Kansas Poor Tax A Reflection Of Nationwide Fiscal Crisis

In the course of covering America’s deepening state and local government fiscal crisis, we’ve touched on Kansas quite a bit. 

As a reminder, an ill-fated tax cut ‘experiment’ by Governor Sam Brownback contributed to a rather large funding gap which has in turn squeezed the public sector to the point that some schools have had difficulties making payroll. This well-publicized scenario has left many Kansans disgruntled as evidenced by the now famous Boss Hawg’s Bar-B-Q incident wherein Brownback’s waitress famously refused gratuity from the Governor, instead advising Brownback to “tip the schools.” 

Here’s what the situation looks like visually (note that the tax cuts came in 2012):

In early April, Brownback signed a welfare reform bill into law. The goal, the Governor said, is to “get people back to work, because that’s where the real benefit is getting people off public assistance and back into the marketplace with the dignity and far more income there than the pittance that government gives them. And I hope we don’t lose track of the primary focus of what we’re after.”

Well, it turns out some observers did “lose focus” because the bill contained a number of rather ‘innovative’ riders, one of which limits the amount of cash that can be withdrawn from ATMs with state-issued assistance cards to $25 per day.

The idea, according to Kansas, is to ensure that poor people spend public assistance on necessities, where “necessities” must not mean rent because after all, rent costs more than $25 and because there’s a $1 fee for each withdrawal, plus the standard ATM fee for those with no checking account, each visit can cost as much as $3 (or more) and because ATMs don’t dispense 5s, a person looking to spend say, $300 of public assistance on rent would need to go to the ATM 15 separate times incurring $45 in fees. 

A single mother with two children in the state would receive around $400 in assistance, meaning that, in the scenario presented above, the ATM limit amounts to a 10% reduction in monthly benefits.

As we noted last month, it isn’t at all clear how this policy will lead to a reduction in the number of people on welfare: “This will only serve to further impoverish recipients, making it more likely that they will remain dependent on the public purse, thus driving up the cost of the program for taxpayers in the long run.”

Phyllis Gilmore, Secretary of The Kansas Department for Children and Families, doesn’t agree. In fact, Phyllis thinks this is the kind of thing that other states should try, because after all, poverty is a real inconvenience for everyone:

“We encourage other states to look to Kansas on how to help end government dependency… government dependency [is] a disservice to the individual, a disservice to our culture and certainly a disservice to the taxpayer.”

 

(Brownback and Gilmore signing the welfare reform bill into law)

 

The bill (which also bans poor people from spending public assistance on going to the movies or going swimming) has since garnered quite a bit of national attention. Here's some additional color on the issue from Bloomberg:

Kansas is in trouble. After slashing income taxes in 2012, the state faces a revenue gap of more than $400 million. Republican Governor Sam Brownback and state legislators are debating how to make up the shortfall. So far they’ve agreed on one way to control how state money is spent. Starting in July, people on the dole will be limited to a single ATM withdrawal of no more than $25 per day. 

 

A September 2014 survey by the Pew Research Center found that 73 percent of Republicans feel the government can’t afford to do much more to help the needy, compared with 32 percent of Democrats. “If you look at cycles in history, you’ll see that there is compassion, then compassion fatigue, and then blame,” says Patricia Baker, a senior policy analyst at the Massachusetts Law Reform Institute, a Boston nonprofit that researches poverty. “This happens because there’s impatience with the solution.”

 

The number of families receiving cash through Temporary Assistance for Needy Families (TANF), the federal-state aid program that grew out of the 1996 federal welfare reform law, peaked in 1994 at 5.1 million families, according to the Congressional Research Service. It’s since plummeted to 1.5 million at the end of 2014. In Kansas 6,478 families were on welfare at the end of last year, down from 7,553 in 2013. Monthly payments for a family of three range from $386 to $429, depending on a county’s population and cost of living.

 

The restrictions on ATM withdrawals could eat up as much as 10 percent of that in transaction fees, according to Shannon Cotsoradis, president and chief executive officer of the advocacy group Kansas Action for Children. She says state lawmakers acted on anecdotes about TANF cards being used at casinos and, in one instance, on a cruise ship. “This is not a data-driven policy decision,” she says. “This is a solution seeking a problem.”

Bloomberg goes on to note that as states' fiscal crises worsen, officials are turning increasingly to welfare cuts to plug funding gaps:

Kansas is among several Republican-controlled states that have recently cut or limited public-assistance funds. In Arizona, which faces a $1 billion budget shortfall, lawmakers voted on May 18 to limit welfare to a year, the shortest window in the nation. On May 5, Missouri’s Republican legislature overrode Democratic Governor Jay Nixon’s veto to enact a bill that cut thousands of low-income families from aid rolls by reducing how long people can claim cash from five years to fewer than four. Michigan’s GOP-controlled legislature passed a bill on June 2 that strips cash assistance from families with chronically truant children. “During the recession there were lots of blue states, for fiscally driven reasons, that were cutting welfare,” says Liz Schott, a senior fellow at the liberal Center on Budget and Policy Priorities, a Washington think tank. “This year’s cuts feel more ideologically driven.”

Partisan politics aside, the cuts, more than anything else, are a reflection of the nation's state and local government fiscal crisis, which has already claimed Chicago (in the form of a devastating Moody's downgrade) and threatens at least 22 states, including Kansas. 

With The Illinois Supreme Court having set a precedent that effectively rules out pension reform as a solution, states may turn to pension obligation bonds. If this becomes the go-to, can-kicking option, you can bet the crisis will eventually return with a vengeance, and with it, more and deeper cuts.

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