Kansas Economic Conference '92

Major funding for the production of Kansas Economic Conference 1992 was provided by the Wichita Eagle and Beacon Publishing Company. If the governor and the legislature frankly behaved like they did last year, I'd give them a demise. Great you're going down. And I was tempted to flunk them. Because if we compare Kansas statistics with national statistics, they're not just God awful. They're just not going to get us where we need to be in the next century. It's the theme for the 90s and that's to be competitive. The risk right in here is that the taxes are being embedded that will cause companies to be less competitive. I believe that with characteristic humility, Wichita's and Kansas will endure yet another year of relative prosperity. On Saturday morning, January 11, nearly 300 men and women have been influenced gathered

at the Wichita Marriott. These leaders of business, education and government were assembled for a discussion of the economic issues that will affect Kansas in 1992. Good afternoon. I'm Davis Marriott, Editor of the Wichita Eagle. Welcome to KPTS's broadcast of the 10th edition of the Kansas Economic Conference. As in previous years, we'll begin with a discussion on the general economic outlook for the state in 1992. We'll also hear audience members provide their predictions and opinions. Later on in this broadcast, we'll hear a second panel and its audience address the controversial issues of education and taxes. The moderator for the economic discussion is Clark Hoyt, Chief of Night Writer newspapers Washington Bureau. Learning Clark and adding their unique insights and a dash of wit are Darryl Knudsen, Chairman and Chief Executive Officer of Fourth Financial, Linda Ayala, President of Realty Title, Dick DeVore of DeVore Enterprises, and Barry Flinchball, Professor of Agricultural Economics at Kansas State University.

I'd like to start, Business Week Magazine has taken its look ahead to 1992 and what we're going to do for a while this morning is take our look ahead to 1992 for the Kansas and Wichita Area Economies, and I'd like to start by telling you what Business Week says in some segments and getting your reactions how you think this is likely to play here. Linda Ayala, let me ask you, Business Week says about real estate nationally. Their headline is, it will be a bottoming out year. The real estate disaster will continue with a faint bright spot and anemic recovery in housing. You see that here? Well, the Wichita Economy had a residential housing recovery going on during 1991 and I would imagine I expected to continue during 1992. I understand from my friends who are at sales end of the residential market that already that a man seems to be increasing and of course lower interest rates are going to help

us qualify more people, find more affordable housing. I know that there are good many residential subdivision plans underway, people who intend to start building new housing. I like to think that the residential real estate market has bottomed out here. I see many fewer homes on the market at the current time, many more sales for last year. It seems to me to be a good deal healthier than that headline would make you imagine. Better here than in the nation. I would imagine so. Daryl Knudson, Banking. Business Week says things couldn't get worse, right? Real estate is still thorny and the economy is weak yet 1992 doesn't look half bad to bankers. How does it look to you? That's probably a good second question as opposed to the first one. If you look and think about it around the country, certain geographies are not recovered and probably haven't hit bottom.

In total, I would agree with that comment that the industry will probably be slightly better off in 1992 than in 1991. But then again, I think you have to be careful about the various geographies whether you think about the Western, New England, or Southeast. The important factor there is what Linda brought up and the point that the article brings up that if in fact real estate has hit bottom, that's a very important factor to the industry and an important part of the stability that would likely happen here in 1992. If you bring it closer to home and think about Kansas, the banks here are strong. They perform better than the nation as a whole, the industry in Kansas, and that's because the industry or the economy in this state has been stronger than the nation as a whole. And that says a lot about the health of banking. When our customers do well, the banking business does well. We're certain to hear a theme here, aren't we?

Better hear than some other places. Dictivore agriculture. It goes to a picture of a very large bull in a field that says here, farmers have a rough road a hoe. Prices are down and only the export market is set to climb. I was hoping in Clark, you'd find a headline on Bibles there. I went through this magazine three times so they don't have the Bible publishing segment in it. With our Kansas resident expert setting next to me on agriculture, I'll attempt. I think the person that wrote that headline spent too much time in Washington or New York. In my view, the agricultural economy is going to help the state of Kansas during 1992 continue to be a relative island of prosperity in our country compared to other areas. The livestock industry in general is the number one industry in the state of Kansas. The livestock processing is number two.

Both of them are very healthy. The decline in the livestock market for the last five months of 91 have positioned that industry to anticipate a relatively good year. We had about four years in a row that were very, very healthy for the livestock economy. The producers got clobbered the last five, six months of 91, but that's positioned them now, I think, to see a very good recovery, nothing perhaps exceptional but very solid. And finally, very flinch-baw. The economy as a whole, business weeks take on it as this, more pain than real gains. Let's say the downturn isn't over, but it will be by summer. I agree with the last part.

It definitely will be over by summer in Kansas, it's been over. When they say more pain than gain, as long as one person is going to employ, there's some pain. The economy of the last two quarters grew roughly what a half percent per quarter. One is going to come in about 2.9. You look at the basic fundamentals of the American economy. And you wonder where the doom and gloom is coming from. And you have to conclude it's hype preparing for an election. That's where you come out. Well, I would say to you coming from here from a different region of the country right now, it's not entirely hyped there. Things economically are substantially worse than they are here right now. Well, we try to measure the doom and gloom by the consumer confidence index, which at

the best is an estimate and a rather loose estimate, and interestingly enough, that consumer confidence index was very high in May and June. And it dropped, it went to hell and the hand basket fast. Yet, the unemployment rate has hovered between 6.8 and 7 roughly. That entire time while the consumer confidence index was dropping rapidly. So you have to ask why, what's causing this? It's certainly not the increase in the ranks of the unemployed because that is a very, very small part of the base. And what it really is is the employed being told they might be unemployed. And I argued that last year that we jaw-boned our way into a recession, and now we're trying to jaw-boned our way again into a double-damp. And we really have our jaws in motion because we're about to start the silly season.

Prepare for a presidential election. The basic fundamentals of the economy are relatively strong. Compare where we are now to the last recession. We talked in those days, double-digit interest rates before we went into it. We talked double-digit on employment, double-digit inflation. Sure there are problems. But if we put them in perspective, the doom and gloom index cannot be substantiated, especially in Kansas. Well, let me pick up on that last point because that's really the common thread of the economy. Seems you've got some support in the audience for that point of view. That's my people out there.

Give yourselves another hand. That's clearly the common thread of what all four of you have said that this area is a relative I loved, whether or not what is happening on the coast of this country is entirely justified by the fundamentals. This area is a relative area of stability, or I noted in looking back over some notes that Luke Cohen of Schupper called it an oasis in the desert for retailing at least. Why do you think Kansas has come through this period relatively unscathed in comparison to the rest of the nation? To example, for example, said unemployment nationally is hovered around between the high sixes, I believe it's now 7-1 for December, 7.1 percent. In this state it's about 4.2 percent, and in this region, a 10th or two higher. Why is Kansas relatively doing so much better now than the rest of the country?

Well, from an agriculture standpoint, we had our washout in the mid-50, the mid-80s we took 50 percent out of land values in the mid-80s. That's just now occurring, or has occurred the last 36 months, so to speak, on the East and West coast as far as real-state values and so forth. So we had ours first, we've been through the ringer, we've built back, so part of it is simply a time like why we look better. And I think you can see a trend in the country towards a return to some of the basic industries and agriculture is a basic industry. Oil and gas is a basic industry. The manufacturing that we do in Kansas are basic industries.

And even though we've had problems with all of those industries, they're still relatively strong compared to some of the exotic type things. So I think it goes back to the basics, in fact, that we've been through it first and the rest of the country is catching up on some of these things. Dick, you operate companies that sell and throw out the country. What is your sense about that, why demand for Kansas products, why Kansas remains relatively strong, while the rest of the country struggles about that right now? I'm not sure I can answer you directly, Clark. I agree with Barry, the Kansas Agricultural Economy is in very good shape. They went through the ringer a long time ago, our depth to asset ratio is as low as it's been for my recollection. I think Barry was mentioning this morning when we were visiting it was around 13%, which is down another 2% or 3% in the last six months.

