October 2004

Oct. 28, 2004
(Distributed to Kansas newspapers Oct. 25, 2004)

Interesting partnering

Trade-offs happen nearly every day in the Legislature, but it must have been somewhat surprising to the Sac and Fox and Kickapoo Indian tribes watching as a legislative committee attempted to hand them a virtual monopoly on new casino gambling in Kansas in order to make sure that there are no more casinos anywhere else in the state.

It was one of those legislative trade-offs where opponents of gambling saw a chance to reduce gaming in Kansas by using an odd but handy tool... a contract that would actually expand gambling in Kansas.

A legislative committee last week opened the early stages of consideration of an agreement (called a compact) between the governor and the Sac and Fox and Kickapoo Indian tribes that would allow construction of a $200 million-plus resort/casino in Wyandotte County.

Huh? That sounds like new gambling to us, and to most Kansans.

Except... the compact with the two tribes, which would for the first time allow the state to actually make some money from Indian casinos, includes a "market protection" provision. That provision reduces the state’s revenues from the new casino as the state allows more casinos to open which would compete with the proposed two-tribe casino.

That market protection provision was the unintuitive but incredibly useful lever that anti-gambling legislators used–at least in the initial stages of this legislative dance–to lose by allowing one nice, new, big casino to be built and at the same time to win by virtually assuring that the tribal casino would be the last new gaming facility that Kansas would ever have.

Geography has a role here, too, because most of the Legislature’s anti-gambling members are not from northeast Kansas and if they can’t stop gambling, at least they can make it a long car ride from home.

So, the tribal casino supporters feel pretty good about this deal, getting more market protection than they bargained for. Opponents of gambling make sure that a new casino doesn’t spring up at, say, Wichita or Dodge City or even anywhere else in Wyandotte County
where The Woodlands pari-mutuel horse and dog racetracks (yes, two separate tracks, one for horses, one for dogs which was probably a bad idea from the get-go) want casino gambling, too.

The legislative committee told the governor’s office to reopen negotiations on the compact to strengthen the market protection... essentially to grant a monopoly on new casinos to the Sac and Fox and Kickapoo tribes. Under the current version of the compact (the
governor has to get a legislative OK to formally enter into the deal), if the state allows more gaming in the area, the state’s share of the profits drop. If the state permits too much competition, the state gets nothing.

The committee’s proposal is to replace that slope of reduced state revenues with... well, a cliff.

One new slot machine, and the state gives up money. That turns a fairly complicated business agreement for declining revenues into an on-or-off switch, and if the state allows any new casinos, it loses maybe $50 million a year. That’s serious money in Kansas, and it means that virtually no new casino deal offering less revenue makes economic sense.

Oh, and there are some bystanders at this discussion. Non-Indians would like to open casinos and share the revenues with the state under the "state owned and operated" gambling provisions in the Kansas Constitution in which the casino owners would essentially be
franchisees of the state. (Best example? How about convenience stores that sell Lottery tickets? The state doesn’t own the stores, but it does own and operate the Lottery machines. Substitute slot machines for Lottery machines, and a hotel-resort for the convenience store, and you get an idea how that would work.)

It’s a long way from done yet, but proponents of the casino like the deal. Opponents of gambling like the deal because it creates a roughly $50 million pricetag for the state on any new gambling.

We’ll have to see what the proponents of other casinos, or slots at tracks or slots at the Knights of Columbus Hall, come up with to derail this clever anti-gambling legislative strategy...

Oct. 21, 2004
(Distributed to Kansas newspapers Oct. 18, 2004)

Do tax incentives work?

Did you ever see the first try at something, an attempt that is admittedly not perfect, but which in the back of your mind you have this thought that once it gets the kinks worked out, it’s going to be important?

There was a dab of that feeling last week when the Kansas Department of Revenue produced its first analysis of corporate income tax. Now that’s pretty dry stuff, but remember that the Kansas Legislature almost endlessly tinkers with corporate income rates and exemptions and credits and carry-forwards and carry-backs to try to lure corporations to Kansas to provide good-paying jobs for Kansas citizens.

It’s a complicated dance that the Legislature does, wanting to provide just enough income tax incentive to get employers to come to Kansas and to stay in Kansas but not so much incentive that all other taxpayers have to pony up more money to keep the state in business. And, of course there is always that other factor about giving tax breaks to big corporations with lobbyists and well-to-do political campaign contributors that makes such breaks politically precarious...

What was the problem with the first-try effort on corporate income taxes?

