouse.
The budget is the key to the upcoming legislative session. Already, the governor and legislators have been warned that it’s going to be almost impossible for the state to reach its golden mean—ending next fiscal year, that’s on June 30, 2009, with at least 7.5 percent of the State General Fund still in the bank.
The 7.5 percent bogey? It was created about 20 years ago and the concept is that the state should have that much cash on hand just in case of an emergency. The actual figure, well, it doesn’t actually make a lot of sense, but it is one of those milestones that sounds pretty conservative, like the governor and the Legislature aren’t irresponsibly spending every dime that they can get.
The latest figures show that when the current fiscal year ends on June 30, 2008, Kansas will have about $523 million in the bank. A nice sum, wouldn’t you agree? It amounts to about 8.5 percent of all general fund spending and therefore exceeds the arbitrary 7.5 percent ending balance law. The current year, which was fueled by nearly a billion dollars of carryover funds, allowed that spending and socking away cash in the bank while expenditures were $411 million more than the state received in tax and other revenues.
But that is this year that we’re about, and we’re about halfway through it.
Things don’t look nearly so good in the future.
For the next state fiscal year—the one that the governor will shape with her budget and the Legislature will consider starting in January—estimates are that the state won’t have as much luck. Spending continues to increase and there’s that half-billion dollar carryover, but the ending balance is likely to be just over 5 percent in 2009, and spending will outstrip revenues by about $192 million. Projections for the year-after are even more bleak.
For the year after next fall’s elections, best predictions are that the state will outspend revenues by $177 million and the amount of free cash in the checking account will be just $153 million, or about 2.3 percent of total spending.
What’s happening? Why does it look like the state is on a slippery slope downhill?
Basically, it is because for the past couple years the state has been agreeing to spend money in future years—the term of art in the Statehouse is “out-years”—without any certainty that there is going to be money available for that spending.
When it came to financing public schools, the spending was to meet the requirements of a court order. But schools aside, lawmakers agreed to out-year spending for maintenance and repairs at colleges and universities, to bulk up the state’s pension system, to compensate cities and counties for loss of revenue caused by eliminating the property tax on industrial machinery and equipment, and even to divert some state sales tax money from the general fund to the Kansas Department of Transportation for highway repairs.
That’s lots of out-year spending by legislators for which the bills show up in the future.
That future is just about here.
Curious about how all this is going to turn out?
The possibility of the state just not spending any additional money is pretty much futile. All those out-year projections are based on no new spending programs, just keeping up with promises already made.
Cutting those promises? That’s tricky in an election year, but then again, those cuts can be scheduled for out-years, too.
Or, and you were probably ready for this one: finding some new source of revenue, likely taxes, either raised in general or by reducing exemptions from taxes so the same taxes raise more money.
Nov. 22, 2007
(Distributed to Kansas newspapers Nov. 19, 2007)
Not a good timeA Kansas legislative interim study committee took a traditional look at the state’s sales tax rates and who pays and collects sales taxes. Then it took its traditional step backward and decided, well, maybe we shouldn’t mess with sales taxes in an election-year session.
The basic concept: the more transactions you exempt from sales taxes, the less revenue the state receives. The through-the-looking-glass concept is that if you subject nearly everything to state sales tax, you could raise the same amount of revenue for the state at a lower rate. Or, even drop the sales tax rate just a bit less than the newly taxable stuff would yield in taxes, and the state could take in a little more money.
Seems fairly simple, doesn’t it?
It occurred years ago to former Gov. Joan Finney, who figured that if everyone paid sales tax on all transactions, the rate could be a lot lower. That would be, well, tax relief for anyone who pays money for anything. That’s about everyone, isn’t it?
This month, a tax committee started looking at the concept of paring down the number of tax-exempt organizations, generally nice outfits that do nice things for people. The committee decided that it wasn’t ready to make its own lists of what organizations should collect sales tax and forward it to the state or what organizations should be able to purchase stuff sales tax-free.
The holdup this fall was the concept that churches don’t pay sales tax on things they buy or collect sales taxes on things they sell. In an election year, the thought of requiring churches to pay sales taxes, well, that is a non-starter. Who wants to go home and campaign on making the local faith-based organizations pay sales tax? Not many legislators.
The narrow focus essentially derailed anything substantial happening for sales tax in the upcoming year.
While the focus was churches and other faith-based organizations, the much broader issue of subjecting to sales taxes services ranging from legal and accounting to music downloads or those funny ring tones that people get for their cell phones never came up.
It would be a big step to make virtually everything subject to sales taxes.
It would so inflate the dollar value of transactions subject to the sales tax that the state could lower the rate, maybe from the current 5.3 percent that the state assesses to maybe 4 percent. Not a big drop, but it might mean that you could get a fancier radio or leather upholstery in a new car or that you could buy a little more at the grocery store for the same money, or maybe even that instead of exempting industries and churches and service providers as we do now, that the state could exempt grocery store food from sales tax. That would help the rich and the poor, and might mean poor people could buy about 5.3 percent more food or have that 5.3 percent to spend on other necessities.