I don't share Barry's view as far as the economy across the country are. The paper industry has been traditionally a barometer of things that are going to occur. The book type papers reflect what is really going on across the country now. That market prices for that kind of paper are down from 5% to 20% in the last 18 months. There is a real definite decline in that kind of barometer. The newsprint is a leading indicator and newsprint prices rose from 5% to 10% annually through the 80s. From 90 to 91, they went up about 1%. And all forecasts that I've been able to obtain now are indicating that newsprint is going

to decline somewhere from 3% to 5% during 92. And that does not forebode well in my estimation for the economy as a whole across the country. I'd have a question for Barry, what being relatively new, I don't know all the numbers on export as a percentage of state product, gross product. Is that a big percentage of the state economy, international export? Very much so in Kansas because of the agriculture base. And that's a big number of the value of the dollar is important to make Kansas companies competitive. That's right. And that the value of the dollar makes us much more competitive now than we were say three or five years ago. We may not have changed, let's assume for the moment that we haven't changed our relative efficiency a bit in the last five years. I would argue we have, we've gotten more efficient, but assuming we haven't and we've

taken about, if you look at the dollar related to other currencies and so forth, it's down about 30% on a weighted index with Kansas product, that makes us more competitive. And it's a very positive factor. What are some other factors that makes Kansas companies competitive and what can we do to help our businesses in the state be more competitive? Well I think our biggest problem with exports in Kansas outside of agriculture is to really discover the markets. We have a lot of small manufacturers in this state and the State Department of Commerce, of course, works with them on export opportunities and so forth, but it's really market development I would think. But that's getting a little away from my field, but the small manufacturers that I talk to have difficulty establishing markets.

But clearly Kansas products stack up well once we get into those markets. You're really raising Darrell an area that I'd like to get into some more and that is the state's relative competitive position in the country and in the world. The state does not exist in isolation, it's part of the national and the world economy. If that point has ever driven home, it's when the President of the United States travels all the way to Japan for us, he puts it jobs, jobs, jobs at home. You've come relatively recently here from another state, Minnesota, how would you coming into Kansas assess the state's competitive advantages? How strong do you believe it is? Florida has very high tax, so from the standpoint of tax, now I know of recent times there's some debate about commercial real estate and other taxes in the state, which you really

have to keep an eye on so that in fact it doesn't start to take away some of that competitive advantage that the state has had. But if I look at it in terms of other states, further north, it's very friendly to business and it's a marvelous place to live. Besides that, it's a little closer to the equator. And that's a marvelous thing, too, by the way. From a human side to people are extremely friendly and business-wise, it's also very friendly. But I would caution us to be very careful about that statement, because increasing costs for our businesses causes them to be less competitive around the globe, and it's certainly more of a global economy today and exports are extremely important to the businesses in this state. So what it is that we can do from a state politic, if you will, to help all of our businesses be more competitive is very important.

And I think there's some very common purpose and very common goals and objectives that we can have as Kansans to help all of our businesses be much more competitive to the surrounding state. So if we can make our businesses more competitive today, that will also attract new business in the future. More businesses. Do you see the leadership, the political and business leadership in this state coming together to do what you are talking about as effectively as, for example, they did in Minnesota? That is a very good question. I'm looking around the audience for an answer. I'm probably too new to be answering that one. I'll turn that one over to Barry. But it's a very important question, because if we have common purpose and common goals that doesn't really get to the standard of living issues between communities, because nations are fighting for competition, it's kind of the theme for the 90s, and that's to be competitive

whether it's the nation as a whole or state to state. It's just the game, and it boils down to the standard of living. So it's what are those issues that we can commonly work on together that will help our businesses be more competitive, and now I turn it over to Barry. Well, let me, let me, before you turn it over to Barry, let me go right around the brain here and ask that question, because it's really a very key question to a state's ability to compete. I wonder what you're doing. Well, obviously, I don't think I could get away with saying I think all the pieces are in place, and I don't see the effort having come together unanimously overnight. But I do think there is a strong political voice in Wichita and in Kansas, perhaps not as much throughout the state as we need, to bring this effort together. It's an educational effort, and I think a lot of us have the notion that we have to educate the people who are voting to understand those kind of sophisticated concepts that Daryl

was telling us. I do think that a lot of people understand that if the businesses in Kansas, which does that you account here, are not healthy, that we will not have a high standard of living, and that we won't compete well with the other states. Unfortunately, there is always a minority voice that is willing, on the political level, to say things that detract from that effort. But I think the more we strive to educate the voters, the better off it will be. I think it can happen, and I do see it taking shape. Our family businesses operate almost a vacuum here. We do over 98% of our business outside the state, and I'm really not in touch with the type thing that... Well, I'm not trying to put you on a spot, but you live in the community. You're active in the community through a foundation work. What's your sense of how well, at this point, the leadership has jailed, has come together

to address these issues? I'd give it a C minus. What? Why a C minus? I just don't see that it's... I don't see where it has jailed to do it. I think we have some very, very good leaders here, but I'm not seeing them take the leadership roles that I feel they possibly could. Is that good old Kansas Frontier independence at work? What do you think of... I don't know. I've lived here all my life. I've seen it happen back in the 40s, 50s, 60s, and it's been lacking in my estimation for the last 10, 10 or 15 years. I think... I don't know just what it seems like, whenever someone does begin to take a leadership role or would indicate they would want to or a group does, they become viewed as an official

and everybody throws arrows at them and they back off. What's your perspective about that, Barry? Well, you know, my profession was once known as the Science of Political Economy. I think those words fit today, and I think you've asked the right question, the political and economic leadership, and it has to pull together. Both words are important. From a national perspective, our congressional delegates, I traveled nationwide. I'll put our congressional delegation up against any congressional delegation of any of the other 49. Both parties work together, agriculture policy. We've got more influence, more positive influence in any state in the country. State, if the governor and the legislature frankly behaved like they did last year, I'd give them a demitance.

The grades are going down here. And I was tempted to flunk them. Well, we can start back around the circle again. Because you can have political and economic leadership if the two branches of government don't compromise with each other, and they refuse to do that. Now there's all kind of indication that's going to occur this session, and we have more on the plate now, economically speaking, for this session than we've had since I've been in Kansas. And if we don't get cooperation any better than we had last year, we're in for real trouble. That's being very blunt and honest, but I think it's true. Locally it depends on the community. I've always found which it's all, since I've been here to have rather good leadership. I think which it's all this past year has gotten a very bum wrap.

As I travel, I get asked two questions about which it's all, the abortion question and the school board. By people outside this state. Western Kansas, Eastern Kansas, and outside the state. That was the question to get asked. And it's given which it's all a temporary, less than positive image, and I really think that it doesn't give the true picture. But you need the political and the economic part to go together, because it really is a political economy, and especially this year at the state level, we've got to have cooperation to settle these tough issues. And if it's politics, it's usual, we're in deep trouble. Why don't you enumerate for all of us, and for somebody coming in like me, from Mars and effect from outside, those issues? How would you rank those issues?

I've heard Washington call lots of things, but never Mars. I've heard it call that, at worst. Former Governor Bennett used to call it Disneyland East, you know. It's a collaborative school finance, and that's a very serious economic issue. The age-old question of the tax mix, and that's really what's behind school finance, in addition to equal opportunity for our children. Reappraisal, was it done right? Was it done constitutionally? That's question. Reapportionment, which has serious economic ramifications. Now, I put all of those right on the plate, and that is a plate full that will require the legislature and the governor to work together instead of refusing to cooperate. Let's bring this back to Wichita for a minute, politics and economy, political economy.

