NC Budget and Tax Center

Kansas’ experiment yields valuable lessons

This is a guest blog post from Heidi Holliday at the Kansas Center for Economic Growth

You’re welcome, America. Our state, Kansas, just wrapped up a 5-year long experiment in governance from which the other 49 states can now glean some important lessons. The Kansas Legislature has voted to roll back much of the 2012 package of tax cuts that sent the state into a downward spiral of financial instability and weakened the Kansas’ public schools, universities, Medicaid program, and virtually everything else that the state funds.

With the state facing yet another budget shortfall of $900 million, government leaders decided that enough was enough. Governor Brownback, who heralded the 2012 experiment, was proposing yet more temporary band-aid approaches and more cuts deal with the shortfalls. The Legislature chose a different path and instead sent the Governor a bill that would raise more than $1.2 billion in new revenue over two years by, among other things, repealing a costly tax break for pass-through income, rebalancing individual income tax rates by reinstating a third tax bracket, and reversing course on the Governor’s plan to eliminate our state income tax. Brownback vetoed the legislation but, with bipartisan support, the House and Senate quickly overrode the veto.

Our state has begun the path to fiscal stability and is closer to becoming a model of good policy choices as much as it is a cautionary tale. The damage done to Kansas from this reckless experiment will not be undone overnight, but other states need not wait to act upon the lessons learned.

Put simply, revenue matters. You can’t get something for nothing. We all want and deserve thriving communities with great schools, parks, and modern roads and bridges; and we chip in to pay for that. That’s what taxes are for.

Because of the scope of the 2012 changes, it didn’t take long before Kansans in every corner of the state began connecting the dots between the actions of state lawmakers and the quickly eroding quality of the things that make for a good economic foundation in every community. With every subsequent shortfall, the picture became more clear. Meanwhile, the promised economic boom—and the revenue rebound that would supposedly follow—never happened (as economists predicted). In the last few election cycles, voters have viewed candidates and their promises through a different lens, and the 2017 Legislature had the experience and public backing to chart a new course.

Most state tax codes, including ours, need further reform, but it’s high time that state tax policy adhere to one basic, proven (and now proven once again) principle – states need revenue to invest in the things that create thriving communities and a prosperous economy. Kansas just learned this lesson again, the hard way, so that your state doesn’t have to. You’re welcome.

2018 Fiscal Year State Budget, NC Budget and Tax Center

Bipartisan group of Kansas legislators stops failed tax-cut experiment

As North Carolina’s General Assembly begins the process of reconciling the budget proposals from the House and Senate, they would be wise to look to the newspapers in Kansas today.

A bipartisan supermajority of both houses rejected Gov. Brownback’s tax cutting agenda and choose a different approach—funding the programs and services that can grow the economy stronger and for all through a $1.2 billion revenue package.

This leadership from the Kansas Legislature came as cuts to schools, health care and infrastructure were mounting, the state’s fiscal stability was questioned by rating agencies, and many tax-cut supporters lost their bid for re-election in the Fall of 2016.

As Nick Johnson with the Center on Budget & Policy Priorities noted in a statement:

“Kansas’ five-year experiment shows us what happens when we try to tax-cut our way to prosperity, but the legislature’s action reminds us that we have other options.”

North Carolina Representatives and Senators, we too have better options.

NC Budget and Tax Center

Lawmakers need to commit to long-term plan to rebuild after Hurricane Matthew

State policymakers in the General Assembly should be taking the lead in planning for the long-term rebuilding effort in Eastern NC that will be needed after $2.8 billion in immediate damage and a calculated unmet need of $930 million.

The federal administration pledged just $6.1 million in additional support to address specific housing needs at the start of our state budget process—or less than 1 percent of the documented unmet need for rebuilding the region.

Even after the news broke of the federal failure to step up for Eastern NC, Senate and House leaders put just $150 million in the effort to rebuild Eastern NC.  Those dollars were allocated just for the first year of the two-year budget.

Clearly the state must make a bigger commitment to rebuilding the region, not just to address damages and unmet needs but to achieve greater resiliency and a stronger economy in the region for the long-term.  This will benefit us all.

