Kansas tax experiment of 2012 offers a cautionary tale for Montana
In 2012, Governor Sam Brownback convinced the Kansas Legislature to enact sweeping tax cut legislation. The plan was billed as a “shot of adrenaline to the heart of the Kansas economy.” As a Republican member of the Kansas House of Representatives at the time, I was intrigued by the proposal but worried it was “too far, too fast.”
What was the plan to pay for the tax cuts? The pitch was that the cuts would pay for themselves, but they failed to assess the negative effect that governmental downsizing might produce. Back in 2012, the Kansas budget was healthy but austere as we emerged from the great recession of 2008. A significant budget surplus was on hand to cushion against declining revenues as we waited for the “shot of adrenaline” to kick in.
How did it go? Revenues dropped precipitously, down $700 million in the first year, and the budget surplus was soon consumed by the structural imbalance between revenues and expenditures. We tried to cut expenditures thoughtfully, as we rapidly lost revenue. But even though Kansas had a conservative governor, and the appropriations process was controlled by strong fiscal hawks, budget cuts to offset the drop in revenues could not be easily identified.
Eventually, the frantic search for solutions led to difficult policy choices, and budget cuts were performed with a meat cleaver. By June 2016, the ending balance of our general fund dwindled to $6 million, despite a $480 million statutory requirement. Business owners pleaded to be put back onto the tax rolls. They felt they received an undeserved windfall and worried about the detrimental effect on state government, questioning the equity of their tax benefit, while their employees, such as secretaries, clerical help, or farm workers, were still paying.
Efforts to balance the budget diminished state agencies, which severely impacted delivery of essential services like early childhood, K-12 and higher education, highway maintenance and construction, and business support. The Kansas Department of Labor experienced a 33 percent employee decline, leaving the department ill-equipped to meet the COVID unemployment surge.
Desperate steps were taken to fill budget gaps. We raided nearly every fund we could, including school district reserve funds, regulatory agency fee funds, and long-term investment funds. We even considered selling the University of Kansas Medical Center, Kansas Turnpike, and the Master Tobacco Settlement, which had always been earmarked for early childhood education.
By early 2017, the state’s fiscal troubles had led to two sales tax increases, three credit downgrades, and nine difficult rounds of budget cuts. The 2017 legislature responded by repealing most of the components of the tax experiment, which a majority of Kansans regarded as a failure. Governor Brownback vetoed the bill, but the Kansas Legislature voted to override, including a majority from both Republican caucuses. Override votes even came from the same fiscal hawk appropriators who had attempted to address the structural imbalance with budget cuts.
As an elected Republican and a former House Majority Leader, my message to my counterparts in Montana is simple: Do not expect that simply cutting taxes will magically produce economic prosperity. It did not happen in Kansas, and it will not happen for you. Things are never so simple. “For every action there is an equal and opposite reaction.” This applies to economics just as well as it applies to physics.
I urge you to remember that government, at its core, is a service provider. If desperate budget cuts compromise the core missions of state departments and agencies, then citizens and businesses will feel the effects.
Kansas wisely pulled the plug on the Great Kansas Tax Experiment. The structural imbalance has been addressed, revenues are adequate but not excessive, and the economic growth that eluded us is once again bubbling up. However, I don’t think we will ever truly understand the impacts those budget cuts had on the individuals and families of our state. Montana would be better off putting a stop to the same experiment before it starts.
Don Hineman is a farmer/rancher from western Kansas and just finished 12 years of service in the Kansas House of Representatives, including two years as Majority Leader. He also served as county commissioner, president of Kansas Livestock Association and sat on the boards of a commercial feedlot and state and national cattle organizations.