State Spending and the Search for Hidden Efficiencies
It shouldn't take a budget crisis like the one Kansas is dealing with to force a government to look for more ways to save taxpayer money.
After years of dealing with budget crises that followed the major tax cuts pushed through by Gov. Sam Brownback in 2012, Kansas is proving that necessity is indeed the mother of invention. With all of the easy spending cuts -- and a number of hard ones -- already made, the state commissioned a study to determine how it can achieve money-saving efficiencies. A preliminary draft includes 105 recommendations that would save an estimated $2 billion over five years.
The need to find more ways to save money couldn't be clearer. The state faces an estimated $354 million two-year shortfall in its current $15.4 billion budget. Last spring, budget woes caused some Kansas schools to close early.
A number of the recommendations made by the consulting firm of Alvarez & Marsal certainly make sense. Shifting school district employees to the state health insurance and benefit plan and consolidating school purchasing would save an estimated $600 million over five years. Changing the way the state bids and administers insurance policies and creating a central office of risk management is projected to save another $170 million over that time. On the income side, the estimated five-year yield from filling vacant revenue officer and auditor positions is $381 million.
Other recommendations, however, represent the kinds of bad choices that cash-strapped state and local governments often face. For example, high-deductible health insurance plans are appealing to many younger, healthy employees, but making it the only option for an aging state workforce would create a significant obstacle to attracting and retaining quality employees.
How Kansas got itself into its present fix is no mystery. The tax cuts the legislature enacted three years ago included reducing the top income tax rate from 6.5 percent to 4.9 percent and eliminating the income tax entirely for small businesses that file as an individual. In arguing for the cuts, Brownback said they would "be like a shot of adrenaline into the heart of the Kansas economy." But it hasn't worked out that way.
It's true that since 2012 Kansas has seen more migration from neighboring Missouri and that most counties have seen a net increase in wealth. But the state's gross domestic product is growing more slowly than the national rate and, while unemployment is down, the decrease is smaller than in neighboring states. Deficits and insufficient reserves led to a 2014 downgrade in the state's bond rating, and last year state leaders resorted to raising the sales tax from 6.15 percent to 6.5 percent.
There are a number of lessons state and local government leaders can draw from Kansas' experience. One is that while tax cuts can be good policy, they rarely pay for themselves and must usually be accompanied by spending reductions to avoid deficits. And there is the fact that federal taxes account for by far the biggest part of the overall tax burden, so the economic impact of changing state tax policy is always going to be limited.
A different kind of lesson public officials around the country can learn from their Kansas counterparts is that seeking expert outside advice on how to achieve efficiencies is something that should routinely be done on a periodic basis. Efforts to find ways to be more efficient with taxpayer dollars should be continuous, not an option employed only in times of crisis.