Economists say population changes threaten to make Kansas budget problems worse in future
A pair of Kansas economists told a University of Kansas audience Thursday that if current population trends continue, state government will have a much harder time providing basic services, especially in rural areas that are losing population.
Jeremy Hill, director of the Center for Economic and Business Research at Wichita State University, and Chris Courtwright, principal economist for the Kansas Legislative Research Department, were two of the featured speakers Thursday at the Kansas Economic Policy Conference held on the University of Kansas campus.
The conference is an annual event sponsored by KU’s Institute for Policy and Social Research.
Hill, who studies demographics, said that if current trends continue over the next 50 years, 80 percent of the state’s population will be concentrated in a few urban areas, and the rural population could shrink to as little as 700,000 people.
In addition, he said, the population of the state is steadily getting older, and by 2066, Kansas could have a smaller working-age population while its retirement population could outnumber its youth.
“It’s not fertility,” Hill said. “Our fertility is actually pretty high in Kansas. We’re good at having babies.”
The problem, he said, is that many young people who grow up in Kansas leave after graduating high school, and the state is not attracting enough young people from outside to make up the difference.
And even those who come to Kansas to attend college often do not end up staying, he said.
“When they graduate college, they’re finding the size of the economy is not that large, and we don’t have a lot of multiple opportunities in their career ladder, so millennials start moving out to larger markets than we have,” he said.
Hill said any number of things could happen over the next 50 years to alter the current trends. But he said there is little doubt that unless things change, Kansas is heading toward having a relatively smaller working-age population that is much more heavily concentrated in a few urbanized areas.
Among the many consequences of that, he said, will be higher costs for delivering services like health care and education to the steadily shrinking rural areas, costs that will have to be borne by the smaller working-age population.
Courtwright, who analyzes tax policy for the Legislature, said that in some ways, Kansas is already seeing the effects of those population shifts.
“Consider, for example, as a result of our aging population, especially in rural areas, schools now find it more difficult to get bond issues approved, given that a lot of local residents’ children left the public school system several decades ago, and fixed-income seniors may not feel as connected to their schools as they once were,” Courtwright said.
But he said the challenges that will face Kansas in the future, even in the short term, are being made more difficult by the state’s current tax structure, including the sweeping income tax cuts that lawmakers approved in 2012 and 2013.
Before those tax cuts were enacted, he said, the Kansas tax code was based on a concept that many people called the “three-legged stool” – a balance between income, sales and property taxes.
In 1992, when lawmakers enacted a historic school finance plan, those three tax sources were distributed roughly evenly in the state budget. But in the wake of the Great Recession in 2009 and 2010, he said, the idea of a three-legged stool had fallen out of favor in some political circles.
“A lot of people were suggesting that the severity of the economic downturn made it appear by all accounts to be a different animal than previous recessions, and by 2012 it seemed clear that recovery for different regions, economic sectors and even demographic was not uniform and appeared to be taking longer than had previous recoveries,” Courtwright said.
“So the perception that there was not any kind of uniform national recovery, where all boats were being lifted by the same rising tide, fed into this notion that expansion was going to need to be leveraged by state-specific policy initiatives,” he said.
The result, he said, were the tax cuts enacted in 2012 and 2013 that lowered income tax rates across the board and eliminated taxes altogether for certain kinds of business income. It was based, he said, on the theory that reducing income taxes would put more money into people’s pockets, and that would stimulate the economy in ways that would produce revenue through other streams, primarily sales taxes.
But by 2014, he said, it was becoming clear that the Kansas economy was not responding the way advocates of the tax cuts had hoped, and the cuts were having a more profound impact on state revenues than budget officials had expected.
Just after that year’s November elections, he said, new revenue economic numbers showed that the Kansas economy and personal income in Kansas were growing slower than the national average, “basically confirming that no unusual economic growth had been occurring as a result of stimulus from the tax law changes.”
And little has changed in those trends in the nearly two years since that time while state revenues have continued to fall short of projections, forcing the governor and Legislature to make several rounds of emergency spending cuts.
Had the Legislature left the tax code as it was in 2012, Courtwright said, Kansas would be taking in an estimated $920 million a year more than it is now.
Those tax cuts have been a major issue in this year’s legislative election campaigns, with many candidates calling for another round of tax changes, including repeal of the exemption for non-wage, or “pass-through” business income.
At the same time, however, Courtwright noted that many candidates are also talking about another kind of tax cut, this time lowering or eliminating the sales tax on food purchases.
But Courtwright said the tax cuts alone may not be the only source of the state’s fiscal problems, and that other long-term trends may continue to present challenges for Kansas in the future.
Among those, he said, are changes in consumer buying behavior that could limit the effectiveness of any kind of sales tax.
“The sales tax, of course, worked pretty well in the 1930s when it was enacted, when people bought a loaf of bread and a glass bottle of milk,” he said. “But with changes in technology, mobility and a vast array of other things that people spend their money on these days, more and more purchases over time have begun escaping taxation.”
In addition to that, Courtwright said, state revenues are being squeezed by several other trends that may become long-term problems, such as sagging prices for agricultural commodities along with depressed oil and gas prices.
Coupled with the demographic changes that Kansas is experiencing, Courtwright and Hill said the state of Kansas and its state government could be facing difficult financial problems for many years to come.