I can drive in from mid-continent airport and drive down Douglas, past the fourth's headquarters and see empty storefront, after empty storefront, that used to be occupied. There has been an enormous amount of work on a comprehensive downtown development program. I know hearings were held over the year, of various pieces of a comprehensive program were approved, some rejected. Is the economic and political leadership coming together to finally get this done in this community? Well, certainly the public sector has stepped up to the challenge. The city government has made a generous allocation toward the renewal of what they are referring to as the core area.

I really prefer to think of it as Wichita renewal rather than downtown. I think it's that important to us. The county government, I expect to be up to that challenge as well. And perhaps I'm the eternal optimist, but I think the private sector is right there as well, making up its mind what it can accomplish and how it can enhance what the public sector has put before it. And I think that will happen, it certainly is obvious I think to everyone at this point that there is some confusion about that and some perhaps disagreement about how that's to take place. But I believe it will take place because I think we have such a good start. If we look around at the things that are going on, I mean when you were here Clark, did you think that we'd ever do Kellogg? Did you think it would ever get done? When we talked about finishing the K-96 bypass, we've called it all kinds of things, the Northeast are confidential, I remember a time when I thought I'd probably never see

it done and yet we'll be dedicating a portion of it next week or actually opening it. So I think there are so many good things going on that that momentum cannot go unheeded is what I really think is happening downtown. And we'll see how it develops. I'm not and I hope no one else is believing that you can make a blueprint as wonderful a process as that is and take and number your projects and do them exactly that way. Life doesn't work that way and the economics of what's going on around us will influence that. But the result will be good. Let me ask you for a moment a sort of a contrarian's question about downtown development. Of course, that's my job. I also never expected to see when I lived here the enormous explosion of development in the Northeast part of the city, North Rock and all that in that area. And one could make an argument from a distance anyway now.

Why not let nature take its course? Development is happening here with the exception of old town, which is going on close to the downtown core. It may not be happening downtown, but it's happening. Let nature take its course and if it's going to be to the north, to the east, to the west, let it develop that way and not try to in effect change the flow of the river and force it into downtown. What would you say to that argument? Well, I'd say that no one is trying to change the course of the river. The economic river right now. Well, but I don't think that any actions in particular have been a deterrent to that kind of edge city development, though I don't think the North Rock area probably has approached the real edge city described in a book I read recently. But I don't think the activity is a deterrent to that. Rather, I think it's an enhancement to all growth in Wichita.

And certainly I think to ignore a part of the city, any part of the city, and I've already told you that I think it's a part of the total city, not just downtown. But to let deterioration, the way you've described it, and you know it's serious enough to point out, to let that continue is a tremendous tax burden on the rest of the community, because we must forever support the kind of infrastructure that leads out from a core area we can never escape that. We simply have to do it. It's one of those things that you could not ignore, or you would certainly be a poor steward of the cities and the counties and the states resources to ignore that kind of a problem if it were in your means to do something about it. And of course, the things that are playing Clark are things that benefit the entire community. If the radiation from them improves downtown, it will be a wonderful benefit. If it should prove that it does not, it will still be a wonderful benefit to the community.

I think while the Northeast area has received a lot of attention, I think we overlooked greatly the west side of the city that's the fastest growth area. The highest income zip code in Wichita is on the west side of town, not the Northeast or the East. The forecast for future growth in residential area is higher for the west than any other part of town. I think we need this center core to pull our city together and to keep it together. Philosophically, then all three of you believe there has to be a core for that simply allowing the core to go, letting the development go as it will, is not sustainable. I want to change gears from there. I want to ask you a strictly a bankers question. On July, the first Kansas becomes the last state to permit interstate banking. Out of state banking companies can come into Kansas and operate Kansas banking companies

can go out and operate. I'd like to ask you what you think the implications of that are for the state's economy. And I'd also like to ask you even more specific sort of reporter's question, I guess. Will the fourth financial in this new environment do you believe remain an independent company? Might it become a target of a larger banking company from perhaps Missouri? Which part of that question should I take first? Your choice. I've not been asked that question before, so I'm not sure how to respond to that. Which part haven't you been asked before? Interstate banking, I believe, can bring in more resources opposed to export resource. That is an experience that I've seen in the past where interstate banking attracts financial resource that helps the state. So from that standpoint, it should be a plus.

Do I expect or do we expect that there's going to be just kind of an opening of the gate in an onslaught in July? I personally don't happen to believe so. I believe that the industry is faced with a lot of consolidation in the central corridors going to have a lot of it as we move through the 90s and that includes Kansas. But to think that July 1 is kind of automatic for a lot of action on that date or near date, I don't believe that's the case. That's not saying that consolidation won't happen and that there won't be new entrances into this state. There will be. I just don't think it will be as fast and furious as some may think it will be. As it relates to fourth financial, our objective has been stated in the past that we are working hard and intend to be an important resource for the state of Kansas. I think that can best be served by us being an independent organization in this state and that's what we're working for.

To say ultimately that it couldn't happen would probably be erroneous. That's not our objective. Our objective is to build and be a quality institution in this state providing financial service to help this state grow and prosper. Thanks. Dick, you're a manufacturer. You are operating a diverse range of companies. I can't think of one more diverse in a sense from Pibles to Steel furniture for audio visual equipment. How do you see the labor market in this area in the coming year? Well, I very recently had a real eye opening experience, we traditionally in our manufacturing plant have very little white collar turnover and a considerable amount of factory turnover from time to time to try to find qualified people in the factory today, welders, break operators, this type of help is very, very difficult.

We'll run an ad for a week, we may get 10 inquiries and 9 or 10 of them are not qualified. We recently ran an ad for a general manager. We received 218 resumes, we had the pick of anything you could possibly look for. This is a mid five figure job. There are more people in that classification looking for work than I ever dreamed. I think we've got a very tight labor market, a white collar, there are a lot of people in the 25 to $100,000 salary range or they think they're there that are looking for work. The skilled trades are very tight, would that be because of competition from the aviation industry?

I think that's very fair statement and clearly mid-level managers by all the indications around the country are suffering particularly at this time, as companies get leaner. We've reached a point in this where we'd like to open this discussion more widely and get everybody in this room involved to the degree you'd like to be in questions to the panel, predictions of your own about how you think 1992 is going to shape up for the state, the city. Please come to one of these two microphones here at the front of the room and please identify yourself before speaking. Mr. Garvey? I've been waiting in vain for you to talk about the main issue and since the government has arguably three-fourths of our costs, it seems to me that it is three times as important

as everything else combined and I think we ought to talk about how we can attack that problem and get it back under control. The three-fourths of consumer costs are directed and direct government expenditures. If you look at government spending and you deflate it, it's doubled in the last 20 years. On a deep, if you take inflation out of it. And so if we're really going to get to the root of the problem, we've got to look at government spending. We'll disagree with that. If we look at why the economy is sluggish, I don't agree with the dummers and gloomers, but I do agree that the economy is sluggish. I think the best way to put it is we're crawling out of this recession. We're not bouncing out. The main reason is that we're trying to get out of it on a mountain of debt.

Now we always blame government debt. You're not only talking about personal debt, corporate debt, I'm sure. Every time we talk about debt, it's always government debt. We forget consumer debt and we forget commercial debt. And really government debt, mirrors consumer debt and commercial debt. We get the kind of government we want. I'd like to, this sort of leads us, this discussion leads us into a question that I've had on my mind as I've been reviewing notes for today and looking at some things. When I moved here 10 years ago from Michigan, Kansas was clearly a relative low tax state in the country. Property taxes were residential property taxes, certainly were relatively low. Economic income tax, sales tax and the overall burden.

