Archive for Sunday, October 20, 2002

Graves, Kansas leaders expecting slow recovery

October 20, 2002


Slow and nervous. That's the outlook for the Kansas economy according to many of the state's economic leaders.

Gov. Bill Graves, three former Kansas governors and a host of economists and business leaders gathered Thursday at Kansas University to discuss the outlook for both the economy and the state's budget situation.

The meetings, which were part of the annual Kansas Economic Policy Conference, seemed to produce general agreement on one point  if an economic recovery reaches the state in 2003, it will be slow at best.

In fact, two of the state's top monitors of the economy said they are less optimistic about the outlook for 2003 than they were just a few months ago.

Joe Sicilian, chair of Kansas University's department of economics, said less than stellar corporate earnings and lower than expected growth in jobs has him concerned about whether the state's economy will recover in the next year.

"There are some signs that the recovery could be a little bit in jeopardy," Sicilian said.

Duane Goossen, the state's budget director, said he no longer was confident in saying the state had seen the worst the economy has to offer.

"I don't think I can say with any confidence that we're at the bottom yet," Goossen said.

Where's the money?

The reason that Goossen and others are nervous can be summed up in two words  consumer spending.

Consumer spending, fueled by zero percent interest car loans and mortgage rates at 30-year lows, has been the largest factor in stopping the recession from pushing the economy to even lower depths.

But Goossen recently has seen numbers that have him nervous consumers are starting to pull back their spending. He said even after the Legislature last year made modest increases in sales tax rates, the state's sales tax collections are stagnant. He said that clearly shows consumers have begun to decrease their purchases.

"There is weakness there," Goossen said. "I don't know if it is a trend yet, but I'm very much concerned about consumer spending."

David Burress, a KU research economist and editor of the Kansas Economic Outlook, said there may be reason for concern. He said although this recession has been relatively mild, it also has produced a very slow recovery. He said Kansas consumers may be pulling back on their spending because they're concerned the economy still isn't back to normal.

"You have to think at a certain point, people say where is that money we were counting on," Burress said.

By the numbers

But there's still hope that 2003 will be a better economic year than 2002. In fact in the latest edition of the Kansas Economic Outlook, that's what Burress is predicting.

Burress said personal income for Kansans should grow by 4.9 percent in 2003, compared to a projected 3.5 percent in 2002. He's anticipating the number of jobs in the state to grow by 1.2 percent in 2003 after a projected 0.1 percent decline in 2002. The unemployment rate in the next year should drop to 4.2 percent from an estimated 4.4 percent in 2002.

"I'm confident that the data we have now shows we're past the bottom, but the problem is the data gets revised all the time and we get new data all the time," Burress said. "What we see right now is that we'll continue to recover in 2003 but it won't be rapid growth."

A budget mess

Nearly every speaker at the conference conceded slow growth will not be enough to help the state government out of its current financial crisis.

Goossen told conference attendees there is "no chance" the state will meet the $4.5 billion revenue projection legislators used to create the state's current budget. State officials will come up with a new revenue projection on Nov. 5, which is election day.

Goossen said the new projections easily could be $200 million short of the original $4.5 billion projection. That would mean state legislators, when they convene in January, may have to cut at least that much out of the current budget to insure the state has enough money to make it through the fiscal year.

Then legislators will have to turn their attention to the 2004 fiscal budget, which begins on July 1, 2003. Goossen estimated that depending on the economy, the state may be $1 billion short of collecting the revenue it needs to create a 2004 budget that would provide all the services the 2003 budget provides.

Goossen said the reason for the state's financial predicament is relatively simple. The state lost millions of dollars in taxes when the stock portfolios of Kansas residents declined. When stock portfolios increase in value, they create capital gains taxes for the state. When portfolios decline in value, they reduce the amount of taxes people must pay.

"Capital gains really fueled us in the late '90s and looking back they may have given us to some degree false optimism for the future," Goossen said.

Others, however, have said much of the state's financial problems can be tied to tax cuts approved by the legislature and Graves in the late '90s. Graves, though, told conference attendees that he didn't regret the tax breaks.

"I think we did some very good work given the fabulous economy we were working with," Graves said.

But he did say he's been frustrated by the lack of support to raise taxes to help fix the state's budget woes.

"It does disturb me that you trust us with our judgment when we are prepared to cut your taxes, but you don't trust us when we tell you we need to raise taxes to fund critical services," Graves told a crowd of about 400 people who attended a roundtable session with Graves and former Kansas governors Mike Hayden, William Avery, and John Anderson Jr.

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