Kansas economy gaining strength

? After years of tight state budgets, aviation industry layoffs and a languishing energy sector, the Kansas economy is stringing together modest gains. More people are working, and state revenues are growing.

That’s welcome news, because not so long ago, policy-makers pondered spending cuts and wondered out loud if the only hope for keeping state government solvent was a massive tax increase.

Aside from a $253 million tax increase in 2002, officials have relied on natural economic forces to nurse the state’s fortunes back to health.

“What we’re seeing on a whole is a broader national phenomenon,” said Joshua Rosenbloom, an economist at Kansas University’s Policy Research Institute. “I don’t see it coming out of a particular state policy.”

Rosenbloom said state revenues were a good way to measure the economy’s health. In good times, people pay more in taxes – and make fewer demands on state services. The opposite is true in lean years.

Economists and state officials announced a new fiscal forecast earlier this month. They added $221 million to their projections of how much revenue the state would collect for its current budget for operating government through June 2006.

Legislators had worried that even with growing revenues, they’d have trouble covering additional spending demands for education, social services and other programs.

Fallout after 9-11

Rising revenues are in stark contrast to the forecasts issued following the Sept. 11, 2001, terrorist attacks, which accelerated the state’s economic recession, in large part by hurting Wichita’s cluster of aviation manufacturers.

Economists said there was little that states could do to jump-start the economy, other than provide attractive conditions for a particular sector to locate in Kansas. That could include changing regulatory policies, granting tax incentives or making direct investments, such as a 2004 effort to nurture biosciences with new research centers at KU and Kansas State University.

Legislators also have looked in recent sessions at reducing businesses’ costs by lowering fees or attacking workers’ compensation costs. They have argued changes encourage entrepreneurs to put out shingles or companies to relocate to Kansas.

Otherwise, the economy is at the mercy of traditional forces and the whims of nature.

For example, farmers need timely rains for good crop yields, but fuel and commodity prices are out of their hands. Kansans also have little say about when beef exports will resume to Japan, one of the state’s largest customers. Exports have been halted over concerns that U.S. beef is unsafe because of a few cases of mad cow disease.

“The government can stall a recovery by bad policy, but by and large, jump-starting it is done by the businesses themselves,” said Janet Harrah, director of the Center for Economic Development and Business Research at Wichita State University. “Oil and gas is doing quite well, but that has nothing to do with state policy. It’s because prices are up.”

Momentum building

Kansas has lagged behind its neighbors, but an economist with the Federal Reserve Bank in Kansas City sees that changing.

Chad Wilkerson cited demand for single-engine and business aircraft from Wichita companies, as well as strong earnings from telecom provider Sprint Nextel Corp., as signs that Kansas’ economy is strengthening. Both industries slumped in late 2001.

“Some of those things appear to maybe be finally turning around,” Wilkerson said.

Aviation companies Spirit Aerosystems, Raytheon and Cessna call the Wichita area home. As orders dried up in 2001 and 2002, thousands of workers were laid off.

Spirit workers will be performing contract work on Boeing Co.’s new 787 Dreamliner, set to begin production next year, while Cessna recently announced it had orders for 900 single-engine aircraft and 230 business jets.

Unemployment in Kansas stood at 4.9 percent in September, down from 5.4 percent for the same month in 2004.

A recent survey by the state Department of Labor for the second quarter of 2005 found there were 36,378 job vacancies, or about three openings for every 100 jobs filled. Most demands were for truck drivers, food service, sales and clerical positions, with a starting wage of $10.93 an hour.

The Federal Reserve’s Kansas City branch oversees activity in seven states, including Nebraska, Oklahoma, Colorado, northern New Mexico, western Missouri and Wyoming. Wilkerson said states within the region with a higher concentration of oil and natural gas producers were seeing more economic activity, spurred by higher prices for commodities.

“As a whole, the region looks pretty similar to the rest of the nation,” Wilkerson said.

However, increased fuel prices are having more of an effect in places like Kansas, he said, where farmers are paying more for diesel and fertilizer.

Rosenbloom said the 1 percent annual employment growth rate in Kansas was comparable to surrounding states. The rate was 1.8 percent in Oklahoma, 1.6 percent in Nebraska and 1.2 percent in Missouri for the year ending Sept. 30.

Rosenbloom said Kansas should expect moderate, but real economic growth in the near term, which translates into continued job creation and increased state revenues. He declined, however, to predict the extent of the recovery.

“I’m afraid my crystal ball is a little cloudy,” Rosenbloom said.