The study used the most readily available information, which was from the years 2000 (remember that recession?) and 2001 (remember Sept. 11, 2001?). Now, those weren’t great years to use because it would take an economic shaman to separate out from those statistics what was caused by the tax breaks available then to corporations and what happened because of the recession and the terrorist attacks. Corporate income taxes dropped from $250 million in 2000 to $211 million in the year that included the recession and then plummeted to just $94 million in the fiscal year that followed the terrorist attacks when airplane manufacturing virtually disappeared...

But Revenue got a start on the project. While the first effort may have some broad indications of what effect corporate tax breaks have on employment and income, in a few years of "normal" business activity the state might actually wind up with hard information on which tax breaks actually yield jobs for Kansans–and which ones merely make corporations richer, which is good, but not precisely what the state is after.

There is, of course, that lingering thought that Kansas has been in the business of collecting corporate taxes since 1933. And, it’s not at all presumptuous that we are wondering why the state didn’t start measuring the effect of corporate tax breaks and incentives 70 years ago to see which ones brought in more jobs and more personal income taxes paid by workers in those jobs.

Don’t look for a definitive, chiseled-in-stone answer except that the state is actually getting smarter and more businesslike. Kansas also has more fiscal responsibility for things ranging from public education and higher education to care of the sick and handicapped to public health and inspection of just about everything that the people of Kansas want the state to do and elect legislators to get done.

And there’s also a cultural change going on in the Statehouse, one that is apparent in watching the Legislature for nearly 30 years... It’s that legislators are getting a little more skeptical about pitches for tax breaks. There are some who never saw a tax cut that wouldn’t sound good on a campaign brochure. But there are also some who want a little more information than the "sounds like it might work" pitches that they consistently get in the Statehouse.

It’s early in this process and it is probably going to take four or more years to get a real handle on "if we do this, that happens" that will allow the Legislature to fine-tune its corporate tax policy. Just letting corporations off the hook for taxes isn’t the answer. All this talk about not taxing corporations because they provide jobs is too simplistic and jingoistic. There’s a difference between encouraging corporations to make a nice return on their stockholders’ investments and creating a tax climate where corporations want to come to or stay in Kansas to make a nice return and a nice living for their employees and their combined taxes provide a nice way of life here.

And, maybe in a few years, legislators will know just what encourages employment, just what brings jobs into the state and keeps jobs that are here and maybe even improves the salary levels of those jobs.

Oct. 14, 2004
(Distributed to Kansas newspapers Oct. 11, 2004)

A state government solution?

If you talk to 100 candidates for the Kansas Legislature, they’ll tell you that what they’ve been hearing from potential voters is that property taxes are too high and that they are afraid that the Kansas Supreme Court is going to decide the state isn’t spending enough money on public education and more taxes are needed.

There is excitement–and some wariness–in the air about the possibility of the Kansas Supreme Court as early as Friday issuing a decision on whether the state’s system of financing public education is constitutional, and possibly whether more money or a dramatic shift in the distribution of the money is necessary.

Friday? That’s the earliest possible date for a decision, but it may be weeks later. That adds to the suspense for candidates. Will a decision be released before the election or after? Will that mean changes in literature, changes in position by the candidates? That’s not known, of course.

But because most of us don’t know what a day in the classroom is like in the age of computers and paraprofessionals and aides and pupils who don’t speak English and pupils with their own care-givers because of handicaps, we reduce whatever the court comes up with to its cost.

There are probably voters out there who for some reason or another really don’t care about the quality of the education children are receiving but those aren’t the people you’d want to hang out with anyway.

The real upshot of whatever the court decides is that there is going to be a redistribution of money among districts. It may require more money to provide every pupil with the best education he or she can absorb.

What’s the best possible decision for taxpayers? Of course, that there is enough money being spent statewide on K-12, and that it just needs to be rearranged; some districts getting more money and some district getting less money.

That there is going to be significant reshuffling of money is almost a given. Less money is being spent in many districts on pupils who require more assistance to absorb as much education as possible. Look for losers, districts that will get less money from the state, and look for winners, districts that are due more money from the state because their student population mix requires more assistance.

That’s where the role of the state comes in, and while everyone is talking about property taxes and how they’ll keep rising and put poor people and retirees on fixed incomes out in the snow, a key is that property taxes for public schools–at least the state’s levy–is relatively low at 20 mills. And, there is an exemption from school property taxes for the first $20,000 in valuation of a home. That’s enough to take low-valuation homes clear out of the property tax for schools. And if those who are poor or on fixed incomes and living in homes with an assessed valuation of less than $20,000 are exempted, well, their objection pretty much evaporates.