If a legislator needs a hook on which to hang his/her opposition to broadening the sales tax base, the exemption for churches is a stout one. Legislators can talk about the faith-based institutions and never have to mention those other providers of services, ranging from tax help to legal help to advertising in the local newspaper or television station. It’s the reason that magic works. It’s called misdirection, and if the magician’s assistant is cute enough, you’ll never notice that the magician has spirited a rabbit into the hat.
That’s how it’s worked out in the past, and it appears that it is working again. As long as the faith-based organizations are what legislators talk about accountants and lawyers won’t have to testify to legislative committees in public that they can’t compute sales taxes to charge their clients. You’d almost hate to hear your tax guy say out loud that he couldn’t figure out how to collect sales taxes from his customers, wouldn’t you?
This isn’t the first sales tax reform train that the Legislature has missed and it probably won’t be the last.
Nov. 15, 2007
(Distributed to Kansas newspapers Nov. 12, 2007)Prom night at the Statehouse
This is going to sound bizarre to most of you, but in the world of the Statehouse and state government, the governor’s annual State of the State/Budget Message speech in January is the equivalent of prom night.
The governor has the entire House and Senate gathered: State officials, political insiders and pundits, the corps of lobbyists that swarms over the building are all there in the mosh pit of the Kansas House chamber, with the governor at center stage.
Speechwriters have spent weeks polishing the descriptions of new programs, initiatives or ways of doing business on behalf of the citizens of Kansas.
Typically, just after the speech, reporters are asking legislative leaders, local officials and rank-and-file legislators who may not get quoted again for weeks what they think of the governor’s message and ideas.
Also typically, those legislators just know what they heard from the governor. They’re pretty much flat-footed, unaware of details, just who would be benefit from a proposal, what it would cost.
Those quotes you see in the morning-after newspapers and hear on TV and radio generally are “we’ll have to look at the details” or “I don’t know enough about it to say…” Not very snappy stuff, and pretty sophomoric when you Google your senator or representative and one of those quotes pops up.
The House Appropriations Committee is going to attempt to solve that this year…on behalf of legislators who have heard glowing descriptions of programs that sound great to the general public but which those legislators are going to either oppose outright or whittle down considerably.
The committee is going to take an early peek at what programs state agencies hope to expand or recast or otherwise change—by an unprecedented mid-December examination of the tentative budgets proposed by those agencies.
It won’t be the governor’s budget, of course. That budget is held under wraps until the State of the State/Budget Message in January. But it will be the best early examination of just what programs the agencies have proposed and what they are likely to cost that legislators have had before that Prom Night speech.
Expect some of those early insights into possible programs to be duds, things that the governor won’t propose. But some of them are likely to find their way into her budget, and for those the House committee, and probably the Senate Ways and Means Committee, too, will have had about a month between their mid-December meeting and the governor’s mid-January State of the State speech to study what the vast majority of Kansans are likely to see for the first time at the State of the State.
The early peek at what might wind up in the governor’s budget? It falls considerably short, of course, of some legislators’ hopes to create their own budget for the state.
Those plans were pretty much locker room talk, because our citizen legislature just doesn’t have time in the fall to put together such a massive document. The governor has dozens of people working on state budgets; all agency chiefs figure out what they need and what they want. They have staffs to create proposals and the governor’s office and her division of budget have experts to cut and paste those ideas before they are presented to the governor for her to pick and choose programs, new initiatives and other facets of her plan for the state’s upcoming fiscal year.
But the early peek will give the Legislature more information than it has ever had on what to expect from the governor, to weigh and study and parse programs before the governor presents them in their best light.
Sound complicated? Sound like a lot of fiscal/political scheming before the Legislature even starts its session?
Just talk to any high school student about how long it takes to get ready for Prom Night…
Nov. 8, 2007
(Distributed to Kansas newspapers Nov. 5, 2007)Not just for Statehouse hangers-on
If you sit in the back of committee rooms at the Statehouse long enough, you pick up some information that the general public never learns and you get this feeling that the cool deals you learn about shouldn’t just be available to us Statehouse hangers-on.
So, here are two tax deals that just might save you some money, or at least some inconvenience, direct from the back row of the tax committee.
One seemed so simple that you wonder why you didn’t think of it yourself. Turns out it took a retired Johnson County CPA to put it in simple enough terms that with a little calculation, you might save yourself some state income taxes every other year.
Here’s the deal, but it only applies if you pay your own property taxes—they aren’t automatically paid by your mortgage holder. The technique is “bunching” tax deductions—such as the property taxes you pay on your home—in a way that makes it feasible for you to itemize your state income tax deductions. Big boys already have their accountants do this, but it’s something that can be done from your home.
