States across the country continue to struggle with balancing their year-to-year budgets because of increasing spending and a lagging economy. Many state legislatures have also accumulated massive amounts of debt that taxpayers will have to pay as a result of years of overspending and unaffordable state employee pensions and benefits. According to a memo recently released by legislative researchers, Kansas, which is just two months into its fiscal year, is already experiencing a $20 million shortfall.
The Kansas Legislature has long been required to maintain a minimum positive annual budget ending balance. Passed by the Legislature in 1990, the law requiring the positive annual balance was designed to limit spending and ensure the state is insulated from revenue fluctuations that had plagued state budgets nationwide. The ending balance law requires a positive annual budget ending balance of 7.5 percent of expenditures, or about $470 million for the current fiscal year.
Unfortunately, the law lacks the teeth necessary to force lawmakers to obey it, and it is frequently ignored as a result. Kansas began its current fiscal year with a projected end balance of just $5 million, or about 0.1 percent of expenditures. From 2003 to 2012, the ending balance requirement was suspended each year.
Recently, the state’s budget outlook has become much worse. According to the Topeka Capital-Journal, in fiscal year 2014, “[T]he balance sat at 6.3 percent; in 2015 it fell to 1.1 percent. And in fiscal year 2016, which concluded in June, Kansas had an ending balance of just 0.6 percent – about $37 million.” Even this small positive balance came after multiple rounds of budget cuts.
To add teeth to the ending balance law, several legislators have proposed making the ending balance requirement an amendment to the state’s constitution. As a constitutional amendment, the Legislature wouldn’t be able to suspend the requirement whenever it is convenient for legislators to do so.
One lawmaker on the Kansas House Appropriations Committee believes the amendment is needed to keep a legislature in one year from shunting the cost of its irresponsible spending to future budgets. “As long as it’s just a statute, no Legislature can ever bind another Legislature,” Rep. Dan Hawkins (R-Wichita) told the Capital-Journal. “I think that would be a good thing to toss out next year. I’ve got to think the people of Kansas would support that. I can’t imagine the people of Kansas not supporting that.”
Tax and expenditure limitations (TELs), such as the ending balance law, effectively keep more money in the pockets of families and job creators. The best TELs are those that are passed as constitutional amendments because statutory limitations are often evaded. Strengthening the ending balance law would force the government to more closely monitor and limit state spending, thereby properly balancing the budget while limiting the need for future tax hikes.
The following documents examine tax and expenditure limits in greater detail.
$1.45 Billion Tax Hike or Broken Promises Coming in January
https://kansaspolicy.org/1-45-billion-tax-hike-broken-promises-coming-january/
Dave Trabert of the Kansas Policy Institute examines Kansas’ structural budgetary problems and the proposals to fix the current budget imbalance. “Kansas spends 34 percent more per-resident than the states without an income tax and could balance the budget by going from being morbidly inefficient to grossly inefficient,” wrote Trabert.
State Budget Reform Toolkit
https://heartland.org/publications-resources/publications/state-budget-reform-toolkit
The American Legislative Exchange Council outlines a set of budget and procurement best practices to guide state policymakers as they work to solve the budget shortfalls. The toolkit will assist legislators in prioritizing and more efficiently delivering core government services by advancing free markets, limiting government, and promoting federalism and individual liberty.
Policy Tip Sheet: Spending Reforms
https://heartland.org/publications-resources/publications/policy-tip-sheet–spending-reforms
The Heartland Institute outlines several reforms state legislators can take to address spending problems, including privatization, tax and expenditure limits, and retirement reforms.
Balancing State Budgets the Smart Way
http://taxfoundation.org/article/balancing-state-budgets-smart-way
Joseph Henchman of the Tax Foundation examines an array of options states can use to remedy both short-term and long-term fiscal woes and put their budgets back on sounder legal footing.
Decade of TABOR—Ten Years After: Analysis of the Taxpayer’s Bill of Rights
https://heartland.org/publications-resources/publications/a-decade-of-tabor—ten-years-after-analysis-of-the-taxpayers-bill-of-rights
Colorado’s TABOR (Taxpayer’s Bill of Rights) is a constitutional amendment limiting taxes and spending. Its stated mission is to “reasonably restrain most of the growth of government.” It allows only tax rate increases approved by voters, and although fees are not directly restricted, state government spending is limited to the growth of Colorado’s population plus inflation in the prior year.
State and Local Spending: Do Tax and Expenditure Limits Work?
https://heartland.org/publications-resources/publications/state-and-local-spending-do-tax-and-expenditure-limits-work
This empirical analysis by Benjamin Zycher of the American Enterprise Institute applies data from 49 states (excluding Alaska) over the period 1970–2010 to the empirical question of the effectiveness of TELs, which display a wide variety of features across the states.
Tax and Expenditure Limits for Long-Run Fiscal Stability
https://heartland.org/publications-resources/publications/tax-and-expenditure-limits-for-long-run-fiscal-stability
Emily Washington and Frederic Sautet of the Mercatus Center examine how states can correct for the inflexibility inherent in state expenditure systems to respect taxpayers’ desires for government services over time. Although they are not a perfect solution, binding TELs prevent policymakers from increasing state spending beyond voters’ willingness to pay for government services, the authors argue.
What Is the Evidence on Taxes and Growth?
https://heartland.org/publications-resources/publications/what-is-the-evidence-on-taxes-and-growth
In this Tax Foundation study, William McBride examines the effects of tax policy on economic growth. He finds the literature on the topic demonstrates long-term economic growth is to a significant degree a function of tax policy. If governments seek to spur investment, he writes, they should lower taxes on the earnings of capital. If they seek to increase employment, they should lower taxes on workers and the businesses which hire them. The report also includes a discussion of the effects of progressive tax systems.
America Will Pay More in Taxes in 2015 than it Will Spend on Food, Clothing, and Housing Combined
http://taxfoundation.org/blog/america-will-pay-more-taxes-2015-it-will-spend-food-clothing-and-housing-combined
Americans will pay $3.3 trillion in taxes to the federal government and an additional $1.5 trillion to state and local governments in 2015, notes Kyle Pomerleau of the Tax Foundation. “America’s total tax bill of $4.8 trillion is about 31 percent of the nation’s total income. This is a significant amount and is more than America will spend on food, clothing, and housing combined,” he writes.
Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit the Budget & Tax News website, The Heartland Institute’s website, and PolicyBot, Heartland’s free online research database.
The Heartland Institute can send an expert to your state to testify or brief your caucus; host an event in your state; or send you further information on a topic. Please don’t hesitate to contact us if we can be of assistance! If you have any questions or comments, contact Nathan Makla, Heartland’s government relations manager, at [email protected] or 312/377-4000.
Matthew Glans joined the staff of The Heartland Institute in November 2007 as legislative specialist for insurance and finance.