I look at numbers now, Kansas is the number one state in the union now and the cost of owning an automobile, registering it when you take into account the personal property tax. Property taxes have gone up. I believe it is correct that the relative tax burden in Kansas is higher than in most, if not all, the immediate surrounding states. What's happened here? What has happened to the cost of government in this past decade? And what are the implications for this state's economic competitiveness? Any of you want to tackle that? I don't really know. It appears to me though that we stagnated for about 20 years as far as our infrastructure within the state and that we are paying a pretty stiff penalty to try to catch up. And we are probably trying to catch up a little too fast. And the example that you gave Clark the motor vehicle registration, of course, is an

example from a state that has a great many automobiles and motor vehicles and has led its highway structure to deteriorate terribly over the past 10 or 20 years or more. We are paying a price for that, but one that needs to be paid, I would say. I don't know exactly what other factors are involved there, I wouldn't pretend to, but certainly that's an important one. Darrell, does this give you concern about the state's competitiveness? Well, I think that is one of the very important competitive factors for businesses in the state. I happen to come from a state that had very high tax. And over the last half a dozen years, there's been a lot of growth of companies in Minnesota outside of the state, whether you talk about Honeywell or 3M or all those larger companies were developing and growing outside of that tax structure. So while I said this is a friendly state and it certainly is both on the human side

and from the tax standpoint from where I've been, the risk right in here is that the taxes are being embedded that will cause companies to be less competitive going forward. And it's not only within the state and around the globe, but it's those contiguous states that we compete with to attract more business and increase jobs and more cash flows if you will for the state and for the communities is why it's very important to be looking at that subject and doing what we can to lower that overall cost structure. Very? Well, we have historically relied much hairier on the property tax than all but had full of other states. That's been tradition. Likewise, we'll be somewhere 33, 34, 35, 36 depending on the year among the 50 on sales and income tax. So our tax structure has been skewed very heavily towards the property tax compared to the

other states. We left that property tax system deteriorate year after year after year. We finally, under the threat of court mandate, did reappraise, classify at the same time to try to really the purpose of classification of property was to legitimize the illegitimate system at that time. It didn't quite get that done. So then we updated a system that had been deteriorating for 20, 25 years just like that in one year. And it's taken a big bite and it's had tremendous shifts. So the numbers look different than they did before but it's really based on a one year change abruptly. And so the old tax makes issues back on the plane again. I don't know why when we're talking about property taxes.

I look over your shoulder and I see Nester Wigan sitting there and I think of him right away. But Nester, would you mind if I ask you a question about, I wasn't going to ask you about property taxes as a matter of fact, I wanted to ask you. I decided to do it anyway. No, you're welcome to talk about it but what I did want to ask you about, we talked earlier about real estate and particularly residential real estate and the outlook. I wanted to ask you about what you thought the 92 outlook is for commercial real estate here. Well, in terms of commercial real estate, we feel that you got to break it down a little bit. There is no investment real estate because of what Congress did in the 86 tax reform act. So that hasn't been here. In terms of the office market, if you exclude the epic center, we expect that there will probably be 95% occupancy in class A space. Class B space is about 18% vacant in class C space is about 40% vacant in our city and

it probably will remain that way this year. In terms of the retail sector of the marketplace, again, the class A space will be in the high 90s, mid 90s anyway through this year. One of the big problems with retail is the pass through of property taxes. We had four, five hundred percent increase last year and we're going to have another increase coming out now and there are many retailers who cannot pay that property tax increase. They went bankrupt last year, we're going to see a little more of it this year and that's going to be a heavy burden on the retail sector. But because of the fact that there has not been a lot of new construction and the bankers are not eager to go in and loan on speculative things, regardless of it be residential commercial industrial, whatever, because of the supply, at least hopefully there will be some absorption of the existing space.

But Daryl, is that true, are you feeling extremely reluctant right now to lend on speculative development? The answer is yes. I think of what Nester brings up, the tax law change in 1986 that took the investment out of it, some over building that happened prior to that because there was in fact a lot of encouragement to build so there was oversupply coupled with in the tax change, I think in this state in 1989 for commercial real estate, you just can't help but think about the 80s and kind of the ravages of inflation and the build up of artificial values, if you will. And then along comes the pain, the contraction of values, and from a banker standpoint or the banking industry, you're looking at that balance sheet recession or depression because the old hard asset, excuse me Nester, you can stay right there. Nester, I keep being tempted, you've got this banker here, isn't there anything you want

to say to him? I'm thinking of these two borrowers, we're standing on the corner and one was saying you know what things don't improve, I think I have to rob a bank and the other one said if they don't already have. But importantly here, if the real estate, commercial real estate business is kind of hit bottom here and if interest rates stay low and if we can manage the tax problem, I have to believe that there can be some slight turnaround maybe albeit small. Well, you know we hope so but in terms of the investment real estate unless Congress does something with the passive loss rules, that is not going to come back. So in terms of the idea of at least investment real estate hitting bottom, it hadn't hit bottom and they're going to have to change those rules because they singled out one industry and said you cannot deduct your legitimate losses from ordinary income, only industry

in this country. In Congress did it, in Congress is going to have to repair it. Until it hits bottom, bankers won't be very anxious to be in the business. That's correct. And maybe you're a man who builds these buildings. Could I ask you what you think the outlook is for construction in this atmosphere in 92? I think it's pretty obvious that there's not going to be a whole lot of commercial real estate or office buildings built here under that kind of circumstances. But I'd say that what you talk again is an island very fortunate as compared to the rest of the nation, where overall construction is down something like 30 percent from where it was a year and a half ago. In what you talk, we're doing very well. The health care professions are spending a lot of money to give us better health care. The aircraft industries are healthy, Boeing, assessment has spent a big bunch of money. They're doing well and they're keeping the construction industry well.

And then we do have this infrastructure, as we say, the northeast circumferential is nearly complete, but there's still work to be done there. We hope to go further with Kellogg this year. There's quite a bit of work to be done. And I'd like to comment on another one. You ask about why is Candace a little healthier? And besides the fact that we took our lumps earlier, I think that we are not losing as much industry as places like California or Minnesota because we have a work ethic among the Kansas people that is, in fact, different. And I know I can sound like boosterism, but we work in a lot of places. And I'll tell you there is no place where we have people who have consistently come to work on time. There's some other states I could mention, we're opening day of dear seasons like a national holiday. I mean, nobody shows up. Yeah, a lot of you know about those kinds. We work in a lot of other places and nowhere do we have the same kind of attitude that we recognize that management has got to make a living if we're going to make a living.

And I think that comes to some degree from the agricultural background that all of us are relatively close to. We, in fact, either we or our grandpa or uncle or somebody ran the farm and we knew what it was to take responsibility every day for getting it done because when we were up on the North 40 and the tractor broke down, there was nobody there to help us. We had to either get that baby fixed or we walked back home and started all over again. And throughout the background of all of us, a large part of the Kansas community I think is an attitude that of self-responsibility and that we do, in fact, believe in free enterprises. Kansas is an exporting nation not only in agriculture, but Boeing is the largest exporter in the United States today. If we don't have free trade and are those who say we shouldn't, we don't have free trade and Kansas is going to suffer more than anybody else. Speaking of Boeing, is Mike German from Boeing here in the audience? Mike, would you mind coming, I'd like to ask you, come forward to the microphone here.

I'd like to ask you representing the state's largest private employer, what Boeing's outlook is for 92? Well, I think 91 was relatively stable and we, I think 92 is going to be relatively stable too. It's Martin E.B. indicated that we are very much involved in the international marketplace as is SESDON, BEACH, LERJET, FIASIO. So it's very important that we have a very favorable worldwide economy. Pacific Rim countries do well. Western Europe does well and we need strength in the domestic economy as well. Very flinch ball earlier, I have to mention that we're entering something called a silly season, an election year. There are already indications out of the White House that the president may be ready to propose defense spending cuts even deeper than originally programmed. Do you see that as having a near-term impact on Boeing?