The “bunching” is merely paying the maximum amount of property taxes possible every-other year. You can do this by either skipping the Dec. 20 payment date on which you are supposed to pay half your taxes (this costs you a dab of interest at the county courthouse when you finally pay the first half tax just after New Year’s Day, but the county comes out even on the deal) or by paying the full year’s tax early, on Dec. 20.
What does that get you? At least 50 percent more property tax payments in a single year, which are deductible in the year that you actually write the check to your county. It means a bigger income tax deduction for taxes paid, and just possibly having enough deductions that it makes sense for you to itemize your income tax deductions instead of just taking the standard deduction.
More deductions mean you pay a lower tax bill once you cross that standard deduction threshold, and bunching property tax payments just might put you into territory where itemizing is possible. It’s a pencil-and-paper deal at the kitchen table, but it might save you money if you can manage to bunch enough property tax payments to itemize your deductions, maybe every other year.
Might work, might not work for each taxpayer, but it is probably worth a little time computing it…and it’s legal—not like trying to get a Social Security number for your cat so you an claim it as an additional dependent…
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Sometime after January strikes, Kansas income taxpayers will have another option for withholding money from their paychecks that might just avoid having to come up with several hundred dollars on April 15—the date that income taxes are due.The key here is that the state is de-coupling from the federal income tax withholding tables, which means that it is going to be possible for purposes of Kansas withholding for each member of a married-filing-jointly family to have withholding based on single filer rates. What’s that mean? A little more money withheld from every paycheck, but no “April surprise” when you’ve computed you taxes and find out that you have to come up with more money just about the time a family or couple starts thinking vacation or spring clothes, or maybe a new car…
Oh, that April surprise hits married filers more frequently than singles. The statistics: For single taxpayers, 67.4 percent receive refunds, 28.5 percent have to send in a check with their tax forms. Married? While 52.6 percent of married-filing-jointly taxpayers receive refunds, 45.6 percent have to send in a check…
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Good deals? Maybe for some, it’ll take some work, but it keeps things lively in other wise pretty dull tax committee hearings…Nov. 1, 2007
(Distributed to Kansas newspapers Oct. 29, 2007)
Coincidence? Trend?
Judging by the discussions of very different committees studying very different issues ahead of the 2008 Legislature, something’s going on with the Kansas Legislature and unions.
It may be the start of gradually pulling the rug out from underneath organized labor. It might be just coincidence. But if you hang around the Statehouse long enough, you tend to catch subtle movements when they are moving in the same direction. It might be a trend.
Here’s what’s happening.
The State Employee Compensation Oversight Commission is getting close to approving a new pay plan for the state’s classified (that is, organized) workers. There’s a lot of work to do yet, including bringing state employee pay to “market,” which means that state employees who perform work that is similar to what workers do in private industry get the same pay.
Most of the state employees who do things like filing, record-keeping and providing direct services to the public (and we’re talking social workers, inspectors, highway crews and the like) are receiving smaller paychecks than their private industry counterparts.
State pay theoretically is based on moving up a pay matrix if the employee is doing a satisfactory job. Sounds fair.
But, the compensation oversight commission is leaning toward a system that eventually—once state salaries are brought up to market, estimated to cost about $70 million to be spent over several years—becomes a virtual merit-pay system. That means state managers and directors essentially choose who gets raises. While there are some pretty standardized indications of what is “satisfactory” job performance, more and more the system tilts to managers choosing specific workers for hopefully legitimate and meritorious reasons to get bigger raises than everyone else.
That is something that unions, of course, representing the interests of all state workers, aren’t comfortable with. Unions represent all classified state employees and work to make sure that they are treated equally, without favoritism.
That’s what unions believe is at stake with a new state pay plan.
In other committees looking at a looming schoolteacher shortage—especially for mathematics, science and special education teachers—there are some subtle movements to erode the current membership base of local school district unions and those individual unions’ state association, the Kansas-National Education Association.
How’s that? Several committees have looked at ways to soup up the salaries of those teachers with specialized skills, the math/science/special education teachers, without requiring local school districts to negotiate with local teacher unions about it.
Now, that would be no problem if teacher unions were diversified, say, a social studies teachers’ union, an English teachers’ union, a math teachers’ union... But splitting off specialties for extra compensation dilutes the bargaining power of local unions which represent all teachers.
Would you like to be a career social studies or English teacher while school districts are unilaterally shooting money to those math/science/special education teachers? Feel a little left out? Feel a little funny about parking your old Ford next to the math teacher’s Buick?
The legislators’ goals are noble, of course: Increasing pay for state employees and empowering school districts to attract and retain teachers with hard-to-find special skills that we want to benefit Kansas’ children.
But there may be something else at work here…consciously or unconsciously.
It’s probably worth watching.