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Kansas has More Government Employees Per-Capita than Most States

Kansas has more state and local government employees per-capita than almost every state in the nation.  U.S. Census data ranks Kansas #48 among the fifty states, with 32 percent table gov't jobsmore state and local government employees than the national average; only Alaska (#49) and Wyoming (#50) are worse.

Kansas is ranked #33 for state government employees per-capita with 27 percent more than the national average and #49 for local government employees, with 34 percent more than the national average.  Wyoming is the only state with more local government employees per-capita.

Nebraska is the only regional state that comes close to having as many state and local government employees per-capita, ranked #44.   The complete state listing can be found here on pages 20 and 21.

map gov't jobs

States that Spend Less, Tax Less…and Grow More

The amount that government taxes is determined solely by the amount it chooses to spend to provide services.  Every state provides the same basket of services (education, highways, social services, etc.) but some states do so at much lower costs.  For example, the states that tax income spent 42 percent more per-resident in 2015 than those without an income tax; Kansas spent 27 percent more.  States without an income tax have superior long term growth in jobs, wages & salaries and Gross Domestic Product and given that they also gained population from domestic migration, it appears that citizens find the lower cost services to be a good value proposition.

spend less tax less 2017

The same is true of the ten states with the highest and lowest combined state / local tax burden (as ranked by the Tax Foundation.)  It’s also noteworthy that states without an income tax and those with the lowest combined tax burden also have lower local taxes per resident, refuting the notion that states with low taxes merely shift the burden to local government.  Data for each state can be found here; job growth data in the above table has been revised to reflect new BLS data released since publication of the 2017 Green Book.

Taxes aren’t the only contributing factor to these disparate economic growth patterns but the ability to tax less leaves more money in the hands of taxpayers and enhances economic growth.

Record-setting employment in 2016

Kansas set another private sector employment record in 2016 according to data from the Bureau of Labor Statistics, with 1.157 million jobs.  The adjacent chart reflects average annual employment on a seasonally-adjusted basis.  Kansas added 9,100 jobs in 2016 despite challenges in oil & gas extraction and agriculture.

2016 private jobs

Total private sector employment will likely be even higher when the Bureau of Economic Analysis publishes its 2016 data.  BEA tracks all employment but BLS does not include proprietors or farm workers.  Farm worker employment may be soft but Kansas has seen proprietor employment increase by about 8,000 jobs annually between 2012 and 2015.

New Business Applications Setting Records

Kansas Secretary of State Kris Kobach reports new business filings set another record in 2016.  There were 18,147 new domestic business filings last year and the total number of entities in existence also set another record at 187,305.  The number of entities in existence does not include proprietorships.

New Biz apps 2016

Research conducted by Dr. Arthur Hall, Center of Applied Economics at the University of Kansas, shows that new business filings are extremely important to job growth in Kansas.  In fact, if not for jobs created by new start-ups, Kansas would only have had two years of private sector job gains between 1977 and 2014!

chart 2 yrs private growth

According to Dr. Hall, “Net job change has four components: establishment births, establishment deaths, establishment expansions, establishment contractions.  The table tracks net job creation starting with business establishments born in 1977.  An establishment represented by a firm age of zero is a new firm (a new small business).  A new establishment with age “Left Censored” is a new branch location of a very old firm–for example, a new Sears store or a new Ford Motor Company site.  In the database, firms are set to be as old as the oldest establishment in the firm’s portfolio.  For example, a brand new investment company that bought a string of 20 year old department stores would be set as age 20 not age zero.

The take-away is pretty stark:  Net new jobs come from brand new firms and very old firms.  Not many new firms make it to very old firms.  On balance, old firms shed more jobs than they create–mostly through establishment death.”

National Rank on Job Growth

The first three years after reducing income taxes saw the Kansas job rank improve nicely according to data from the Bureau of Economic Analysis.  Over the fourteen years leading up to 2012, private sector jobs grew by 6.3 percent and that growth rate ranked #41 among the states.  But in the three years since income taxes were reduced Kansas’ growth of 4.8 percent was ranked #31 among the states.

BEA job rank

As explained in “A Thousand Flowers Blooming – Understanding Job Growth and the Kansas Tax Reforms,” jobs data from BEA is more comprehensive than Bureau of Labor Statistics data because BLS excludes proprietors and farm workers.  The downside to BEA is that it often lags by as much as year whereas BLS publishes monthly.

Kansas also gained ground on its economic peers.  The authors of “A Thousand Flowers Blooming” measured the similarity of states by calculating correlation coefficients of the private sector workforce by sector for each of the 50 states.  States may share geographic boundaries, but much like nearby school districts’ can have dramatic demographic variances, so can state economies.

Prior to tax reform, four of Kansas’ economic peers had better growth but only three states did better since 2012 and one of them – Michigan – was coming off negative growth.

Preliminary data December 2016 data from the Kansas Department of Labor (which has the same data as BLS) and historic data from BLS shows average annual private sector jobs declined by 2,400 last year.  Most of that job decline was in rural areas (the Kansas City, Wichita and Lawrence metro areas had job gains), and much of that decline is likely attributable to weakness in agriculture and the oil & gas industry.  A recent sales tax analysis by the Kansas Department of Revenue shows sales tax receipts declining in areas that are especially dependent upon those segments of the economy.

