More About Michael Leachman

Michael Leachman

Michael Leachman joined the Center in July 2009. He is the Director of State Fiscal Research with the State Fiscal Project.

Full bio and recent public appearances | Research archive at CBPP.org


A Deserved Downgrade of Kansas’ Bonds

August 11, 2014 at 9:41 am

The meaning of Standard & Poor’s recent downgrade of Kansas’ credit rating, in which it cited Kansas’ “structurally unbalanced budget,” is clear:  Kansas’ budget is a train heading off a cliff.

Here are the details:

  • Kansas’ massive tax cuts have sharply cut state tax revenues.  Since Kansas’ massive tax cuts took effect a year and a half ago, revenues have nosedived.  Revenues were down about $700 million in the last fiscal year.  That’s much more of a drop-off than the state’s official forecasters expected.
  • There’s not enough revenue coming in this year to cover the state’s budget.  Hoping the tax cuts would produce more economic growth and wanting to avoid additional spending cuts, Kansas lawmakers approved a budget for this fiscal year that’s $326 million larger than the state forecasts it will collect in revenue.  In reality, the imbalance is even worse, because the budget is based on overly optimistic revenue projections.  The state assumes revenues will surge over the next year — even though more tax cuts will kick in in January.  That’s why Duane Goossen, the state’s former budget director, recently wrote, “[t]he Kansas budget appears to be teetering on the edge of a fiscal cliff, but that’s an illusion.  We’ve already gone over the edge.”
  • Kansas is avoiding immediate budget cuts only by drawing down its operating reserves.  The state isn’t in emergency mode already because it’s using its only operating reserves to cover the cost of state services.  (Kansas is one of only four states with no formal “rainy day fund,” so its operating reserves are not well protected and can be used in this imprudent way.)
  • The reserves likely will run dry sometime in the next few months, creating a budgetary emergency.  Once the reserves are gone, Kansas will be forced to make emergency cuts to state services, or to raise new revenue.  And any cuts would come on top of deep cuts the state has already made in recent years to its schools and other services.
  • The future looks even worse.  The new tax cuts taking effect at the beginning of 2015 will be followed by even more income tax rate cuts in each of the subsequent three years.  The additional cuts in 2016 alone will reduce revenues by about another $113 million.  So when the legislature comes back in session next January to write the state budget for 2016, lawmakers will have even less revenue to work with, making it even harder for Kansas to fund its schools and other services.

It’s no wonder that Standard & Poor’s downgraded Kansas’ credit rating, or that another major credit rating agency — Moody’s — did so earlier this year.  The rating agencies rightly understand that Kansas’ fiscal policy is a disaster.

A Constitutional Convention Poses Grave Risks

July 16, 2014 at 4:33 pm

The idea of convening a constitutional convention to propose a balanced budget amendment or similar amendments raises grave problems, as we explain in a new paper.  A number of states have passed resolutions calling for such a convention, and proponents of a constitutional convention are targeting more states in an effort to obtain the 34 states needed to call one (see map).

A balanced budget amendment poses serious risks in and of itself.  But, as a number of legal experts across the political spectrum have warned, a convention could open up the Constitution to broader radical and harmful changes.  Such serious concerns are justified, for several reasons:

  • A convention could write its own rules.  No constitutional convention has been called since the 1787 meeting that wrote the Constitution, and the Constitution provides no guidance whatsoever on what a convention’s ground rules would be.  This leaves wide open to political considerations and pressures such fundamental questions as how delegates would be chosen, how many delegates each state would have, and whether a supermajority vote would be required to approve amendments.  To show the importance of these issues, consider that if every state had one vote in a convention and the convention could approve amendments with a simple majority vote, the 26 least populous states, with less than 18 percent of the nation’s people, could approve constitutional amendments for ratification. 
  • A convention could set its own agenda, possibly influenced by powerful interest groups.  The 1787 meeting went far beyond its mandate.  Charged with amending the Articles of Confederation to promote trade among the states, the convention instead wrote an entirely new governing document.  A convention held today could set its own agenda, too.  There is no guarantee that a convention could be limited to a given set of issues, such as balancing the budget.  
  • A convention could choose a new ratification process.  The 1787 convention ignored the ratification process under which it was established and created a new process, reducing the number of states needed to approve the new Constitution and removing Congress from the approval process.  The country then ignored the pre-existing ratification procedures and adopted the Constitution under the new ratification procedures that the convention proposed.  Given these facts, it would be unwise to assume that ratification of the convention’s proposals would require the subsequent approval of 38 states, as the Constitution specifies.  For example, a convention might remove the states from the approval process and propose a national referendum instead, or approval by a simple majority of states. 
  • No other body, including the courts, has clear authority over a convention.  The Constitution provides for no authority above a constitutional convention, so it isn’t clear that the courts, Congress, state legislatures, or a President could intervene if a convention went beyond the language of the state resolutions calling for a convention or the congressional resolution establishing it.  Likewise, there may be no recourse if the convention altered the process for ratifying its own proposed amendments.  The Constitution has virtually no restrictions on the operations of a constitutional convention or the scope of the amendments that it could produce, and the courts would likely regard legal challenges to a convention as “political questions” that the judiciary does not wade into. 

States should avoid these risks and reject resolutions calling for a constitutional convention, and those that have already approved such resolutions should rescind them.

Click here to read the full paper.

Year-End Revenue Numbers More Proof of Kansas’ Failed Tax Cut Experiment

July 1, 2014 at 2:11 pm

Kansas officials yesterday announced that state revenue dropped more than expected again in June, adding even more to the damage we previously documented from the tax cuts that Kansas put in place last year.  All told, Kansas brought in $338 million less than it expected in fiscal year 2014, which ended yesterday for the state.