The Boeing company, as a whole, is going to be impacted. Boeing, Wichita, we don't perceive as being terribly impacted at the present time. The defense side of our business a few years ago employed about 7,500 people. As we started seeing what was going on in the national defense budget, we started increasing the commercial side of the activities here in Wichita. So as the defense employment came down somewhat at Wichita, we were in a position to take advantage of the increase in the commercial market. So as those employment numbers on defense side came down, the numbers on commercial side went up. I think we're probably pretty well positioned in Wichita, not only Boeing, but the general aviation companies and the product mix, the types of products in which they engage in. The defense side of the Boeing Wichita activity is on the product support division of the defense and space group. Our principal contracts are on B-52 upgrades, a KC-135 re-engineing programs, a-6 re-wing.

Some of these activities that will probably continue if you're not going to go off and charge off and invest in whole new systems. Thank you. Thank you. Barry? You're already up. All these gentlemen that have been to the microphone, I think point out something that we forget frequently. And that's the importance of basic industries. It's always new industries, niches, exotic industries that get the publicity. But this is a wheat, beef, oil and gas, small aircraft, state. Not just small aircraft state, period. That's the fundamental foundation of the Kansas economy. And I think those basic industries will be healthy in the night.

And they came to the microphone and pointed that out. We don't want to forget that. We're nearing the end of this part of the program. I am struck by listening to the panel, listening to the comments from the audience and thinking back over eight prior conferences that I've been at, that this is a pretty upbeat conference. And strikingly so for somebody coming from a part of the country where economically things are very downbeat, from real estate to retailing, financial services and so on. I'd like to take these last few minutes that we have and go around this panel one by one and ask you to give me a quick few sentences of summary to kind of bring this together before we go to the breakout groups. Barry, could we start with you? Well, I'm glad to hear you say that we're going to end this on an upbeat point of view because I think there's plenty of reason to be upbeat.

I think the American economy is in much better shape than we read and hear about, especially in Kansas. I just hope that the Congress and the President don't do some stupid things in January and February to abort the recovery. It is an election year and that's what worries me the most, frankly. Dick? I think the Kansas economy is pretty solid for this year. I have some preparations about the national economy myself. I think that I'm not sure that we have bottomed nationally. And I'd fear that there may be some rough road ahead, yet even given an election year. And certainly the politicians are in a position to try to improve it, but I'm afraid they might do some things that will only aggravate it. But your sense right now, anyway, is that whatever happens in the national economy, Luke Holmes, Oasis here will continue to be that through this coming year.

For this coming year, I don't see too much on the horizon that's going to undermine the Kansas economy. One day? Well, I'd say on a somewhat lighter note that I believe that with characteristic humility, which it ends and canzans will endure yet another year of relative prosperity. Darrell, I too believe that 1992 should be a good year for Kansas, and can even get better, I hope, as interest rates stay lower, and the value of dollar is attractive in competing in our businesses, products competing around the globe. So I think the prospects are good. Thank you. In 1992, Kansas' economic conference continues with a discussion on education and taxes. Our panelists are Phil Kusneris, Cessna, Barry Flinchbaugh, Professor of Economics from Case State, Joan Wagner, Chair of the Taxation Committee of the Kansas House of Representatives,

Lionel Alfred, former Chief Executive of Boeing Witchtie, and Melva Owens, Superintendent of Derby School's USD260. Gerald McDougall, Professor of Economics at Witchtie State University, will moderate. I would like to go around the panel and ask an opening question to try to sort of get the lay of the land and the major issues that confront us in the context of financing education and responding to judge Bullock's order that the current system is unconstitutional. And the question is a two-part question from your particular perspective. What would you assess the probability that the legislature and the governor will come together with an acceptable plan without going into special session? And what is one or what are one or two major issues that would lead to that success? Phil, you get to start.

I think from indications over the last 30 days or so on things that I've been following and I'm fairly distant from the subject, my business is employing people, really. But I do have a vested interest, absolutely, in what's going on in education that I think the prognosis is good, that something will happen. Probability, one to a hundred, a zero, no chance. While something will happen, of course, but good things in the six to seven on a scale of 10 kind of rating, mainly because of the awareness in three areas in community, business, and the educational sector that, you know, it's Christ's time and something is going to have to happen. I think this is a good year. It'll probably happen. Barry? Well, I sense a commitment to cooperation between the executive branch and the legislative branch that I didn't see a year ago. But I think the odds are no better than 50-50, that they can solve this and have it turn out to be constitutional within the parameters that you laid out.

That is a tall assignment. Joan? Well, I am an optimist and I think we can do it. I believe the judge opened a window of opportunity for us when he issued his opinion and gave us some guidance on where we need to go with that. The concept of a statewide mill levy has been around for a long time, but I think we now have the very large hammer of if the legislature doesn't resolve this issue and the judge makes it very clear it is our job to resolve that we will be back in October and there will be no funding for schools and instead of campaigning and knocking on doors, we'll be redoing what we didn't do this time. I think that hammer is sufficient to nudge us over past the 50 percent. It's not going to be easy, but I think we'll get it done. And I'm pleased that the governor at least at the outset is cooperating. 51 percent or 80 percent? I'm not a betting woman. I'm just going to work hard and we're going to do it. Lionel, you've looked at the tax structure and the tax problem state is confronting.

How do you assess the probability that the governor and the legislature are going to be able to come together on this issue? It's not that they don't want to, but the problem is more complex than just applying a mill levy of 45 mills. If you do that, all of a sudden you start ratcheting sales, tax income, tax cutting budgets, economic development, rural, urban, so I think it's going to be a tough one. I think that they'll ask for an extension of a year and perhaps a judge will give them that or else he'll mandate something. But I don't see a lot of hope. Double doubt at the school district level. How do they assess the situation and the probable outcome? Well, it's said to kind of superintendents, I haven't just discussed this in the past week and I'd have to tell you, I'd have to go to the D minus, I don't think that we'll reach a decision that will help the schools this year. And I'd have to agree with it, Lionel, there's many things that's involved in that, but

I think one of them is a parochial view of school people themselves. Looking at our own district and not looking at students' needs across the state and we have to look at that. I think the other thing is some election here and let's face it, we do let our legislators know what we want in our local areas and if we're parochial that's a type of pressure we're going to put on legislators so we can't blame them for everything that happens there. We're part of the problem and so I think that we have to change our whole view and take the commitment for children for the entire state of Kansas for it to happen. Let me follow up on that because you touch on another question that I have and that is that the issue of complete state financing or fully financing education via the state does raise a question about local control. Now Judge Bullock has suggested that many school districts will have more control because they will have more money to work with because the purple expenditures will be higher with state support but also there's going to be many school districts that have less money

to work with and presumably if you use the judge's argument they will have less control. How do you view this as a superintendent and your ability to develop the best educational program for the children in Derby? Do you see this as constraining you and limiting you and harmful to what USD 260 wishes to do? It's my personal opinion that it would not. I do think that there has to be some guidelines set. I really believe that the state needs to set some outcomes, some standard of measurement because I believe they have to be able to be accountable for the money that we spend and I think if all of us are held accountable and we know where we need to go, each one of us have a choice of how we're going to reach it. I don't see the state telling us how we're going to get there. I think we still have control over the important issues and that's the educational issues. The financial issues may be less and we may be spending less time with the negotiations

table talking about what money we have and don't have and spend that time on educational issues. Barry, you mentioned in the opening session the tax mix. If the state is going to accept the responsibility for financing K through 12 education, why use the property tax at all? Why not provide property tax relief for every community, individual household and firm and adjust the rates and income in possibly sales taxes to generate an appropriate tax burden? Well, if you're going to go to, if you're going to eliminate the property tax completely in terms of school finance, roughly speaking, you're talking about doubling the sales or income tax and I don't believe the state's ready for that. But isn't it true that people pay taxes? So whether I pay it in the form of a check made out to the property tax division or check made out to the state's treasury and my income tax doesn't matter?

