An early meeting of the Kansas House Appropriations Committee gives insight into the changing state budget debate.

Kansas House Appropriations Chairman Kevin Yoder, R-Overland Park, gaveled his committee to order Aug. 24, a session he dubbed "appropriations summer school."

For two days the committee heard fresh perspectives on state funding and testimony from agency heads and school superintendents offering ways to maintain a state budget deeply challenged by the recession.
 
Typically the governor leads the budget process, submitting a budget report to the Legislature in January, but Yoder said he wants to get out front on budget reform. "Are there some opportunities, while we're a part of this process, to make government run better?"
 
National economic indicators show the recession may have bottomed out, but the Kansas economy typically lags six months behind national trends, so even if the national indicators are accurate, the beginning of the recovery in Kansas may not be visible until some time next year.

"There's nothing definitive in the data to show we're at the bottom," says Stan Ahlerich, president of Kansas Inc., a nonpartisan agency the Legislature created in 1986. The agency is supported by public and private funding and conducts economic development research and analysis to support economic growth.

 
Reality encourages a deeper look

The ongoing recession continues to reduce state revenue and will likely lead to further reductions in the current budget and perhaps even bigger cuts in the 2011 budget. That has made legislators anxious to find solutions without raising taxes.

Jason Watkins, R-Wichita, vice-chairman of the House Appropriations Committee, said he appreciates the Department of Revenue's finding an additional $1.8 million in savings through operational efficiencies but wonders why those savings weren't realized earlier. "I'm still curious about what makes up that $1.8 million, how did we get there and why, back in March or April, were these not identified?"

"We're facing agency heads that say they can't take any reductions," Yoder said. "Clearly they can be made; we just need to know what the consequences will be."

Committee members challenged school districts to focus only on reductions in state base-aid per pupil and to ignore all other funding sources, which, taken collectively, have schools budgeted to receive just 0.2 percent less this school year. Further reductions are likely, however, given the anticipated decline in state revenues.

School district superintendents presented a strong defense of the need for adequate funding for schools but did not ask the committee for more money.

"Our committee has consistently taken the approach that there isn't more money," said Yoder. 

Dave Trabert, president of the Flint Hills Center for Public Policy, told the committee that over the last 10 years, school funding from state and local sources increased 73 percent but that schools are actually spending a slightly smaller proportion of that money on instruction. "Going back pre-Montoy, starting with fiscal year 2004, we found that the amount of money allocated to instruction has actually gone down."
 
A Legislative Post Audit study identified large differences in school spending even among like districts. The 2010 Commission, a group that studies education issues in Kansas, stopped the second half of the audit that was designed to help individual school districts identify opportunities for best-practices efficiencies.

"We think that major efficiency gains are possible in schools," Trabert told the committee. Research on schools' 2009 budgets shows that spending per pupil ranges from $4,500 to just under $8,000. Individual spending categories have even larger percentage variances among similar-sized districts.

If districts spending above median per-pupil levels within their approximate enrollment size could get to the median spending, $612 million in operating savings could have been realized in the 2009 budget. By including capital and debt service, the savings could have been $897 million.

 
First look at total unencumbered funds
Rep. Kasha Kelly, R-Arkansas City, said major changes in approach are necessary to solve the state's budget problems. She also said she appreciates the analysis of total unencumbered state funds provided by the Flint Hills Center for Public Policy, as legislators had not been provided with the information by state government. "Obviously business as usual got us into this mess, and business as usual is not going to get us out of this mess."
 

The Flint Hills analysis called for closer examination of the funds and the budgeting process and claimed the state may have been able to return billions of dollars to the state economy in recent years. Trabert told the committee there should be regular and public reporting of unencumbered balances. He said analysis of the funds may indicate it's possible, through improved efficiency, to "eliminate the need to choose between tax increases or significant service cuts as a means of balancing the budget."

"Being educated on the resources that are in the state treasury is a critical component of the Appropriation's Committee's work," said Yoder in a phone interview after the committee meeting. "Having an outside audit of those funds and whether the balances are appropriate, what they're to be used for, is instructive for us and a good opportunity for dialog and discussion."

Watkins, who lives in Wichita, questioned large amounts of money held in the Municipal Investment Pool by Wichita and other local governments. "Why are you raising fees when your services are substandard and you've got $40 million in an investment fund?" Even though it's clear that the Legislature has no control over Municipal Investment Pool funds, Watkins points out that the state does provide money to various local governments that do have large investments in the investment pool.

 
Confusion and disagreement
Not everyone appeared to appreciate Flint Hills' efforts or understand exactly what unencumbered funds are. "There was some confusion that Flint Hills' approach was that these funds should be swept into the general fund and used by the state," Yoder said during the interview. "Some folks called saying, 'Great, we can give it to schools.' That confusion still persists with some members. The real intent was that the state shouldn't have funds sitting idle; they should be returned to taxpayers."

