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House Speaker O'Neal delivers response to State of State

Speaker O'Neal

State of the State Response

Delivered 1/7/10

Good evening. I'm Representative Mike O'Neal, Speaker of the Kansas House of Representatives.  Tonight it's my privilege to offer our perspective on the 2010 legislative session from the standpoint of Republican legislative leadership. While these remarks had to be prepared before receiving the Governor's budget message, we look forward to an open dialogue and productive working relationship with Gov. Parkinson in his first full legislative session – a session that will be one of the most challenging in Kansas history and one that will require a renewed commitment to do what is best for all Kansans.

If there is one thing all Kansans understand, it is weathering storms.  As long as there has been a Kansas, there have been blizzards, drought, hail, ice, and tornadoes.  All Kansans know what it's like to survey the wreckage after a storm.  We all know the feeling, some much more than others, of picking up the debris and starting to rebuild.  The unbelievably resilient citizens of this state have weathered countless storms and have always built something better in the aftermath.

The opening of the 2010 legislative session finds Kansas in the throes of a serious financial storm.  We are facing profound challenges from a deep national recession and are struggling to pick up the pieces and chart a course toward recovery. But like so many Kansas storms, we can and will weather this storm together if we are prudent stewards of the resources we have and avoid government-promoted quick fixes that will hamper our long term growth and recovery.

Without question, the most serious effects of the economic crisis have been felt by Kansas families who are making painful sacrifices to make ends meet, and Kansas businessmen and women who are struggling just to stay open and keep employees on the payroll.  We need look no further than the rising unemployment across the state to see that times are hard for Kansas employers and employees.  Unemployment is over 6% statewide, and is worse in several counties in the state.

Increased unemployment statewide has strained Kansas businesses to the point that the average tax rate paid by Kansas businesses for unemployment compensation was recently more than doubled by the Kansas Department of Labor.

The economic crisis amongst Kansas businesses and Kansas families is also reflected in falling state tax receipts.  State income tax receipts are down over 9% from last year at this time, reflecting layoffs among private sector employees.  Overall tax receipts, including property tax, sales tax, and both personal and corporate income tax, are down significantly compared to last year.  The drop in revenue is attributable to the widespread economic slowdown facing Kansas businesses.

While state revenues have fallen, the demand for continued government spending has continued almost unabated, forcing us to take decisive action beginning last session to make cuts to bring government spending more in line with revenues. Some now claim that the time has now come to end reductions in government spending and raise taxes on businesses and individuals. But raising taxes now, in the waning months of the recession, is short sighted and counterproductive.  To repeat what Senate President Morris said in last year's address, we do not believe it is prudent to consider tax increases and we do not intend to raise taxes on individuals or businesses already struggling under the economic downturn.

Raising taxes now, in the middle of a severe recession, would mean losing tax-paying businesses that are already struggling to survive. And if those businesses close or leave, the state will also lose the tax-paying employees that work for those businesses.  Both events would only deepen the state's fiscal hole.

Raising taxes, either directly or through elimination of tax incentives for business expansion and development, would stifle growth and recovery by taking precious capital out of the hands of the businesses that remain, depriving them of the capital they desperately need during a credit crunch to retain employees while the economy recovers.  Simply put, Kansas businesses can't pay more unless they can make more.

We must not put Kansas at a competitive disadvantage compared to other states in our attempts to attract new businesses and the jobs that come with them.  When businesses consider an expansion or relocation, they look heavily at each state's tax and regulatory burden in making the decision on where to locate.  Raising taxes would significantly diminish Kansas' ability to attract dynamic new businesses and individuals to our state to help fuel our recovery.   A tax hike, despite its attractiveness in the short term, would in the long run cripple Kansas businesses and in turn undermine the long term fiscal health of our state government.

