better service, better price balancing tax reform with quality service dave trabert president,...
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Better Service, Better PriceBalancing Tax Reform with Quality Service
Dave TrabertPresident, Kansas Policy Institute
Low-Burden States Outperform
10 Lowest Burden States
10 Highest Burden States
Kansas
Private sector jobs (‘98-’12) 12.2% 4.1% 1.6%
Wages & Salaries (‘98-’11) 70.7% 58.7% 52.1%
Domestic Migration (‘98-’12) 3.8% -4.6% -2.9%
Private sector GDP (‘98-’11) 92.5% 66.9% 65.6%
Source: Bureau of Labor Statistics; Bureau of Economic Analysis; Census Bureau; Tax Foundation
Kansas Loses AGI to States with Lower Tax Burden
State2010 Tax Burden Rank (1 = worst;
50 = best)
Adjusted Gross Income Migration‘99-’09 (millions)
Nebraska #21 $73.7
Missouri #34 <$154.9>
Oklahoma #36 <$184.8>
Colorado #32 <$310.0>
Texas #45 <$697.0>
Kansas #22 <$1,272.9>
Source: IRS, Tax Foundation
Controlled Spending = Low Taxes
Unusual amounts of severance tax or tourism isn’t the secret to low taxes. States could be awash in oil revenue and still have a high tax burden if they spent more.
Low-burden states are large, small, coastal, inland, northern, southern, with and without plentiful natural resources…and they all keep spending under control.
Controlled Spending = Low Taxes
2012 Spending Per-Resident (budget)
State Grouping Amount Variance
No Income Tax $2,604
Income Tax $3,764 +45%
Lowest State/Local Tax Burden $2,784
Highest State/Local Tax Burden $4,022 +44%
Best Business Tax Climate $2,639
Worst Business Tax Climate $3,896 +48%
Source: National Assoc. of State Budget Officers, Census Bureau. All state funds excluding federal funds and spending associated with bond issues.
2012 Spending Per-Resident (budget)
State General Fund TotalArizona $1,285 $2,402
Florida $1,199 $2,238
Idaho $1,597 $2,635
Missouri $1,318 $2,628
New Hampshire $969 $2,555
Nevada $1,125 $2,019
South Carolina $1,155 $2,663
South Dakota $1,458 $2,610
Tennessee $1,869 $2,715
Texas $1,695 $2,310
Kansas $2,124 $3,626
Source: National Assoc. of State Budget Officers, Census Bureau. All state funds excluding federal funds and spending associated with bond issues.
Kansas Spent $25 Billion (All Funds) above Inflation & Population Growth
'94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '130%
20%
40%
60%
80%
100%
120%
140%
Inf. + Pop. (actual) Inf. + Pop. (est.)SGF Spending All Funds Spending
Perc
ent C
hang
e, 1
994
= 0
Source: BLS, Census, Kansas Legislative Research Fiscal Facts
Less Spending, Not Less Service
The goal is to provide the same or better service at a better price.
Across-the-board cuts aren’t the answer. Customers won’t come (or stay) for lower prices and lousy service.
Better Service, Better Price implementation requires leadership and full cooperation from everyone involved.
Managing the Transition
Thoughtful, effective spending reduction takes time.
Sales tax increase and/or elimination of income tax deductions aren’t necessary.
Multiple cash options exist to ‘buy time’ while implementing a comprehensive spending review.
Cash Options to ‘Buy Time’
State agencies began FY 2013 with $3.4 billion in positive-balance unencumbered cash reserves. Some is definitely not available but only a small portion is needed to balance the budget.
General Fund balance was $504 million. The rest is scattered across 1,460 other state funds.
Cash Options to ‘Buy Time’
Don’t increase sales tax transfer to the highway fund.
$325 million in sales tax will be transferred to the highway fund this year. Money has been swept back in many years because KDOT had it in reserves.
$487 million is scheduled to be transferred in 2014. Keep the extra $162 million in General Fund until it’s proven that it’s necessary. Full efficiency audit of KDOT/KTA and needs/wants analysis of T-Works should be conducted first.
Cash Options to ‘Buy Time’
Require school districts to use carryover cash as authorized by HB 2261 by considering it ‘local effort’. Total authorized is $114 million.
Carryover cash balances only increase when more money is collected than spent..
Districts began FY 2013 with $889 million in operating carryover cash. That’s a $431 million INCREASE since 2005.
Better Service, Better Price
Taxpayer-focused review of everything done by state government.
Eliminate anything that’s no longer effective or necessary. Agencies recommendations based on how they measure effectiveness.
Find ways to provide everything else at a better price.
Priority-Based Budgeting
Agencies prioritize every program / service based on effectiveness. Bottom-up cost reductions avoid harmful across-the-board cuts.
Assign direct costs to programs and everything else to Overhead.
Least-effective programs considered for elimination or reduction. All others reviewed for efficiency opportunities.
Privatization
Every agency must identify functions and programs than cannot be privatized.
Create a Privatization Commission of experts in various fields to work with agencies on developing RFPs that protect service quality.
Cities, counties, states and universities across the nation are using privatization to save money, enhance services and even fund capital projects.
General Efficiency Review
Create a State Efficiency Commission comprised of private sector experts in logistics, communications, purchasing, finance, IT, etc. to work with agency staff (‘agency’ include universities).
Review discretionary spending; have agencies explain how services would be impacted if some discretionary spending is reduced. (travel, memberships, consulting, advertising, etc.)
Reduce Targeted Subsidies
Corporate welfare (crony capitalism) is rarely reviewed because much of it is tax expenditures instead of a budget line item.
Company / industry specific subsidies aren’t effective. They shift costs to other taxpayers, a higher tax burden has negative economic impact and subsidies create competitive disadvantage for those not receiving them.
Tax reform is a universal incentive.
Lower Cost is not Lower Quality
Domestic migration is a good measure of citizens’ acceptance of service quality.
The ten highest-burden states lost 4.6% population due to DM between 1998 and 2012; the nine lowest-burden states (excluding Louisiana) gained 4.8%. Kansas lost 2.9%
If even there are some services that might be perceived to be of less quality, citizens are still deciding that low-tax states offer them the better ‘deal’.
Spending Doesn’t Drive Achievement
States2010
Current Spending Per-Pupil
White Score
Hispanic Score
Black Score
Low Income Score
Disabled Students
ScoreTotal Score
Kansas $9,715 1047 947 972 899 982 4847
Texas $8,746 1063 971 982 899 977 4893
Florida $8,741 1042 942 988 910 969 4851
North Carolina (low spender) $8,409 1053 948 976 889 968 4834
New York (high spender) $18,618 1044 947 948 887 965 4790
States among the Top Twenty composite scores for 4th Grade and 8th Grade Reading and Math using a multivariate analysis (2011 NAEP)
Source: Census Bureau; National Assessment of Educational Progress. Current spending excludes capital and debt; 2010 is most recent.
Conclusion
Tax reform is necessary to avoid going over our own fiscal cliff. It’s about economic growth and job creation.
States that spend less, tax less…and grow more.
Service reduction isn’t a trade-off for tax reform.
Better Service, Better Price is the way to implement tax reform so everyone benefits.
Contact Info
KansasOpenGov.org
KansasPolicy.org
(316) 634-0218 Wichita office
(913) 213-5038 Overland Park office
(316) 993-4667 mobile