Kansas Tries to Shrink Its Way to Prosperity

4/22/14
 
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By Peter Coy,

from Bloomberg Businessweek,
4/17/14:

Sam Brownback has been a Tea Partier since before the Tea Party was born. When he became governor of Kansas in 2011, he set about making the state a testing ground for conservative principles, including cutting funding for some public education and the eventual elimination of the state’s income tax. “Our new pro-growth tax policy will be like a shot of adrenaline into the heart of the Kansas economy,” he wrote in a 2012 op-ed. He predicted cutting taxes would “pave the way to the creation of tens of thousands of new jobs, bring tens of thousands of people to Kansas, and help make our state the best place in America to start and grow a small business.”

The Kansas experiment attracted the attention of both conservatives and liberals around the country, who saw it as an acid test for the Tea Party agenda. Brownback, a former U.S. senator who briefly ran for president in 2007, crept up the long list of dark horse candidates for the 2016 Republican nomination.

A little more than a year has passed since the first phase of the Brownback tax cuts went into effect on Jan. 1, 2013, so it’s possible to make a preliminary assessment of their effects. The early verdict: not too good.

The jury is still out on whether lower taxes will stimulate businesses to expand and hire over the long term. But the immediate effect has been to blow a hole in the state’s finances without noticeable economic growth.

In Kansas, one of the nation’s reddest states, the relevant political split isn’t between Republicans and Democrats but between conservative Republicans and somewhat more moderate ones. National Journal recently ranked Kansas’s four-member congressional delegation the most right-leaning in the country. That describes Brownback, too. A convert to Catholicism from evangelical Protestantism, he is as conservative socially as he is fiscally, opposing abortion and same-sex marriage. His campaigns have long been supported by billionaires Charles and David Koch, the conservative majority owners of Koch Industries, based in Wichita.

The state income tax cut that Brownback signed in 2012 was the nation’s biggest, in percentage terms, since the 1990s.

The most authoritative study of the effect of these measures is a January report by the Kansas Legislative Research Department, a nonpartisan arm of the legislature. It found that revenue isn’t keeping up with expenses even after cuts in spending on K-12 schools, colleges, libraries, local health departments, courts, and welfare. If nothing changed, the research department’s numbers show, the state’s general fund would have a shortfall of about $900 million by fiscal year 2019, or 14 percent of expenses that year.

The budget picture has actually darkened since the release of the research department’s January report. In March, the Kansas Supreme Court ruled that cuts to aid programs that close the gap between rich and poor students violated the state constitution. That wasn’t all Brownback’s fault: The cuts began under his Democratic predecessors, Kathleen Sebelius and Mark Parkinson, who were scrambling to balance the state budget during and immediately after the 2007-09 recession. But instead of reversing the cuts as the economy healed, Brownback deepened them.

Republican governors looking to Brownback for ideas to copy don’t have much to latch on to. Employment is rising, but no faster than in neighboring states.

Voters aren’t impressed. Only a third of Kansans approved of Brownback’s job performance in a February poll by Public Policy Polling. Running for reelection this year, he’s in a statistical dead heat with his main Democratic challenger, House Minority Leader Paul Davis. “The governor is championing a red state model, and it’s truly not working,” Davis says.

Brownback’s supporters see bright spots. Art Hall, executive director of the Center for Applied Economics at the University of Kansas School of Business, notes a surge in business registrations and says, “It definitely looks like more people are trying to get in the game.”

The question is whether Brownback will still be in office to try to keep that from happening.

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