Friday, October 25, 2013

Impact of state tax changes, reduced classroom spending being felt, officials say

By SCOTT ROTHSCHILD, The Lawrence Journal-World

County and education officials on Thursday said the income tax-cutting and budget policies of Gov. Sam Brownback are leading to increased property taxes and reduced services and jeopardizing schools.

The comments were made during the annual Kansas Economic Policy Conference held at Kansas University, which focused on income tax cuts implemented by Brownback and the Republican-majority Legislature over the past two years.

But talk of the cuts quickly led to a discussion on state budget constraints caused by dwindling tax revenue.

John Heim, executive director of the Kansas Association of School Boards, said that because of cuts in state classroom spending, school finance as a percentage of Kansas personal income will next year hit its lowest level in history.

“We are spending less than our parents spent on educating us and our grandparents spent on educating them,” Heim said. That trend, he said, “needs to change.”

Brownback has called his tax changes a “real live experiment,” which he said will boost the economy and lure jobs. His office released a statement Thursday that said state general fund spending to schools has increased since Brownback took office.

But Heim and other educators say Brownback’s figures include increased state contributions for the teacher retirement system, which never was counted before as classroom spending, and recently has had to be boosted because of pension problems.

Johnson County Manager Hannes Zacharias said the tax cuts are putting the state in a revenue crunch that affects county governments.

“We are at the end of the food chain, and things run downhill,” Zacharias said.

State revenue flowing to counties is lower now than it was in 2008, he said. And now the number of Kansans needing social service and welfare assistance has grown.

“We are entering an era where those that have, get,” Zacharias said. Approximately 20 percent of the state’s population resides in Johnson County.

Over a two-year period, Brownback signed into law reductions in the personal income tax rate, while cutting popular tax deductions, and establishing the 6.15 percent state sales tax rate.

One provision of Brownback’s tax changes eliminates income taxes for some 200,000 businesses that are limited liability corporations, subchapter S corporations and sole proprietorships.

Brownback has said that measure will increase job numbers, but Zacharias said he believes businesses are establishing Post Office boxes in Kansas to take advantage of the tax break, but they are not bringing jobs to the state.

Brownback’s office, however, pointed to a federal government report that showed from August 2012 to August 2013, the workforce of the Kansas portion of the Kansas City metropolitan area grew by 2.1 percent, while the Missouri portion, which doesn’t have the tax break, grew by 0.2 percent.

Later in the conference, Justin Ross, assistant professor at the School of Public and Environmental Affairs at Indiana University, said the measure will provide incentives for companies to change their tax structure for tax purposes, which will reduce revenue to the state, while not necessarily increasing any economic activity.
Carolyn Bourdeaux, the associate director of the Fiscal Research Center at Georgia State University, said the exemption for LLCs was “exotic” compared with tax changes in other states.

She said she imagined accountants were working overtime to help companies restructure to take advantage of the tax break.

Donna Ginther, a professor in the economics department at KU, said the tax cuts are politically charged, but the reality of their effects may be difficult to determine.

“The tendency of politics is to claim victory. Everyone will point to their favorite stylized fact. The reality is a lot messier than that,” Ginther said.