••• Tax & Spending •••

‘Burn it down’ strategy to blame for credit downgrades and budget issues

Tax reform opponents in the Legislature are blaming politics for Moody’s moving its credit outlook advisory for Kansas to ‘negative,’ but many of them should be pointing that finger in the mirror.   Politics is at the root of the problem but some tax reform opponents are directly to blame for the situation.

According to Moody’s, “The revision of the state’s outlook to negative from stable reflects the ongoing difficulties it is having restoring structural balance to its budget and getting on a path to sounder funding of its pension liabilities. By continuing to balance its budget with unsustainable, nonrecurring resources, including pension underfunding, it is accumulating large and expensive long-term liabilities that it will be paying off for a long time.”

That’s a fair assessment of the situation, but some veteran legislators pointing to yesterday’s action might want to hold their righteous indignation in check, as Moody’s issued an eerily-similar negative outlook on April 6, 2011…referencing actions taken under the Parkinson and previous administrations, along with pot-meet-kettle state budget director Duane Goossen:

  • “Weak pension funded status”
  • “Continued use of non-recurring measures to achieve operating budget balance”
  • “Repeated suspension of spending lid” (waiver of ending balance requirement)
  • “Reported Fiscal 2010 General Fund balance was negative for a second year”

Moody’s has never said that reducing taxes is a bad idea per se; their focus has been the structural imbalance caused by failure to get spending in line with revenue, either by controlling spending or increasing taxes.  Some Republicans who support tax reform have been squeamish about cost reductions; Democrats and other Republicans have consistently resisted efforts to reduce the cost of government while also calling for repeal of the income tax exemption on pass-through business income.  That group got their chance last week but many of them voted ‘No’ on House Sub for SB 63 and prevented the bill from passing.   The bill fell 18 votes short of passing, with 24 voting ‘No’ who have repeatedly said all business income should be taxed.

A few who voted ‘No’ say they didn’t have enough time to review the bill, but that hardly passes the smell test; income that would be newly subject to taxation, the rates and the amount raised annually were all very clear, and the concept is what they had been promoting for four years.  Others said it didn’t go far enough (i.e., they wanted to increase taxes on wage earners AND small business).   Even the Wichita Eagle said Democrats and GOP moderates wimped out on the tax vote and said “they acted like cowards.”

So why didn’t they vote for closing the so-called LLC loophole? gidget One theory is that they just didn’t want a tax increase vote on their record.  An Olathe blogger who goes by the nom de plume Gidget Southway offers another explanation.  She posits, “…[they] really have no interest in solving Kansas’ problems.  I believe their approach is Burn It Down.”  And later, “…it’s about having power and attempting to embarrass the Governor and conservatives.”

Sadly, that’s a very solid assessment. The void created by Governor Brownback’s failure to lead on balancing the budget by reducing the cost of government over the years has been exploited by a block of Democrats and Republicans who won’t support spending reductions or tax increases.  When Brownback was elected in 2010, it had been decades since someone campaigning as a fiscal conservative was elected Governor and the movement to prevent that from ever happening again began the next day.  Calling for but voting against tax increases while refusing to entertain cost reductions is at the heart of the ‘burn it down’ strategy.

In a civil society where elected officials honor their fiduciary responsibility to provide the same or better quality service at the best possible price, there wouldn’t be a need to use nonrecurring transfers, debt deferral or leaving final decisions to the Governor to balance the budget.  (Or, if government was ever made to efficiently provide necessary services, to support a tax increase to continue providing necessary services.)  But that’s not the case in Topeka.  As Senator Ty Masterson said, “The debate in [the capitol] has become toxic to the level that I’m not sure anything passes.”

The ‘burn it down’ coalition’s irresponsible actions gave the Legislature little choice but to pass the budget as designed and prompted another negative credit action.  The Eagle’s Phillip Brownlee said it best: “if they are afraid to make tough votes and go on record for what they believe, why be a lawmaker?”  The same applies to legislators who say they are for efficient government but won’t support cost reductions.