January 16, 2017
By Peter Hancock
TOPEKA — The Kansas Chamber released survey results Monday that showed taxes and health care costs are the top public policy concerns among business owners and leaders in the state, and that most believe Kansas schools spend too much on administration.
Those results were generally consistent with previous surveys the Chamber has sponsored, dating back to 2004, and they stand in sharp contrast to the views of many in the Kansas Legislature this year, as well as with education leaders in the state.
The survey was released just days before the House Taxation Committee is scheduled to hold hearings on a bill that would repeal a portion of the 2012 tax cuts that exempted more than 330,000 farmers and business owners from paying any state income taxes on their non-wage business income.
It also came as committees in both chambers are preparing to craft a new school finance formula.
Pat McFerron of Cole Hargrave Snodgrass and Associates, which conducted the poll on behalf of the chamber, released the results during a telephone news conference with reporters Monday morning.
The survey included responses from 300 business owners and leaders throughout the state and was not limited to Chamber members, McFerron said. The sample was drawn from a list of Kansas businesses sorted by their standard industrial classification. More than 80 percent of the businesses surveyed had 10 or fewer employees, McFerron said.
The survey had a margin of sampling error of 5.6 percent, he said.
Taxes and health care
He said that when business leaders were asked, without any prompts, to name the number-one issue confronting their businesses, 28 percent named taxes, more than for any other single response.
“This has been the case every year we’ve done this study, every year since 2004. Taxes have been the top concern,” McFerron said.
Furthermore, when given a list of issues and asked to name their top two concerns, McFerron said, health care costs came out on top at 44 percent — a 10-point jump from a similar poll last year — followed by business taxes, at 38 percent.
When asked specifically about the 2012 tax cuts, McFerron said the survey showed the business community split almost evenly: 39 percent favored repealing the so-called LLC loophole for small businesses, while 42 percent oppose such a repeal, a margin of 3 percentage points which was within the survey’s margin of error.
In a follow-up question, respondents were asked what they want the Legislature to do about that tax policy this year: 43 percent said they want to leave the policy in place; 28 percent said it should be repealed, and the revenue redirected to reduce other taxes; and only 15 percent said it should be repealed so the revenue could be used to fund government operations.
Twenty-one percent of the businesses surveyed said the tax cut had helped them stay in business, McFerron said, while 12 percent said it enabled them to add employees; 14 percent said it helped them make capital investments; and 1 percent said it helped them add employee benefits.
“So you’ve got very tangible types of responses of the importance of that 2012 tax reform,” McFerron said.
But Sen. Tom Holland, D-Baldwin City, the ranking Democrat on the Senate tax committee, said those responses are different from what he heard from the business community when he campaigned or re-election last year, and they are different from his own experience as a small business owner.
“The number-one message that came back to me was that while they enjoyed the tax benefits, they really for the most part were not using it to expand their businesses, and they really felt that we should put that back into the state to ensure we had good schools and good roads,” Holland said.
Holland is also the owner of an IT consulting business and a farm winery, both of which benefit from the LLC exemption, and he said he has not used the benefit of the tax cuts to expand his own businesses, hire employees or make capital investments.
“I need demand for my products and services to hire employees, and a tax cut, per se, does not provide that,” he said. “Based on the type of businesses I have and what I do, that money itself is not going to spur me to go out and make some huge capital expenditures.”
On the subject of school funding, McFerron said, 59 percent of the respondents said they agree with the statement, “Kansas focuses too much on funding institutions and administration instead of funding the needs of individual students.” Only 20 percent said they disagreed.
“Among business leaders, there’s a real belief that while during tough economic times, they’ve had to tighten their own belts with their administrative costs, and that the funding debate in Kansas focuses too much on administration and not on students,” McFerron said.
In another question, respondents were asked a question that included an introductory prompt which many in the education community say is misleading: “Currently only 55 cents of every tax dollar spent on schools in Kansas is spent on instruction. Would you favor increasing the percentage of available funds that are spent on classroom instruction by reducing the amount spent on non-instructional costs?”
Sixty-nine percent of the respondents said they agreed with that statement, while only 17 percent disagreed, McFerron said.
Eric Stafford, vice president of government affairs for the Chamber, said the 55-percent figure was based on “total” expenditures during the 2014-2015 school year.
Many other budget analysts, however, use “current operating expenditures” as the base. That figure excludes debt service, capital outlay, and reimbursement to other governments, including other school systems. It also excludes state contributions on behalf of school employees into the Kansas Public Employees Retirement System.
According to the Kansas Association of School Boards, operating expenditures have been falling as a percent of total expenditures in recent years because local voters have approved construction bond issues at a faster rate than the Legislature has increased general operating aid and local option budgets.
When looking only at current operating expenses, according to Kansas Department of Education figures, direct instructional costs accounted for nearly 61 percent of operating expenditures during the 2015-2016 school year, while an additional 9 percent went for support services for students and staff.
Less than 6 percent of operating expenditures went for administration, with an additional 2.4 percent for administrative support services.
Kansas Education Commissioner Randy Watson in an interview with the Journal-World last month reported hearing different responses when his agency conducted a statewide listening tour in 2015.
“Kansans were very clear that social and emotional needs need to have a bigger role, and that counselors and social workers, we need to have more of them in schools,” Watson said during an interview with the Journal-World last month.
Under federal definitions, counselors and social workers count as support services for students, not as direct instructional expenses.
“So when I hear a conversation about, ‘Well, we want money to the classroom and that doesn’t include counselors or social workers,’ then you’re neglecting what the Kansas voice is,” Watson said. “The Kansas voice didn’t say to put more money in the classroom excluding counselors and social workers. They said this is what we need to have, and they were very clear about this.”
Other categories of education spending included 10 percent for operations and maintenance; 4 percent for transportation; and 5 percent for food services.
Mark Tallman, who lobbies for KASB, said that organization conducted a review ranking all 50 states and the District of Columbia on 15 measures of student achievement. Kansas ranked 10th in the nation on that scale, he said, and the nine states ranking higher than Kansas spent more money per-pupil on K-12 education than Kansas did.
“In other words, on educational performance, Kansas ranks high compared to other states, even though spending is below average and falling. All higher achieving states spend more per student than Kansas,” Tallman said.
This article was originally published on the Lawrence Journal-World website, here.
Paid for by Senate Democratic Committee, Will Lawrence, Treasurer