Well, sure, it's true people pay taxes but the issues which people are going to pay the taxes. And we change the tax mix that drastically. It will change who's paying the tax. There's going to be a tremendous amount of shifting going on. And some people view shifting and shifting. And therein is the political issue. Lionel, you've looked at the state tax system. Is your response congruent with berries that we do need to rely on the property tax to support at least a portion of our K through 12? Well, our study showed that we were lying too much on property tax, already been expressed here. And I agree with that. I was locked in the room with a balance of Republicans and Democrats and I found out something I already knew Republicans don't like income tax and Democrats don't like sales tax. So we said we're going to stay in here with our food and water to agree that we've got

a compromise. And so we agreed that the person hurting the worst with a small business commercial property guy, our lady. And that had to be fixed. And that the reliance and the ability to keep piling on mill lab is the support school systems had to be addressed in some way. And so you've got to make a shift unless you can cut 250 million out of the state budget and that's laying off employees. If you can't do it, you've got to make a shift. We shifted property taxes to sales taxes and income taxes. Now we tried to attack the 24 pages of taxes that are exempt to get money. And that's a sacred cow. I don't ever try to do that. And the legislature is not willing to talk that problem at all, by the way.

And I couldn't find out how you get on that exemption. I said, I got to pick up truck, my church users, and my neighbor's users, how about me getting exempt? I said, why don't you come up and try? I don't know how you get on the exempt list. So we got some unfairness in the tax system, and we got to get some balance, but it's going to shift taxes. And if it's a constitutional amendment, and the general public pulls that lever, it's not going to income taxes and sales taxes. It's going to property taxes on commercial property, probably. Long answer. John? In fact, how can the legislature, how can you talk about and decide funding issues without looking at the costs of instruction in the curriculum? The tax cost is only one side of that coin. The other side is the curriculum.

And that's probably going to be one of the most difficult issues. I want to just clear up two things before I start into that. The Constitution of the State of Kansas provides that local school boards will continue to run local schools. So even if you revoke their levying authority so they can't raise taxes, they're still going to be in charge of just as Melva said, teacher salaries and curriculum and instruction. It also provides that there's a state board of education that makes decisions about what kind of curriculum that we offer, what are minimum requirements, and all of the discussion that we've been having in the last year about educational reform, in part, involves the state board of education and their role in it. In the past, the legislature's only role really has been to write the check, and we've had absolutely no accountability and no control over anything that goes on. What we're looking at now is a different kind of system where we say, what is a reasonable cost to educate a child in Kansas? And say you take $4,700, which is the median budget per pupil right now. And we say, count up your number of kids you have on September 15th, multiply that times

$4,700, and that's how much you're going to have to run your schools. That's basically what the judge is saying. Now you can get a little bit more if they're a special ed kid. You can get a little bit more perhaps if you have more than 300 square miles in your district to account for mass geography. How we define those waiting factors, what causes you to get more than your allocated amount per pupil, is something that none of us have ever debated before. And we're still trying to figure out how that works. There's a lot of information that's available from other schools, but it's by no means perfect. My guess is that if we can pass the task force proposal and stay within the judge's guideline, the nature of school finance debates in the future will center on how much more does it cost to educate a special education child than it does a regular student. And what is a reasonable amount of money? And the answer is that we don't really know. We'll probably work off those medians for the first year.

The byproducts of that are small districts that have had the luxury because they've been able to levy, they have wealth in their district, and they have relatively low levies. They have high budget per pupil. Well, maybe they're going to have to look at some consolidation issues. There going to be a lot of other changes, a lot of control, that they're going to have to exert to stay within that amount of money. So that's how the debate changes. It gets away totally from taxes, and it talks about how much does it cost to educate a child. And then what kind of education we want becomes important. I see the real benefit of this is that everybody will be at the table because everybody will get money from the state. So those no-a districts in the past that have ignored the education debate because it really didn't affect them are going to have to be part of that discussion in the future. Phil, I looked at a handout that we got with our packet today and it asks people what they think about certain aspects of our community, and schools is one of those. And I notice it's the lowest ranked category.

And most of the categories are below average, but education is farthest below average, just by a little bit, however. But it still is at the bottom in those categories. Do you think this debate and this refinancing of education is going to improve our schools and therefore make your job a little bit easier in terms of finding qualified individuals for those production jobs? Because the workforce of today and tomorrow becomes even more diversified, and I'm seeing candidates for employment looking at Wichita and the companies here become increasingly more concerned about family and careers and security and everything are important, but also family and community as factors in evaluating making an employment decision. We've got a lot of good things here in Wichita and arts and museums, and there's good things going on with expansion and it's a healthy community.

That's very apparent when somebody comes to town, but education, the controversies around it, particularly in the last year, have made a noticeable difference in our conversations with prospective candidates looking at coming to Wichita. It has to be resolved. I think the awareness of that is very, very important because our continued health here in the Wichita and Kansas area not only is keeping our people working, keeping pace and education with the advances of technology, but it's also our ability to bring in the kind of people that we will need to continue that progress in that cycle. When people do come to Wichita and we get into discussions, the healthy things that are happening, maybe centered around Judge Bullock's decision or opinion at this point, are at least generating the awareness that we are trying to address those things. What effect is this legislation that you would envision coming out of this process?

What effect will that have on rural counties and rural communities and consolidation of schools? Well, number one, it's erroneous to view this as a totally a rural urban issue. It has rural urban aspects. There are rural school districts that are levying above the average and therefore would benefit from a reduction to the average mill levy, at least in terms of property taxes. There's been very little discussion about the income tax portion of the current formula and the fact that we return what 25% is that correct now of our income taxes to the district of origin. I would assume following the philosophy of Judge Bullock that that's just as unconstitutional as the property tax and we might find an interesting coalition come out of this and that would

be Johnson County and those rural districts that have very low mill levy. Politics makes strange bedfellas and that would be a very strange one. Could easily happen. Certainly, if the wealthy rural districts are not allowed to spend above the limit imposed and that limit is such that every child has an equal opportunity, so to speak, that will force some consolidation eventually. It has very serious ramifications for the rural areas and they're going to pay close attention to it and it could be very divisive and it could end up rural urban. Those who have drawn the lines rural urban have not dug very deep into the issue. Let's take the political side of this but let's look at the educational side and there's some talk that many rural school districts, for example, are not able to provide what would be described as the region's preparatory curriculum because it has such suggestions

as instruction and foreign language or they don't have the finances or ability to provide instruction in some advanced science courses, high school physics or they don't have the chemistry lab. Do you see an outcome of this discussion, the provision of resources that would allow some of those districts then to be able to expand their offerings and maybe provide a stronger university preparatory curriculum? Well I think it's a misnomer that the large school districts send to the university, better prepared students and highly qualified students and smarter students or whatever you want to put on them, than the small rural districts. I don't have the statistics on top of my head and I have a skewed sample as far as my own students because I get more from the rural areas but I find very good students coming

out of these very small rural schools and with the advent of technology that's now available, satellite, et cetera and some of the innovations that are occurring in terms of the small rural districts with modern languages and those types of courses doing it jointly, hiring teachers jointly and going across districts. I don't think you can draw that conclusion that this is going to send us better prepared students and so forth if we change the way we finance, if we decrease the number of school districts and we follow these prescribed prerequisites, join you in a comment. I just don't want us to fall into the trap of a one-size-fits-all solution. Judge Bullock's order only spoke to a very small part which is how you distribute money for education.

