Urban vs. rural: How the economic recovery hasn’t benefited all of Kansas
Topeka ? On paper, at least, it would appear that Kansas has largely recovered from the Great Recession that began in 2008.
The state’s unemployment rate has been below 5 percent for several months. Kansas’ Gross State Product is now well above pre-recession levels. And average weekly wages have grown more than 6.5 percent in the past three years, according to the Bureau of Labor Statistics.
But economists and other government officials say recovery hasn’t been uniform across the state, and many parts of Kansas have effectively been left behind.
And that, the officials say, could have huge, long-term consequences for the state, which is struggling with the problem of declining tax revenues from some of its traditional sources of wealth, namely agriculture and the oil and gas industries.
“The major amount of job growth since the end of the recession has occurred in what I would call northeast Kansas,” Kenneth Kriz, an economist at Wichita State University, told the Journal-World. “It’s basically the Kansas City metropolitan area and the counties surrounding that, as well as the Lawrence area.
“Topeka has had slightly slower growth, but then when you come down our direction, south-central Kansas has been growing a lot more slowly, along with the balance of the state,” he added. “Basically, the balance of the state and the Wichita area has not been growing much at all.”
Kriz was among the economic experts who spoke at Kansas University last month during the annual Kansas Economic Policy Conference, which focused this year on the state of economic opportunity in Kansas as the state emerges out of the Great Recession.
The Wichita area, Kriz acknowledged, is dealing with a unique set of problems centered around the aviation industry. Boeing’s decision in 2012 to pull its military manufacturing division out of Kansas and sell off its civilian aircraft division to Spirit Aviation had a profound impact on the area’s economy, which will continue to be felt for years to come.
But in the more rural parts of Kansas — especially southeast Kansas and the counties west of U.S. Highway 81 — the problems run much deeper, and they’ve been going on for decades.
“Wages have not kept up in rural areas with similarly-waged jobs in urban areas,” said Patricia Clark, Kansas director of the U.S. Department of Agriculture’s Rural Development program, who also spoke at the KU conference. “I think the average wage in rural (Kansas) is a little over $44,000. The average wage in urban areas is a little over $52,000. That’s a significant wage difference between urban and rural.”
Since 2000, she said, 43 rural counties in Kansas, or roughly half of them, have seen increases in their poverty rates.
According to Clark, rural counties in Kansas, and indeed throughout the country, have been trapped in a downward spiral that no one yet has been able to stop.
It starts with the growing consolidation of the agriculture industry, which has required fewer and fewer people to work on larger mega-farms to produce the same amounts of livestock and grain.
Outside of agriculture, the low wages paid by employers in retail and small manufacturing firms make it difficult for others who live there to get ahead economically.
For many years, employers justified those low wages by claiming that the cost of living in rural areas was also relatively low. But Clark said that is no longer the case.
“You look at housing, rental rates, wage stagnation, health care,” she said. “The metrics that they use to always talk about how the cost of living is lower in rural areas I don’t think takes into account (the fact that) things like transportation costs can be higher for families in and slightly above poverty.
“You add now the sales tax increases, and the fact that in some places families are paying 10 percent sales tax on retail purchases, that’s not all that different between rural and urban,” she said. “So I think that gap between cost of living in rural areas versus cost of living in urban areas is not as significant as it once was.”
One of the consequences of that, Clark said, has been a steady exodus of population out of rural counties as young people who grow up in rural areas leave to look for better economic opportunities in urban centers.
Between the 2000 and 2010 census counts, 85 of the state’s 105 counties recorded net population declines, with five counties losing more than 19 percent of their population in that 10-year period. The 10 most populous counties in Kansas now hold nearly two-thirds of the state’s population.
That, in turn, has added to the problem, Clark said, because as people leave small towns, businesses like grocery stores and pharmacies are forced to close, making it even more difficult for families on modest incomes to live there.