Real issue seems to be that if more money is needed, what form of taxes it will require. Local school districts generally have only a property tax with which to raise funds, so for the vast majority of Kansans, any effort that the state makes to increase funds for schools through higher income or sales taxes is going to stand a good chance of requiring less property tax increase than would a local levy which will be primarily property taxes.

So, it might be time to direct the griping about taxes as a whole toward any portion of school finance that requires individual school districts to use their property taxing authority to raise money. A centralized, state-level solution is the best one for large areas of the state including farming areas and pockets of relative poverty or congregations of the elderly on fixed incomes.

Need more money for schools? Maybe. But enlightened self-interest probably means that if more money is needed, many Kansans would be better off if it came from action of state government, where the load can be distributed across income and sales taxes and not piled up on property.

That shouldn’t be a surprise, but it may focus some attention on what has been the loudest complaint–property taxes. Seems that state government may be the solution for many districts, their pupils and their voters...

Oct. 7, 2004
(Distributed to Kansas newspapers Oct. 4, 2004)

A pre-emptive strike

No reason that you folks shouldn’t look behind the political curtain for a bit and see a little pre-legislative, pre-2006 gubernatorial race politicking going on in the Statehouse, is there?

It was a quiet week–the governor was in Japan trying to ease restrictions on import of sensationally famous Kansas beef–when her staffers did a little pre-emptive strike against likely 2006 governor’s race challenger Attorney General Phill Kline.

Now, the job description of an attorney general is of course to fight crime, or at least prosecute those who are suspected of crime, and that takes money in the attorney general’s budget. So, at least for general public consumption, anything that takes money away from the attorney general’s office sounds like a hindrance to crime-fighting.

If the governor reduces the attorney general’s office budget it is natural that the attorney general can squeal that the governor is hindering the war on crime, leaving Kansans defenseless, and in that ever popular campaign chant, that the governor is "soft on crime." Nobody wants to be soft on crime, and that’s a label that is easy to toss around. Do you want a governor who is soft on crime? Of course not.

That’s the you-can-bet-on-it future complaint that the governor’s office would like to short-stop, just in case Kline does want to be the next governor and there is absolutely no reason to believe that he doesn’t... who wouldn’t?

What does a governor do to pre-empt that soft on crime complaint? Well, the best way, and the way the governor’s office did it last week, was to haul in reporters for a background briefing to show that the attorney general’s office budget has indeed shrunk in the past couple years and for good reason that has nothing to do with the governor not wanting to fight crime to the bitter end.

The governor has, with legislative approval, moved about a dozen federally funded grant programs worth several million dollars from the attorney general’s office to the grants division of her own office. Same money, same services to victims of crime, same basic operations, only they’re done under the auspices of the governor’s office. The programs are the same, but the accounting for the money is switched from Kline to Gov. Kathleen Sebelius. Kline’s office budget drops, the governor’s grows, that’s just accounting.

Oh, and because the federal grants are for generally good things–like stopping violence against women, preventing family violence, educating people not to use drugs–those nice little press releases announcing which communities and agencies have gotten the grants go out on the governor’s letterhead, not Kline’s. As long as there is federal money available to do good things, if you were the governor, would you rather make the announcements or have a guy who may run against you in two years make the announcements? Hmmm, I think we know the answer.

Well, Kline has some charts that he takes to places where people don’t read the budget line-by-line and don’t know that along with money leaving the attorney general’s office, programs have, too, and it makes a fairly impressive chart. Kline’s budget down, the governor’s budget up: Looks like the governor is taking resources away from Kline’s crime-fighting mission.

The real question politically, of course, is will the pre-emptive strike work? We’ll find out in two ways.

First, Kline could just put away the charts. But then, they’re already paid for and he might as well see if he can get some more political use out of them. At best, people won’t understand, and he’ll look like a hamstrung AG trying to fight crime on our behalf while a soft-on-crime governor takes money away from the effort.

Or, probably better for the governor, is when Kline complains about his office budget shrinking, reporters will know the reason and decide that it really doesn’t merit a news story and they’ll find something else even on a slow news day to put in the papers. That will have the side effect of leading reporters to reconsider whether Kline really is a red-hot source of news, and he might see his name in the papers less frequently than he does now.

Let’s watch and see what happens...