Kansas policymakers should have seen this coming when they enacted the tax cuts.  For one thing, as we wrote at the time, the package included an especially wasteful provision: eliminating taxes on profits passed through from businesses to their owners, an idea that has been widely panned, most recently by the New York Times’ Josh Barro.

The latest news also draws further attention to the damage that economist Arthur Laffer and his employer, the American Legislative Exchange Council (ALEC), are doing to states. Laffer was the architect of Kansas’ plan, and ALEC continues to push for similarly damaging tax cuts in other states ― as Paul Krugman and my colleague Jared Bernstein recently pointed out.

Kansas’ disappointing 2014 revenue results provide another piece of evidence that should give pause to other states considering similar ALEC-backed tax cut plans.

Setting the Record Straight on Kansas

April 24, 2014 at 2:05 pm

Rex Sinquefield — who funds campaigns for drastic tax cuts in Missouri — claims that our recent paper about the budgetary and economic impact of Kansas’ recent tax cuts was “patently false” and offers information that he says we “chose to ignore or distort.”

In his piece for Forbes, however, Sinquefield doesn’t back up his “patently false” claim by challenging any of the data we provide.  But three of the points of information he thinks we ignored are worth reviewing, because they are misleading, inaccurate, and often repeated by tax cut enthusiasts.

First, Sinquefield offers data that appear to show that states without personal income taxes outperformed states with relatively high income taxes between 2001 and 2011.  He doesn’t adjust for factors other than taxes that might account for these findings.  Instead, he simply asserts that taxes are the cause.  In fact, some of the no-income-tax states experienced relatively strong population growth over that period for reasons that have nothing to do with taxes (and much more to do with low housing prices, climate, and birth rates).  If one adjusts merely for population, by comparing how these states performed per capita, the relationship Sinquefield claims goes away.

Second, rather than challenge our point that per-pupil funding for Kansas schools continues to fall, Sinquefield asserts that there is “no proof that the quality of education improves with more spending” — as if Kansas, where general school aid per pupil is down 16 percent since 2008, can continue to cut school funding indefinitely with no consequences for students.  To the contrary, the evidence indicates that deep cuts in school spending harm student outcomes.

Third, Sinquefield points to a “dynamic” model of Kansas’ tax cuts that finds the tax cuts will boost jobs, business investment, and disposable income.  The model he cites is not well-known and has been disparaged by academic economists and others who have tried to understand its methodology.  It appears designed to predetermine its results by over-valuing the economic benefits of cutting taxes, and greatly under-valuing the economic costs of reducing state spending (laying off school workers and other public employees, discontinuing contracts with private sector vendors, and other actions that counteract the economic value of tax cuts).

Sinquefield is right about one thing:  we did ignore the information he offers, as should anyone who cares about a serious policy debate.

(A final note:  Sinquefield mentions that CBPP has received funding from George Soros.  CBPP is supported primarily by a wide range of foundation grants.  The full list of our supporting organizations can be found here.)

5 Reasons Other States Shouldn’t Follow Kansas’ Tax-Cutting Lead

March 27, 2014 at 3:11 pm

One of the largest tax cuts any state has ever enacted took effect in Kansas at the beginning of last year.  The state sharply reduced its income tax rates and fully exempted certain business profits from taxation.  It also adopted a plan to cut income tax rates even further over the next few years.

Now, in a number of other states, proponents of tax cuts are saying that Kansas’ approach is a model for how to grow a state’s economy.  As we explain in our new paper, Kansas is anything but.  In fact, it’s a cautionary tale for five major reasons.

  1. Deep income tax cuts caused large revenue losses.  Kansas’ tax cuts this year are costing the state about 8 percent of the revenue it uses to fund schools, health care, and other public services, a hit comparable to a mid-sized recession.  State data show that the revenue loss will rise to 16 percent in five years if the state does not reverse the tax cuts.
  2. The revenue losses extended and deepened the recession’s damage to schools and other state services.  Most states are restoring funding for schools after years of significant cuts, but in Kansas the cuts continue (see chart).  Governor Sam Brownback recently proposed another reduction in per-pupil general school aid for next year, which would leave funding 17 percent below pre-recession levels.  Funding for other services — colleges and universities, libraries, and local health departments, among others — also is way down, and falling.
     
  3. The tax cuts delivered lopsided benefits to the wealthy.  Kansas’ tax cuts didn’t benefit everyone.  Most of the benefits went to high-income households.  Kansas even raised taxes for low-income families to offset part of the revenue loss; otherwise the cuts to schools and other services would have been greater still.
  4. Kansas’ tax cuts haven’t boosted its economy.  Since the tax cuts took effect at the beginning of 2013, Kansas has added jobs at a pace modestly slower than the country as a whole.  Average earnings fell more in Kansas in the year after the tax cut than in the rest of the country over the same period, while non-farm personal incomes rose less in Kansas than the nation as a whole. And so far there’s no evidence that Kansas is enjoying exceptional business growth: the number of registered businesses grew more slowly last year than in 2012, and the state’s share of all U.S. business establishments fell over the first three quarters of last year, which is the latest data available.
  5. There’s little evidence to suggest that Kansas’ tax cuts will improve its economy in the future.  No one knows for certain how Kansas’ economy will perform in the years ahead, but it isn’t likely to stand out from other states.  The latest official state revenue forecast, from November 2013, projects Kansas personal income will grow more slowly than total national personal income in 2014 and 2015.

Kansas’ tax cuts have meant big revenue losses and continued cuts in schools, colleges, and other services, with no noticeable economic gains.  That’s not a recipe that other states should want to follow.

Click here to read the full paper.