“Grocery stores are closing. We lost another one in Hiawatha just recently,” Clark said. “What is supplanting them is not always the highest nutrition for children and families. It’s really about the access to fresh foods, fresh fruits and vegetables, as much as anything. When that grocery store disappears and there’s nothing, no supply chain that supplants it other than going out of town, and sometimes way out of town, you just can’t get to fresh fruits and vegetables, milk, bread, etc., without traveling a great distance.”
And for those few towns that are struggling to maintain population, or perhaps even grow, there’s another barrier, experts say: the cost of building new housing.
According to industry estimates, the construction cost alone to build a new residential home in Kansas is $87.21 per square foot.
Add to that the cost of extending streets, utilities and other development fees, along with a developer’s profit margin, and it is virtually impossible to build even the most basic, modest single-family home and sell it for anything less than about $150,000 — even more in remote rural counties where the labor and materials have to be brought in from other areas.
But given the wages that are paid in rural counties, Clark said, few people moving into those areas would ever be able to afford such a home, even if they could get a mortgage to finance it.
“There are two issues,” she said. “It’s not only that they can’t afford the price tag, it’s that because of its location, it doesn’t appraise for its construction value.”
Kriz said the lack of affordable housing in some smaller counties is already causing businesses to make some unusual moves.
“There’s a certain business in McPherson that needs welders, or some kind of a steel trade, and there’s no way for them to build affordable housing, and so they’re bringing in (workers),” he said. “There’s a bus or van of welders that goes up every day from Wichita, 60 miles or whatever, and one that comes in from Salina.”
Implications for Kansas
Both Clark and Kriz said those economic trends are not unique to Kansas. They are occurring in rural counties throughout the United States, and particularly in Great Plains states where populations tend to be concentrated in a handful of urban centers.
But they may have specific consequences for public policy in Kansas where, under Republican Gov. Sam Brownback’s administration, state government is shifting its tax policy away from reliance on income taxes and more toward reliance on retail sales taxes, which are heavily concentrated in urban areas.
According to the Kansas Department of Revenue, in June of this year, the five largest counties in Kansas — Douglas, Johnson, Sedgwick, Shawnee and Wyandotte — accounted for 61 percent of all the sales taxes collected in the state.
The two largest counties alone, Sedgwick and Johnson, accounted for nearly half, 46 percent.
Clark said she worries that in rural counties, that will result in local governments relying even more heavily on local property taxes to fund local services, making it even more expensive to live there.
But more importantly, Clark said, she worries about what it means for the allocation of state resources. Because eventually, if a handful of urban counties are paying the lion’s share of taxes to fund state government, she said, it’s only natural that they will demand the lion’s share of state expenditures.
“I think that could be a natural outcome, and I think that’s got to be part of the deliberation by the policymakers, if in fact that is the road Kansas is going to travel,” she said.
Kriz agreed, saying that the shift toward sales tax also causes a shift in the overall tax burden onto the shoulders of people less able to pay it.
“As you increase reliance on sales tax, you also change the incidence of the overall tax system,” he said. “You go from something that is at least moderately progressive, the income tax, to something that’s moderately regressive, the sales tax, so you change the income distribution of who pays for the services also.”
Looking for solutions
Clark said there are no easy answers to turning around the downward economic spiral of rural Kansas, and there is no single strategy that will address all the issues.
“It has to be in one comprehensive discussion and deliberation that encompasses job opportunities, wage stagnation, population decline, health care, water quantity and quality, and housing,” she said.
The one state agency whose primary job is to manage economic development programs to spur industry growth and job creation is the Kansas Department of Commerce.
Brownback recently nominated a new secretary for that agency, Antonio J. Soave, an Overland Park venture capital manager who declined to be interviewed. But a spokeswoman for the agency said the administration is focused on spurring development in both rural and urban Kansas.
“All of our economic tool boxes are designed for both rural and urban businesses,” spokeswoman Nicole Randall said. “We will be working further with the Legislature on developing programs that, one, continue to help develop businesses, small and large businesses, urban and rural, but also to get the word out there about these incentives and that they do cover all types of business.”