The whole notion of educational reform and what we need to do to have schools meet the competitive needs of plants like Mr. Costneros and all of the challenges of competing in a global economy and how well-prepared students are, those are all issues that still need to be addressed but just the school finance formula itself is not going to address those. We need to change the way we finance schools and we also need to reform schools so that they are more responsive to future needs and that's a whole different ball game and I think that's what Melba was talking about. I think particularly in the rural areas, again technology has certainly added to the curricular offerings and the outcomes of those schools and I think beyond that is what we were talking about the sharing of district resources and I think this will be the small school's reaction to keep from being forced to consolidation because of finances. I think they're creative enough that they're going to find ways to find those resources but Judge Bullock's decision and the task force does not take away that flexibility from those districts.

In the judges ruling there were really two points that struck me. One was on the financing side and the constitutional mandate but he also called attention to another constitutional mandate and that was to provide a minimally adequate education. In his words he said he did not think that that was a problem now but warned that the definition of that could arise in the future and then gave the example of Kentucky and some criteria that were used to attempt to define that minimally adequate education, that curriculum. I heard the judge saying that the state is going to have to get involved in the curriculum side because that debate will arise once somebody observes there's differences across districts in their curriculum. Gerald, if you define outcomes, the state defines what they want to be achieved. I still believe that there's flexibility among all those districts of how they arrive

there. The real fear is whatever outcome is set and we found this like in the required number of days of school the minimum becomes the maximum and I think that's what we really need to guard against. When we talk about the minimum adequate education from an employer and there's a lot of people in this room probably during the course of a week review a lot of candidates for joining their corporation, their team. If anything I could say at this point I'd love to have a confidence in a diploma no matter where it comes from, no matter what school district it is, no matter what state it is, and a diploma that would compete on an international scale. So very carefully we need to define what an adequate education is. John, I think Phil touched on an issue. That's an adequate diploma. That meets the basic needs of industry and commerce. What about that school district, that community that wants to strive for a higher level of

excellence? Do you think the legislature or there's a way of providing some flexibility that allow a school district that says we want to provide an extremely high level of excellence in our students and go above whatever minimally adequate is? See this is going to be the debate and this is the point that Johnson Countyans will bring up more often than not because they see us moving towards mediocrity or at least this is the tenor of the dialogue that's gone on so far. And if you look at similar kind of legislation that passed in Texas, that's always the critics challenge to this, that we're going to move everybody to the middle and there won't be the opportunity to reach for excellence and we're willing to pay a little bit more so why shouldn't we be able to? And basically what the judge is saying is that no you can't because what happens is that the pockets of wealth do pay more and those poor areas get short shrift and Barry was talking about the rural urban split.

It's never been greater in the legislature politically between urban and rural. This concept that we're moving to now makes everybody who sits in the legislature responding to their constituencies worried about a quality education. I think it broadens the advocacy group. Now if I'm wrong and we have mediocre education in 20 years somebody can remind me of this but I see it is the only opportunity to heal those rifts between urban and rural and exacerbate differences but get a larger group for quality education. Maybe a little optimistic but if we let them spend what they want then we're back in the same mess we're in right now. Now that you have something to say, would you like to spend an extra $500 for pupil maybe in your community? Always and if you tell me that I have X number of dollars for special education students I can tell you we all have some disability and I will have a number of special education students. And so we're going to as we develop this plan be very definitive and what we are going to fund and I think one of the things that we want to say that there are consequences

for not doing what the state wants and there are rewards for meeting or going above the standards. And so I do have an incentive for doing more and I think the state needs to look at providing funds for those kinds of incentives and also consequences for not doing them. Is it possible to address the education finance issue without taking really a comprehensive look at the tax system and the issue that very raised tax mix that in fact that when the dust settles that we won't have a school finance plan but really a comprehensive reform of taxation in Kansas? Well I think you have to do three things probably first you have to have a reform in tax system. Two you have to have some understanding of what educational reform is. And I think we're six to seven years away from it in this state of getting that understanding

if I can look at the Wichstall School Board where we're still fighting and came free as a community on what reform is going to be. So I think and then the third thing is is it fair and equal and that's what the judge wants to say should be done to all districts. So this has to be a total package and it has to be thought through well enough so that we just don't say well we got financing settle you're going to get this this and this and everybody has three thousand dollars per head and you spend it how you see fit. I think the state is going to have to take an aggressive position on what is a criteria that determines an educational output whether it's the fourth grade, eighth grade or twelfth grade. Industry is now has no criteria to judge what the school system is saying. Because a student gets out with a degree and I think we don't solve this my position

has is being turned it over to private industry let them run the school system and give a full voucher system. I'm tired of the fighting is going on and the fussing and I don't know why they can be done but somebody's got to get on are we going to have kids out on the street no capability to get a job I don't know what assessment is paying to educate a person to be able to enter that job mark I know Boeing is paying more than we've ever seen as a humongous bill I don't know what the university is doing I suppose they've got remedial education out your ears I'm tired of that I want that school system to turn out a student and get a job and not go on the street 40% drop out of blacks it's got to change 55% of Hispanics has got to change and that's got to be addressed in this whole package and that's going to cost you some money okay so expect education to cost a lot of money whether 45 mil across

the state will do it I don't know and when you do that if I got I want to put in a meat packing plan in Dodge City and bring 250 people in there and I won't tax abatement for ten years and all of a sudden five other plants the same way who's going to put who's going to find that sad additional burden on that school system so you know the whole system got to be thought through and I think like on appraisals reappraisals and classifications we got all excited and we did that in a hurry and we screwed it up okay I hope we don't get excited and screw this one up because it's complex and it's no easy answer but you can screw it up pretty quickly in my opinion John I think Lionel raised a few more issues

here one are we going to have to maybe move to a statewide assessment system if we want fair and equitable and we have to overcome some inequities that would come about through differences in assessment it's been reported that if a 45 mil rate was applied then the shortfall would be around $195 million I think Lionel was saying no it's going to be more than that and then maybe another reason why it might be more than that is the necessity of establishing a building equipment repair and remodeling fund under one proposal that would be in the in the State Department of Education that really wouldn't and those needs really wouldn't be reflected in local school budgets now because of their one time federal investment nature do you think the legislature is going to be debating all of these and taking this into consideration well sure we are and we're doing we'll do in

the legislature what we're doing right here we get them all confused and intertwined with one another instead of you know being able to keep them sorted out separately the work that Mr. Alfred's task force did that produced the recommendation on looking at the re-appraisal system in my opinion is substantial and good and if that it's assigned in my committee I'm going to be pleased to take a look at that I think we need to move in that direction but I don't that's a separate issue from how we're going to fund schools okay if we have a statewide mill levy say we go in and revoke the authority of all these 304 school districts to levy taxes in the future because the judge says it's the state money so we just repeal that and the state levies that whatever the amount of that levy is property taxes as one kind of tax have the advantage of growing as the economy grows and its values grow and land values and property values are relatively stable so it's a good source of income if

they grow and property values are kept up to date the legislature is not going to have to stand up there with the banner headline in the eagles saying legislature raises mill levy you see what I mean so the pressure will be on us to make sure that we have a system in place that keeps values current and keeps it up to date and right now that's not happening county by county and I think the evidence that you all had presented to you and the proposals while some of them are going to be hard to get passed or basically sound so the appraisal system needs to be updated we have a separate problem which is how what is the rate at which we tax commercial property and that's a whole different issue but every time we have debated that and the only way to change that is with a constitutional amendment every time we have debated that we have gotten all tangled up in other problems and so you'd have one group trying to solve residential problems and other group trying to make sure that they didn't lose this advantage and basically what Melba describes is correct we each represent our parochial interests and when people across the state don't agree the

