State income tax cuts putting pressure on local communities

KU conference on 'Kansas fiscal experiment' attracts record crowd including legislators

1 | Budget, Legislature, University of Kansas

Former state budget director Duane Goossen gives an overview of the state budget situation at the 37th annual Kansas Economic Policy Conference. Goossen is the Vice President for Fiscal and Health Policy at the Kansas Health Institute.

Former state budget director Duane Goossen gives an overview of the state budget situation at the 37th annual Kansas Economic Policy Conference. Goossen is the Vice President for Fiscal and Health Policy at the Kansas Health Institute.

— State tax and budget policies enacted by the administration of Gov. Sam Brownback are putting added pressure on already cash-strapped local governments, according to officials who gathered here today for the annual Kansas Economic Policy Conference.

Likely results are increases in local property and sales taxes to help offset losses in state aid, they said.

"This is not rocket science from my perspective: We have less money coming in from the feds, less money coming in from the state, more increased demand — where are property taxes going to go for local governments? Let's all say it together: Up," said Hannes Zacharias, county manager for Johnson County, which is the state's most heavily populated.

The focus of the conference — titled "The Kansas Fiscal Experiment: Impact on Communities" — was on the sweeping tax cuts implemented by the Republican-dominated Legislature and Brownback. The governor has said he wants to completely eliminate the state's income tax as a way of promoting business growth and employment.

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Chris Courtwright, the Legislature's chief economist.

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The state's Chief Economist Chris Courtwright speaking to the attendees of the Kansas Economic Policy Conference.

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Fiscal experiment

But it remains far from certain whether the controversial strategy will work.

Chris Courtwright, the Legislature's chief economist, said the tax cuts have become an "Obamacare-like issue at the state level."

"Diametrically opposed, partisan groups from both sides of the spectrum are able to produce mountains of research, data, and studies bolstering their own preconceived notions as to whether the changes are going to be deemed a success or not," Courtwright said. "How and when and who gets to decide the outcome of our very interesting 'fiscal experiment' here in the Sunflower State?" Courtwright said, "I don't know."

Conference officials said they had record turnout with about 140 people in Lawrence and 15 participating from Ulysses in the far west of the state via a live video feed. About a dozen legislators attended in Lawrence.

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Hannes Zacharias, county manager for Johnson County.

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One of the discussion panels included Zacharias and other local government officials. They painted a bleak picture.

'In a pickle'

"Local governments are in a pickle," Zacharias said. "We are at the end of the food chain and things run downhill, and we're the ones that have to clean up the mess. We've cut where we can. Most counties and most local governments have done that as well. We've run that out, from my perspective."

John Battin, mayor of Ulysses, said via video conference that while property values of farmland in his area have risen dramatically, the county's revenue from property taxes has remained flat.

Raising property taxes, he said, "could help a little bit."

Panelists and members of the audience repeatedly expressed concerns about inevitable debates over raising property taxes or cutting back on funding for schools, police, fire, emergency medical, and other public services.

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Jason Gage, city manager of Salina.

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Jason Gage, Salina's city manager, said he sympathizes with county governments, and thinks the state tax cuts will be harder for them to cope with than for cities.

That said, cities' primary revenue tool — the sales tax — becomes less and less viable as the state relies more heavily on sales taxes to make up for income tax cuts.

Maxed out?

Gage said the accepted wisdom is that an overall sales tax of 10 percent is about the most citizens will tolerate. In Kansas, county sales taxes are capped at 1 percent, and many are already there. Cities can impose up to 3 percent sales tax. Salina's total city and county take rate is 1.9 percent. (View chart of total tax rates around the state)

But the local rates are on top of the state's 6.15 percent sales levy, which means there's not much room for Salina to find more revenue that way, Gage said.

Audio clip

Kansas Chief Economist Chris Courtwright discusses the 2012 tax cut

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"We are starting to feel the repercussions of the strong dialogue around the state budget," Gage said. "If the state begins relying more on sales tax, that takes away sales tax to a degree as a tool for cities and counties. Maybe not legally, but practically — again that's either going to put pressure on property taxes or pressure to make service cuts. So that starts to disrupt the system."

Gage said lower income taxes can help lure businesses to relocate or spur existing ones to expand. But there are other factors that determine business growth.

"Location of your community is a pretty big factor. And labor availability — that's huge. Ask your businesses. Having people with the skill sets...if you don't have that, you're going to have a hard time getting a business that needs that to come to your community."

Sen. Jim Denning, an Overland Park Republican was in the audience. He told KHI News Service that it wasn't clear to him whether raising property taxes was necessarily a bad thing.

"Is there really a difference between taking Johnson County's money and spreading it out to the state or keeping it in county? What's better? The argument of the state has been that it's better to spread Johnson County's money out west," Denning said.

"But the gentleman from Ulysess admitted — and I've heard it many times — that they're not taxing their most valuable asset (farm land) enough. So maybe that would equalize things. Start taxing their most valuable asset to pay some of the bills. But I just don't have my arms around that yet," he said.

Denning said he didn't expect Johnson County would make deep cuts in public services but that other areas of the state might.

"We're not going to have weeds and bad schools in Johnson County. That won't happen. The quality of life will continue to improve and we'll pay for it. But will Wyandotte or western Kansas? I don't know. I'm walking away from this conference with more questions than answers. But that's really why I came today."

Audio clip

Justin Ross, Indiana University professor of public management an economic policy, talks about Kansas' "fiscal experiment"

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Local schools

Sally Cauble, vice chair of the Kansas State Board of Education, spoke via video conference in Ulysses.

She said that shifting more of the tax burden to local governments makes them compete for tax dollars that support public schools.

"These situations create great disparities in educational opportunity that depend upon your zip code, exactly the opposite of what we believe is best for students in our state," Cauble said.

John Heim, executive director of the Kansas Association of School Boards, said that the income tax cuts would inevitably lead to higher property tax rates in more rural areas.

For example, Baxter Springs and Ulysses have about the same size school districts, he said. But Baxter Springs' tax base is less than half that of Ulysses.

In the past, "the state has said 'We'll help Baxter Springs because they don't have the ability to raise money like Ulysses does or like Shawnee Mission does," Heim said.

But in recent years, the state has "cut that aid that goes to those districts. That's about 80 percent of school districts in Kansas that are having their aid cut. So what's that got to do to property taxes? That causes property taxes to go up."



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Comments

philcauthon (Phil Cauthon)November 22, 2013 at 8:18 a.m.

Full video from the conference presentations now available: http://www.khi.org/news/2013/nov/22/v...