Looking for Love in all the Wrong Places

Looking for Love in all the Wrong Places

Looking for Love in All the Wrong Places

Finding the means to erase a budget deficit, Kansas legislators and their political allies are proposing new revenue sources. One such effort was featured in Steve Rose’s weekly conservative viewpoint column in the Sunday, April 19th Kansas City Star. http://www.kansascity.com/opinion/opn-columns-blogs/steve-rose/article18804195.html  Rose reported on a conversation with Senator Jim Denning (Overland Park Republican), a first-termer in the Senate and one-term former House member. Jim’s list of budget fixes (complete with his own revenue estimates) contains eleven in number. Due to his position as a budget conference committee member and vice-chairman of the Senate Ways and Means Committee, his ideas should get serious consideration from his partners in legislative malfeasance. Let’s look at five more of his ideas.

Tax Non-resident Business Income 

The Rose article claims that plugging “a loophole” by modifying the “passive income tax law” would cause business income earned in Kansas by non-residents to be taxed. The article doesn’t give any more explanation for this gambit. I thought non-residents already were taxed on income from their Kansas business dealings. Silly me! What I would like to have explained was why this “loophole” has been allowed to exist in the first place. Whatever the real story is, this item is said to be worth $50 million towards a balanced budget.

Medicaid Policy Changes

Coming from a Senator whose occupation is “Health Care Administrator”, I am not surprised that “pharmaceutical changes” without reduction in services is suggested. I suspect this idea has met prior resistance, because it may involve black-listing certain drugs that doctors prescribe and stingy state bureaucrats deem too expensive for a Medicaid enrollee. It is touted as a 50 million savings in Medicaid costs. 

Tighten Medicaid Eligibility Error Rate

Hey, nobody’s perfect. In Rose’s article, “Denning says the error rate in Kansas is 12.3 percent versus a national average of 3 percent. Bringing that down 2 percentage points would yield $26 million a year.” Well, if that’s true, then bringing it down to the national average would bring in $120.9 million more per year. This raises the question: who is doing the eligibility screening, the state Medicaid agency or its Kancare contractors?  Fewer Medicaid enrollees would be a disincentive for the Kancare contractors. Is this a major flaw in the Kancare program? With the concern for school efficiency, I am surprised that a blue-ribbon committee hasn’t been charged with the task of rooting out Kancare waste the same way that schools were analyzed. Perhaps, Denning’s estimate is do-able, so I’ll stick with it despite my overall misgivings for this error rate reduction. This change is supposedly worth $26 million.

Increase Managed Care Organization Privilege Tax

Raising the charge for doing business on the three Kancare contractors to 5% from 1% would increase Medicaid costs, but not to fear: the federal matching funds that support most of the cost of Medicaid would be tapped to off-set the cost to the providers. Talk about “creative financing”, this is the epitome of fiscal daring-do. The State of Kansas would dink the Federal Treasury for additional money. I suspect this gambit would require approval in Washington, D.C., so it’s spurious at best. This proposal has blown up into a full-fledged brouhaha, which can be found at the Kansas City Star article: http://www.kansascity.com/news/government-politics/article19197315.html. Under the circumstances, I wouldn’t count on this proposal for any help. 

KPERS Bond Arbitrage

Floating state bonds to get capital to fund KPERS future liabilities for pension payments would increase the amount of monetary assets for investment. Although not arbitrage in the technical sense, this ploy is estimated to earn returns from capital gains and dividends (7.5%) greater than bond interest costs (4.33%), resulting in an annual profit. The first problem is that this approach robs Peter (KPERS) to pay Paul (State general fund) and defeats part of the purpose of the bond issue, greater solvency for KPERS unfunded liabilities. The second problem is that it depends on the investment securities market, which may not provide the return sought each year. The use of bonds with their annual debt service costs to bolster KPERS is itself questionable, which makes this proposed revenue source allegedly worth $30 million less attractive.

The end result of Denning’s tax increase book-keeping ploys is still short of the mark needed to balance the budget. It provides no restoration of the surplus mandated by state law. It will probably not be as well received as, according to Rose, Denning hopes it will be. Let’s just hope that Rose’s parenthetical comment, “I would add that critics who call for (tax cut) repeal are out of touch with reality and are wasting their energy.” is the outlier and eventually sanity, prudence and stewardship will return to Topeka and prevail.

 

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