But it will require a commitment now to fund rebuilding that will take place over years.  Failing to meet the unmet needs request to the federal government would mean families remain without stable and affordable housing, infrastructure and environmental remediation would not be completed, and small businesses and farms aren’t operating and employing local residents.  Failing to fund these immediate needs makes it more difficult to move toward full employment and resiliency in the long-term.

Some suggest that no more money should be committed until the initial $200 million allocated in December is completely spent.  There are many problems with this argument. Read more

2018 Fiscal Year State Budget, NC Budget and Tax Center

NC House budget stays the course on the wrong path for North Carolina

The House debate over their budget proposal was another evening to early morning affair at the General Assembly.  Despite being limited by various rules for considerations on the floor, the debate still made clear the stark contrasts in policymakers’ approaches to the state’s current economic position and the well-being of North Carolinians.

Whereas House leaders argued that North Carolina should “stay the course”, the minority of House members expressed concerns regarding unmet needs and the cumulative short and long-term cost of ignoring them.

The budget passed with few substantive changes to make smarter investments or policy decisions.  The amendments presented provided more examples of the ways in which steady tax cuts in recent years have narrowed our vision for what is possible in the state.

For example, a robust debate about access to high-speed broadband in rural communities made clear the economic and educational imperative of this modern-day infrastructure to communities across our state. Even lawmakers who opposed providing funding for this unmet need acknowledged the importance and economic benefits of access to broadband, yet they kicked the can down the road until later when maybe they could afford to make this investment. The funding source proposed for this infrastructure investment may have been less than ideal, but other potential revenue sources exist highlighting the shortsightedness of lawmakers.  A tax break included in the House budget for distribution companies like Amazon—which doesn’t have a cost attached yet—could go some way to funding the build-out of broadband infrastructure in more communities. Furthermore, holding the corporate income tax rate at 4 percent rather than 3 percent could go a long way to fund rural broadband and a more robust rural economic development strategy that addresses housing, small business lending and other fundamental infrastructure needs that promote thriving communities.

An amendment was introduced to increase the cost of living adjustment for retired public employees, but the amendment was tabled and never voted on.  In tabling the amendment, it was noted that while an important priority, the request wasn’t one that could be afforded at this time.

At the other end of the career pipeline was a debate about reducing the state’s future commitment to private school vouchers in order to fund scholarships for high school graduates to have a tuition-free community college education. This effort would make our state more competitive in a 21st Century economy by helping increase degree and credential attainment.  This debate was particularly telling in the clear misunderstanding of the real challenges that many students face in affordably accessing the skills and training that will prepare them not just for careers but also for life as an engaged citizen.  Again, this amendment was not adopted.

Time and again, House leadership noted and acknowledged how various proposed amendments were important and addressed real needs and challenges for our state.  They said they just couldn’t afford to do something about it.

It is all too clear to most of us following at home that they can.  It will, of course, require them to reconsider their major tax cuts in recent years.

2018 Fiscal Year State Budget, NC Budget and Tax Center

N.C. House’s proposed budget misses more opportunities for North Carolina

The $22.9 billion state budget proposed by the House for the upcoming 2018 fiscal year – and the $23.8 billion budget for the following year – reflects a missed opportunity to embrace smart public investments and prepare for federal uncertainty brought on by cost shifts in Medicaid and food assistance, among other core public program and service cuts proposed at the federal level.

The House budget would continue to move away from historic levels of investment relative to the state’s economic health. The 45-year average of state investments as a share of the economy is 6 percent, which has allowed North Carolina to sustain the foundations of its economy and make transformative investments in early childhood and career training, for example. Under the House’s proposed biennial budget, the level of state investments would remain below that 45-year average: In both years, investments would be held at 5 percent as a share of the economy.

The artificial constraints placed on the level and growth of state appropriations year over year mean that we are falling behind in good times, even as the population continues to grow and the costs of delivering education and health care, in particular, increase significantly faster than the cost of consumer goods and services.

Perhaps most concerning is what the path we are on will lead to: year after year of cuts and no economic boom to celebrate.  Read more