DON HINEMAN: Been there. Done that. Paid the price. Kansas GOP legislator warns N.C about planned tax cuts

In 2012 Gov. Sam Brownback convinced the Kansas legislature to enact sweeping tax cut legislation. The plan was billed as a “shot of adrenaline to the heart of the Kansas economy.” As a Republican member of the Kansas House of Representatives, I was intrigued by the proposal but worried that it was “too far, too fast”.

What was the plan to pay for the tax cuts? The pitch was the cuts would pay for themselves, but they failed to account for the negative effect governmental downsizing might produce. Back in 2012, the Kansas state budget was healthy but austere as we emerged from the great recession of 2008. A significant budget surplus was on hand to cushion against declining revenues as we waited for the “shot of adrenaline” to kick in.

How did it go? Revenues dropped precipitously, down $700 million in the first year, an amount equal to 10% of the general fund. The budget surplus was soon consumed by the structural imbalance between revenues and expenditures.

We tried to cut expenditures thoughtfully as we rapidly lost revenue. Even though Kansas had a conservative governor, and the appropriations process was controlled by strong fiscal hawks, budget cuts to offset the drop in revenues could not be easily identified.

Eventually the frantic search for solutions led to difficult policy choices. Budget cuts were performed with a meat cleaver instead of a scalpel.

By June 2016, the ending balance of our general fund dwindled to a mere $6 million, violating a $480 million statutory requirement. Many business owners pleaded to be put back onto the tax rolls. They felt they received an undeserved windfall and worried about the detrimental effect on state government -- questioning the equity of their tax benefit while their employees, such as secretaries, clerical help, or farm workers were still paying.

Efforts to balance the budget diminished state agencies, which severely impacted delivery of essential services like early childhood, K-12 and higher education, highway maintenance and construction, and business support. The Kansas Department of Labor experienced a 33% employee decline, leaving it ill-equipped to meet the soon-to-arrive COVID unemployment surge.

Desperate steps were taken to fill budget gaps. We raided nearly every fund we could including school district reserve funds, regulatory agency fee funds, and long-term investment funds. Appropriators even considered selling the University of Kansas Medical Center, Kansas Turnpike, and the Master Tobacco Settlement which had always been earmarked for early childhood education.

By early 2017, the state’s fiscal troubles had led to two sales tax increases, three credit downgrades, and nine difficult rounds of budget cuts. The 2017 legislature responded by repealing most of the components of the tax experiment, which a majority of Kansans regarded as a failure.

Gov. Brownback vetoed the bill, but the Kansas Legislature voted to override, including a majority from both Republican caucuses. Override votes even came from the same fiscal hawk appropriators who had attempted to address the structural imbalance with budget

As an elected Republican and a former House Majority Leader, my message to my counterparts in North Carolina is simple: Do not expect that simply cutting taxes will magically produce economic prosperity. It did not happen in Kansas and it will not happen for you.

Things are never so simple. “For every action there is an equal and opposite reaction” applies to economics just as well as it applies to physics.

I urge you to remember that government, at its core, is a service industry. If desperate budget cuts compromise the core missions of state departments and agencies, then citizens and businesses will feel the effects. There is nothing responsible about creating a structural imbalance between state revenues and budgets. There is nothing truly conservative about tax cuts which cripple state governmental services.

Tax cuts are appealing right now because state budgets are currently quite healthy. However, a significant amount of the unpredicted influx of revenue is due to federal stimulus responses to the pandemic. North Carolina’s plan for long-term tax cuts which accelerate into the future cannot be funded with one-time money.

North Carolina’s budgets are already marked for a significant decrease. What is the plan if the hoped-for growth resulting from the tax cuts fails to materialize? What future governmental austerity would further budget cuts inflict upon governmental services and the good people of North Carolina?

Kansas wisely pulled the plug on the Great Kansas Tax Experiment. The structural imbalance has been addressed, revenues are once again adequate and the economic growth that eluded us is once again bubbling up. However, I don’t think we will ever truly understand the impacts those budget cuts had on the individuals and families of our state. North Carolina would be better off putting a stop to a similar reckless scheme before it starts.