Instead of giving incentives to businesses to locate to Kansas and Wichita, the state and city should cut taxes and regulations to create a climate where businesses will naturally want to come here.
That was the general consensus among free-market experts and advocates brought to Wichita on Wednesday from around the country for an economic development conference sponsored by the Kansas Policy Institute, a free-market think tank.
Among the approximately 150 attendees were U.S. Rep. Mike Pompeo, about 10 state legislators, three Sedgwick County commissioners and four Wichita City Council members. All were Republicans except Sen. Oletha Faust-Goudeau, D-Wichita, whose district includes the Wichita State University complex where the meeting was held.
The conference speakers painted a grim picture of a state that is overburdened by government and taxes.
In terms of overall tax burdens, Kansas is the 47th worst place in America to run a mature business and 48th worst place to start a new company, said the leadoff speaker, Joe Henchman, vice president of legal and state projects at the Washington-based Tax Foundation.
Maurice McTigue, vice president of the Mercatus Center at George Mason University, said his home country of New Zealand dramatically cut and privatized government when he was a member of the Parliament there.
For instance, the government sold 100-year cutting rights to the nation’s extensive forest holdings to timber interests — and cut its Forestry Service from 17,000 employees to 17, McTigue said.
That allowed New Zealand to attract timber production and processing companies from nations such as the United States and Japan, about quadrupling the economic activity from forestry, he said.
“We didn’t have to offer any incentives; they paid us to come,” McTigue said. Other departments that were cut and privatized in New Zealand included transportation, from 5,600 employees to 53; and public works, from 28,000 employees down to one, McTigue said.
Overall, the country’s government employment was reduced from 96,000 to about 32,000 employees.
In national rankings, Kansas is fourth or fifth in the number of government employees per capita, McTigue said. “That means your government is too big and you need to downsize it.”
After the meeting, McTigue acknowledged that New Zealand has increased its contracting and consulting spending to compensate for the lost public employees, although he said it’s generally more flexible and efficient to do it that way.
Art Hall, a University of Kansas economics professor, said that from 2003 to 2007, Kansas gained about 794,000 jobs through business startups or expansion and lost 768,000 to business closures and contraction.
In the same period, the state claimed to have brought in about 123,000 jobs through offering incentives, he said.
“If you look at the number of jobs and businesses that actually relocate (because of incentive programs), it’s infinitesimal compared to the overall internal activity of birth and death and expansion and contraction,” Hall said, although he noted that Johnson and Wyandotte counties are an exception because they share a metro area with Missouri.
But, “Even if the anecdotes look good, you aren’t necessarily getting the ROI (return on investment) you believe you’re getting,” Hall said.
Hall said the better course is to lower taxes and cut regulations for all businesses, in hopes that more startups will grow and blossom into successful “gazelles” like Koch Industries and Pizza Hut.
Several of the politicians in the audience expressed disdain for most incentive programs, but said they had no choice in an environment where other states are willing to make big deals to take away Kansas employers.
Sen. Ty Masterson, R-Andover, said the big problem is that no one wants to risk being the first to stop offering business incentives because of the fear of economic damage to their state.
“The pioneer’s the guy with the arrow in his back in front of you on the trail,” he said.
Pompeo continued the call for cutting government, saying that the federal government is now a third too large.
“When I am thinking about the issues that face us as a nation, I acknowledge that every single resource available to us is derived only by confiscating it from the American people,” Pompeo said.
However, Pompeo said that the problem of oversized government has been more than 60 years in the making and that both parties have contributed to it.
He also said the fighting over the federal debt ceiling, a showdown between congressional Republicans and President Obama that drew a lot of media attention in August, didn’t mean that much.
“As a political figure the easiest vote in the world is to vote against increasing the debt ceiling,” Pompeo said. “But don’t let a politician stand in front of you and say, ‘I voted against the debt ceiling, I’m for smaller government.’ Those are not necessarily coincident votes.”
If Congress hadn’t reached an agreement to raise the ceiling, “long about September, October, you would have had combat soldiers in the field without pay,” Pompeo said. “It’s just simple math.”
Pompeo said even Rep. Paul Ryan’s budget proposal — hailed by House Republicans as a model of fiscal responsibility and decried by Democrats as a plan to dismantle the government — would require the debt ceiling to be raised 13 times during the multi-year plan.
“If you vote not to raise the debt ceiling, you need to present a plan that would cause the federal government not to spend money that would take you past the debt ceiling,” Pompeo said. “I saw not a single Republican, not a single conservative, present a plan that would have caused government spending not to broach the debt ceiling.”
Pompeo said the only way to make a serious dent in the debt is to address “Medicare, Medicaid, Social Security. Three pockets, three places.”
And he had harsh words for lawmakers in his own party who voted not to raise the debt ceiling without being willing to take the political risk of reforming entitlement programs.
“If we just made some minor changes to Social Security, if we just raised the age a little bit, if we just do a little bit of means testing and if we just adjust the way we calculate inflation, we can put Social Security back on a trajectory for 80 to 100 years,” he said. “And yet you had a Republican majority say, ‘You can’t do that.’ ”