Those who argue we need a tax increase often cast the debate as a choice between allowing business to keep its money or allowing government to fulfill its obligations.  This argument offers a false choice and does not accurately portray government's critical dependence on private sector businesses.  Business must be productive and strong if government is to be fiscally sound.  This crisis has vividly demonstrated what happens to government finances when businesses fail.  Conversely, if businesses are allowed to grow and prosper, the state's financial situation will improve as well.  The question now should not be, "how can we tax business to pay for more government?"  The question should instead be, "what can government do to help Kansas businesses and Kansas families survive and thrive?"

Republican leadership knows that to maintain the businesses we have and attract new businesses we must stay the course with business friendly policies and spend state resources wisely.  Rather than raise taxes and destroy growth on one hand, or cut all government budgets blindly without regard to the significance of a given program on the other, the 2010 Legislature will engage in a budgeting process that thoroughly examines all expenditures to ensure that state money is spent efficiently and is only spent for programs and items that are truly necessary to fulfill the legitimate role of government.

We will use performance based and line item budgeting practices to ensure that spending is neither wasteful nor unnecessary. We will work to establish a budget stabilization process, by constitutional amendment if necessary, and we will examine a return to a biennial budgeting process that will help us create budgets that are less susceptible to erratic revenue streams.

We will work toward a long term goal of zero based budgeting, in which state agencies will periodically be required to rebuild and justify their budgets from the ground up.  Zero based budgeting would help prevent unnecessary spending and increase efficiency by ensuring that all agencies demonstrate the ongoing need for each program they administer. And we will work to ensure that our statewide environmental and business regulations remain predictable and pass the test of common sense.

Another topic that will receive significant discussion in the 2010 session is education funding.  Much has been made of reductions in funding rates for Kansas schools. There were cuts that had to be made to school funding last year.  But school funding increased every fiscal year from 2005 to 2009. Over 700 million dollars of the money added since 2005 remains in the budget and schools are still being funded at levels greater than in fiscal year 2008.  When total federal, state and local money is tallied, school districts across the state are on average facing cuts of less than one and a half percent.

Given these facts, we are disappointed to hear another call for lawsuits against the state. At a time when all Kansans are struggling to make ends meet, use of tax money to sue the state forces the state to spend more tax money to defend itself when it is well known that there are insufficient funds under current circumstances to do all we would like to be able to do for schools. K-12 education has not suffered cuts nearly approaching the severity of those to other state agencies, including those that provide critical public safety services and those that provide services to the most needy and vulnerable among us.

Riding out this financial storm with good fiscal policy is so important now because our economic future is actually very bright.  The groundwork is now in place to make Kansas a global leader in life sciences research.  The construction of the National Bio and Agro-Defense Facility (NBAF) in Manhattan will bring immense bioscience expertise and capital to the state.  That expertise will augment and expand the already extensive animal and human health infrastructure within the state.

We are becoming a leader in the development and use of composite technology in prosthetics and other devices, creating an opportunity to apply longstanding Kansas expertise in aerospace materials to new developments in medicine.  And KU Medical Center's pursuit of National Cancer Institute designation will bring another wave of jobs and investment in bioscience and research to the state.

Kansas is becoming a leader in wind technologies and will be a leader in renewable energy in the years to come.  These are just a few examples of the growing synergy in the Kansas economy that will lead the way to recovery for the state if we are business friendly and help businesses flourish.

The crisis we face will not be solved by an expansion of public spending, by new regulations, or through any top down scheme imposed by state government.  That is the current approach in Washington, and it is quickly becoming obvious that it hobbles growth, enslaves us to debt, and takes power from ordinary citizens and concentrates it in the hands of politicians and professional bureaucrats. The answers are not to be found in Washington or the Kansas statehouse.

Instead, this crisis will be solved the same way almost every problem in this state is solved: through the innovation, hard work and entrepreneurial spirit of the individuals and private sector businesses that underpin our society and pay for our form of government.  Those values, which melded together to form the pioneer spirit that all Kansans still possess, made us great in the past and will make us greater in the future.  We can rebuild our state's economy and overcome this storm like all the others if we rely on those values, take the long view, and forge ahead.

Good night, and may God bless you and the great State of Kansas.