However, proprietors aren’t included in that BLS data and they grew faster than other private sector jobs over the last three years, averaging 7,994 more per year.  It’s possible, therefore, that Kansas could have net positive job growth for 2016 when the BEA data is published.

2016 State Assessment Results

The 2016 state assessment results were again a sober reminder that student achievement is not as good as many people have been led to believe.  In Math, for example, only 11 percent of low income students in the 10th grade are on track to be college or career ready; just 34 percent of their more affluent peers are on track.  Results for English Language Arts (ELA) are only slightly better.  Compilation of district-level results for 4th grade, 8th grade and 10th grade English Language Arts can be seen here, and Math results are available here.  Links to the original Dept. of Education source data are included in both reports.

2016 state assessmentRelatively low levels of college and career readiness is very much a statewide issue.  Even in Blue Valley, often considered as having the ‘best’ results, barely half of their more affluent students are on track for college and career.

The 2016 state assessment results were similar to the 2015 results, which was the first year of a new state assessment system with four achievement levels:

  • Level 1 – below grade level
  • Level 2 – at grade level but still needs remedial training to be on track to be college and career ready
  • Level 3 – at grade level and on track to be college and career ready
  • Level 4 – at grade level and far exceeds expectations for college / career ready

state assessment trend

 

Pass-through entities create most new jobs in Kansas

U.S. Census data shows that pass-through entities (LLC, sub-S corporations, partnerships and proprietorships) created most of the new jobs in 2013 and 2014.  Census only began tracking this information by state in 2010 and hasn’t published 2015 data at this writing so we only have two years of change before and after tax reform to measure; that said, pass-through employment grew much faster after tax reform.  Pass-through employment increased by 2.4 percent between 2010 and 2012 but jumped 8.4 percent between 2012 and 2014.

Pass Through jobs

Some of the pass-through job additions are attributable  to C-corporations that converted to pass-through status but most likely fewer than the number of new proprietors added, which aren’t included in the Census database; their employment data is provided by the Bureau of Labor Statistics which excludes proprietors and farm workers. The Kansas Department of Revenue reports that only 3.3 percent of C-corporations converted and the total number of W2s for all Ccorporations declined by 10,396. Even if every W2 decline resulted from a conversion, the job transfer would still be less than the 15,134 new proprietors reported by the Bureau of Economic Analysis.

Spending Allocated to Instruction by School Boards

The portion of spending allocated to Instruction, Administration and other cost centers varies by district, as local school boards alone make those decisions.  Some aid, such as Bond & Interest, must be spent on that cost center but a school board’s decision to incur debt is the trigger.  The temporary block grant system affords tremendous discretion on the use of state and local aid; even Capital Outlay aid may be spent on some operating functions.  KPERS retirement aid is only used for that purpose but the allocation of those amounts to Instruction and other categories is determined by school board staffing decisions.  The 2005 Legislature placed a recommendation in state statute (K.S.A. 72-64c01(a), signed by Governor Kathleen Sebelius) that suggests 65% of all funding be spent on instruction or in the classroom, but local school boards alone make those decisions.

School funding increased nearly $2 billion between 2005 and 2016, but the allocation to Instruction actually declined from 53.6 percent to 52.5 percent (excluding any capital expenditures allocated to Instruction.  School boards generally reduced allocations to current operating costs and increased the allocation to Capital Outlay and Debt Service.  The chart below reflects the statewide averages for 2005 and 2016 but the intervening years and complete reports for each district can be found here.

% Instruction 2016

District-level calculations of the percentage allocated to Instruction exclude Capital to avoid spikes and declines associated with periodic expenditures, but the percentage allocated to Instruction declined even if Capital Outlay on Instruction is included as shown in the table below.

The Legislature’s policy goal of allocating 65 percent of total spending to Instruction was to encourage local school boards to devote the vast majority of court-ordered funding increase under Montoy to Instruction, but that obviously didn’t happen.  For perspective, $6.4 billion more would have been spent on Instruction over the last ten years had that policy goal been met.

65% goal 2016

2016 school funding sets record without KPERS

2016 marked the third consecutive year that school funding set a new record without counting KPERS retirement spending, at $12,458 per-pupil. That amount is 40 percent more than if non-KPERS funding adjusted for inflation over the course of the old school funding system.  For perspective, non-KPERS funding would have been $1.65 billion less last year if it had just been increased for inflation.

Non-KPERS chart Rev

Total funding including KPERS was $13,025 and would have set a record if the Legislature hadn’t deferred the final KPERS payment.  The Department of Education estimates that total funding for 2017 school year will be $13,145 per-pupil.

Non-KPERS record

KDOT spending in 2015 and 2016 highest in 10 years

The FY 2016 Comprehensive Annual Financial Report (CAFR) from the Kansas Department of Transportation (KDOT) shows spending on transportation projects in 2015 and 2016 was the highest over the last ten years.

KDOT spending

Excluding debt service and administration, spending was $1.105 billion in FY 2015 and $1.069 billion last year.  The condition of Interstate highways and bridges remain above minimum KDOT standards and are consistent with previous years, and other state highways are actually in the best condition since at least 2009.  It’s also noteworthy that Reason Foundation recently rated Kansas as having the 3rd best highway conditions in the nation.

KDOT conditions

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