 Others just don't believe the money is really there. "I really am skeptical, because I have had more people say that there's no way this money can be tucked away that tight," said committee member Barbara Ballard, D-Lawrence, during the meeting. "How can that much money just be there? How are you so fortunate that you could find all of that money?"
 
Although perhaps understandably hard to imagine, Duane Goossen, state budget director, and others have acknowledged that the money is there. The Kansas Department of Administration provided the data revealing the number of funds and their accumulation from 2003 to 2009. Flint Hills mined data from 3,717 pages of year-end state government financial reports to discover $919 million in unencumbered cash as of June 30, 2003. The total peaked at $3.2 billion at the end of 2008 and settled at $1.955 billion as of June 30, 2009.

Several questions and exchanges revealed a lack of uniform understanding and application of the term "unencumbered funds" and how the term relates to legal requirements for handling such funds

Watkins responded to some criticism of the analysis from committee members. "This isn't really our money. It doesn't belong to the state general fund. At the end of the day, it's the people's money. Therefore, we probably do have some responsibility to look at these funds and see what is going on with this money."

Yoder said he believes the Flint Hills report provided an opportunity for everyone to have a good discussion.

Changing the process

Kelly said she wants to understand how money has been spent before appropriating more money for an agency. "You have to ask, who's watching the agencies when they're making their request? Who is validating whether or not those requests are warranted or not warranted?"

Part of the problem, according to Kelly, is the nature of the process. "We have a spending process and not a budgeting process. Each year, if you have an amalgamated number that moves forward and you're only adding to it, you're not budgeting because you're not looking at the dollars you have available and wisely allocating them. You're looking at what you want to spend and then looking at where those dollars will come from, and that's a model obviously that can not be sustained."

Necessity, the mother of invention

State agencies and school districts presented cost-cutting innovations that in some cases even improve services.

Secretary of Revenue Joan Wagnon presented several cost-cutting measures her agency is already implementing, such as distributing one copy of a personalized license plate instead of two since only one plate is required. They will also reduce the number of tax books and forms printed to encourage electronic filing and charge professional tax preparers for the materials.

"Libraries will no longer have racks of forms. Instead they will have computer access for online filing," Wagnon told the committee. "We have to condition the public to stop sending us paper. People who have been filing their own taxes will continue to get the forms for free, but people filing for a living will have to pay."

District superintendents talked about sharing services with neighboring districts and other government agencies. They also mentioned potential savings by sharing student curriculum. Currently, each district evaluates and buys its own curriculum. Some states have statewide curriculum.

The Topeka district recently took the first steps to consolidate its police force with the city's.

Don Wells, superintendent of Scott City schools, offered a suggestion that may challenge what he called "old guard" notions. "Seat time is not the answer; learning is the answer. Competency is the answer, not seat time."

This echoed an earlier comment by Trabert, who suggested government measure results instead of activities. Government should look at the desired results and measure effectiveness based on whether a problem was resolved. Using poverty as an example, getting more people on food stamps is a measurement of activity, whereas showing people how to lift themselves out of poverty is attacking the underlying problem.

Wells said schools should look at a variety of new tools and learning options that put students in charge of their education requirements. "You can teach best when they have a need. We could have fewer teachers because the student will come to the teachers when they need them."

Yoder said he was pleased with the superintendents who appeared before the committee. "They came in with a measured approach. Some were a little less realistic in their ideas of resources they were expecting. The superintendents are trying to do what we're trying to do, deal with the resources available. We have to deal with the same considerations."

But Yoder says superintendents bring a diversity of approaches to dealing with the problem and can help each other. "The more we get superintendents talking to each other the more we'll get a collaborative approach."

 
Private partners
Committee members showed keen interest in efforts by Crossland Construction of Columbus, Kan., to help local governments improve efficiency. Throughout the meeting, legislators studied a laminated handout illustrating how nine southeast Kansas county governments might cut spending significantly by adopting the best practices of their neighbors.
 
Trabert told the committee they are adapting the Crossland model in an analysis of all 105 counties. "The Crossland study found that those nine counties could have reduced their 2009 budgets by 57 percent by adopting the best practices of neighboring counties," said Trabert. "We can't say how much savings we might find in a statewide study, but counties collectively budgeted $2.4 billion this year, so it doesn't have to be a 57 percent savings to add up to a tremendous amount of money." Several committee members said they saw significant value in adopting a best-practices approach to government.
 
Hope for the future
Ahlerich has high hopes for achieving budget reform that encourages economic development and continues to fund necessary services. "Absolutely Kansans will get this. I applaud the initiative to be proactive rather than wait around for the numbers to come in and react. I believe in policy makers and the state process. These folks will get it. It may not be pretty at times but they're absolutely committed. They'll figure this out."

- Paul Soutar

_______

Paul Soutar is an investigative reporter with the Flint Hills Center for Public Policy.  A complete bio on Soutar can be found at http://www.flinthills.org/content/view/6/5/, and he can be reached at paul.soutar@flinthills.org. To learn more about the Flint Hills Center, please visit www.flinthills.org.