Topeka ? When Gov. Kathleen Sebelius gave her “Hope has returned to the Heartland” State of the State speech earlier this month, she bragged of Kansas’ economic rebound from the aftershocks of the 9-11 terrorist attack and subsequent national recession.

She ticked off the economic good news 21 straight months of job growth, a revived state budget, cutting government waste, increased funding for schools, and economic commitments for bioscience research and aircraft manufacturing.

“Kansas is moving in a new direction, and Kansans have more tools to make the most of their own lives,” said Sebelius, a Democrat.

But some Republicans aren’t buying it.

And to counter what will obviously be a major part of Sebelius’ re-election campaign the state’s economic turnaround they have embraced a report by Arthur Hall, executive director of the Center for Applied Economics at the Kansas University School of Business.

In the days after Sebelius’ speech, Hall made the rounds in the Capitol at the invitation of Republicans, testifying to at least four legislative committees.

Arthur Hall, director of the Center for Applied Economics at Kansas University's School of Business, has informed state legislators that Kansas' economy is not as rosy as they might believe. Hall's data attacks Gov. Kathleen Sebelius' economic performance, and has been embraced by Republicans.

In his report, called “Local government and the productivity puzzle,” Hall argues the state’s economy lags behind the rest of the nation and other Plains states. He says the Kansas economy has structural problems that need addressing.

It’s a message some Republicans are repeating.

Sen. Jim Barnett, R-Emporia, who is running for governor, used Hall’s charts in a news conference to unveil his economic plan while criticizing Sebelius’ “lack of leadership” in addressing the issues raised by Hall’s research.

Anti-Sebelius groups have promoted Hall’s study as evidence of Kansas’ decline.

“Kansas is in economic trouble,” the Kansas Taxpayers Network warned.

Figuring trends

Hall says the gross state product which is the total value of goods and services produced in Kansas has grown 92 percent between 1977 and 2004, while the United States’ gross domestic product has increased 130 percent, and the gross state product of the other Plains states is up 99 percent. The other Plains states are Missouri, Nebraska, Iowa, North Dakota, South Dakota and Minnesota.

• KU Center for Applied Economics

Labor productivity and the rate of new business formation also trail the country and Plains states, he said.

“The fact that Kansas is lagging is an indicator perhaps that something is structurally wrong with the economy,” Hall said.

He said he believed the problem was that the state lacked capital formation, and he thought that was linked to growth in local governments’ spending.

“The tax instruments that are typically used to fund local government are levies on capital. Since Kansas is lagging in capital formation, there is a link there,” he said.

Essentially, he said local property taxes were too high, and local government growth competed with the private sector’s ability to grow and produce better-paying jobs.

He said that much of government growth was in the public school system and was mandated by laws from Washington and Topeka. “But schools aren’t the whole thing,” he said.

Following the money

Senate Democratic Leader Anthony Hensley, of Topeka, didn’t appreciate the use of Hall’s information by Barnett in his campaign news conference.

“It calls into question the kind of backing Senator Barnett has decided that he is going to accept,” Hensley said.

Hensley noted that the Center for Applied Economics is funded by the Koch family, conservatives who fund several anti-tax, pro-business and libertarian organizations. Hall’s conclusions fit well within the Kochs’ government-is-too-big philosophy.

The center has operated over the last two years primarily on a seed grant of $500,000 from the Fred and Mary Koch Foundation, Hall said.

And Hall used to work for Koch Industries as a chief economist in the public affairs group.

But Hall denied his research was skewed to produce a certain result.

“The mission of the center is to do objective analysis for anyone. I’ve given that presentation for the last year to multiple audiences,” he said.

Hall said he couldn’t help it if political candidates used the information. “It’s out there in the public domain,” he said.

And, he noted, he was loaned by Koch Industries in 2002 to the Sebelius administration to help lead the governor’s BEST – Budget Efficiency Savings Teams – program, which found savings in state government.

Bright spots

Hall acknowledged Kansas had experienced good economic news. The state leads the national rate of growth in manufacturing activity, and Johnson County is one of the hottest areas of job growth in the United States, he said.

“I don’t want to denigrate any of the progress we’ve made,” he said.

And Hall said Sebelius’ proposal to phase out the property tax on new business machinery and equipment was a sound move.

“It directly addresses the problem. Lowering taxes on machinery and equipment is lowerng the tax on productivity and investment,” he said.

Hall said much of his research simply opened up more questions about the state’s economy and was not supposed to provide any kind of final answer.

“I could sequester myself for a decade, or show people what I’m finding along the way. I’ve chosen the latter path,” he said.