legislature can't either and so we never passed that if we can get some of those high mill levy areas down to a more reasonable level then I think the pressure will be off the legislature for us to come back in and look at the classification problem which still exists for commercial business maybe you can except for one item in this tax report maybe you can just implement that which is that item I'm a little bit nervous over the inventory tax on anything over 250,000 but the rest of it seems to be worth implementing I'm a real nervous about that inventory tax too I've been fighting like the Dickens to keep inventories from being tax because it's basically not fair I think there's a tremendous amount of mythology underlying all this debate and basic to this whole argument is that equal dollars means equal education and I have never seen a piece of research to prove

that and if the judge thinks that he doesn't know what he's talking about I don't think he thinks that he may not know what he's talking about but he has no other criteria to judge that and so I don't think he's totally stupid in that judgment I didn't say was secondly we're talking about measuring input when we talk about dollars as far as a statewide average mill levy or the tax mix defendant we keep talking about input now as I read the judge I think he's saying equal opportunity I believe that's what he said when you go through all the legal jargon that's output eventually when the debate seems to be centered more around input and then the third real piece of mythology that I think's underlining all of this is that somehow the state is going

to pay the bill and local control have remained the same now I have always found that he who pays the bill does call some of the shots regardless of what the constitution says and I think there's three pieces of mythology that's underlining all of this discussion and let me add a fourth one if you take the judges conclusion to its rational end why should the education for that child on the west side of the river going through Kansas City be different than on the east side so if we take this far enough we really need to turn this over to Washington that's what we're saying I'm not sure what and it just keeps going I don't understand

what you're proposing are you proposing you take a legal case against the judge he's spoken now are you saying with this mythology you're talking about you're going to challenge him well there is a supreme court well I'm asking you is that what you propose well I don't think the judge is going to have final say number one I do well we disagree that I think it will go eventually to the Kansas Supreme Court and this issue has been brought forth in many other states as I understand it those other states that it's where it's gone to the Supreme Court the judges ruling is in line judge Bullock is a very astute individual and he's obviously well aware of what's going on in those other states it may eventually end up in the U.S. Supreme Court well I don't I don't doubt it may go to the courts but I think his evaluation of the Kansas school system is proper and I think that argument

legally will be sustained did it ain't fair and heck okay well you can't let that take a road scholar to see that fact well but you can't objectively define fair and equitable so we'll have to define it legally we find it we define it in dollars and less of the erroneous measure I think but what what are the criteria you're going to use well one criteria that's been mentioned is that I want the student to leave the high school with the diploma and get a job right Phil is that all you want from our educational system at K through 12 to have those skills those abilities that would allow that individual to go into the plant or go into the financial institution or really do we have to look broader than that well I'd like the educational system to be able to address everybody fill in those cracks where people are falling through the cracks and somehow understand you

know a informal survey for training costs of 19 top employers here in the Wichita area showed over 23 million training dollars in 1990 and there's no reason to believe that those aren't going on and they be increasing but a lot of that is for remedial education not just skills kind of thing but management kinds of skills communication reading writing just basic business writing is a task in itself I think that there are a lot of good reports blueprints however you want to call them that are available for the Kansas legislature and at a national level there are proven programs the Boston compact and Louisville experiment as examples that are very very good blueprints for the legislature to take a look at and as a taxpayer and I'll stand on the podium here for just a second I don't mind paying

a little more if it's attached to educational reform and I think business has to has to believe the same thing too so with that I wish the legislature good luck this year. You brought up the voucher system which is being tried to a degree in Minnesota for example in several other places and you've studied the judge's decision very thoroughly and so forth how are the two compatible at all in your judgment? I don't know I haven't seen the voucher system work yet and my position has been I want to approach that very cautiously because you can get excited over the voucher system and think it solves all our eels without thinking through how it's going to be implemented so I'm not saying I support it I said if we don't get a cooperative position on education then we got to try something else because it ain't working today and so privatization

of the school system and a voucher system may be one that we ought to study fairly and look at because right now I'm saying the schools are not very effectively managed to do what he wants to do and I haven't seen anybody in the school yet latch on to a system that does reforms that says we're going to check that student at the fourth grade, eighth grade and twelfth and we're going to certify that they are capable in whatever area of skill is required to compete and once they do that we may have something to work with but the voucher system hasn't been proven yet it ought to be studied and the legislature ought to study that and so should WSU ought to study that. As I read the judge's decision if the state provided the same dollars on a voucher for

every student roughly and then that student family made the decision where they went to school you would be meeting this equal opportunity mandate and you would be measuring outcome. You could measure it at least partially so are the two compatible you know that's the question. I think the market there would reveal output if we went to a voucher system and let that low income family have the $4,700 voucher and high income family and feel pretty strongly that answer no you can give me $900 and say that I have as much as someone that lives in Eastboro and I happen to live down in southeast Wichita. I may want to go to one of the schools up in the northeast and I have the money for part of the tuition but I don't have the transportation there and I think the next thing would be

is are we all following the same rules you know I might say do you want a new suit and I bring you a P green double net leisure suit and you say hey that's not what I asked for and that's same thing with voucher system we jump on the bandwagon say we want a voucher system because well I have input you define what it is I don't think you need me to begin to discuss it but I think we all have to play with the same rules and I think an interesting thing happened the other day and some people maybe in the audience was a meeting a young lady that was in the literacy program that couldn't read got up to be a testimony to the literacy program and was very obvious in her speech that she came through this type of a program at the end there was a time for question and the question was asked how could your parents let the schools do this to you and she said they cared very much about me they scrimped and they saved me and they sent me to private schools for 12 years or you know that's not what people expected to hear but I think you see a long range studies of people and I wish I could quote it there isn't a significant difference in the success now if you look at who's going to those schools and so if we talk about special education

we talk about transportation all the mandated programs if they're in those schools then we might have the same output but if you're in manufacturing you don't start with different input and come out with the same output you have to have same materials going in you're going to have same materials coming out I do think that one of the things that you mentioned the fact that in past years we always in schools were judged by how we did with the top 50 percent and we did quite well in my district 73 percent of our students go into college and so who is left to come and apply for those jobs as soon as they graduate from high school is it your A's B students those students that have been successful no and so you're not getting you know the 73 percent you're getting the others but we are not being successful with that group of students and today that's what we're being challenged to do to be more successful with those students you would agree we ought to have a steady made of the option so and look at them differently rather than arguing over something and we don't have enough facts on to read to clear conclusion and so I say you know the voucher says to ought to be

looked at in depth and we're out of the side why that has an inherent value it may have. John, you have a comment. Yeah just to respond to that comment as a result of the work the Children's Initiatives Committee did this summer there was a lot of interest in educational reform and all of this was before the judges opinion as well as in the Education Committee I think there will be a bill introduced that will run early in the session that will create a Blue Ribbon Commission to develop the kind of educational reform package that we might need and to look at issues such as this and it needs to be done outside the parochialism of the legislature or outside the parochialism of the state board of education certainly you need legislators involved and educators involved but it needs to have the business community and significant other involvement this was very successful in Ohio and in several other states and it is the one thing that does produce that kind of examination that you're talking

about and I'm hopeful that that will pass early in the session and we'll have a mechanism for that study. Great who do you think is responsible for education in the state at the state level it certainly isn't the governor. Now I think it's really split and divided we've had- Would you straighten that out and give the make the governor responsible for education and let her report the state school- I would I voted for that constitutional amendment every time it's been offered that's one of the problems we've got is you've got the state board of education over here and the legislature over here we write the checks they make the decisions and the accountability is missing. I wish you straighten that up. Well I'll take- Before we move into that maybe I ought to open it up briefly here to the audience and see if there's a question Tim you have- Well I congratulate the panel for talking about education reform which I think is even more important in the funding and I agree with Joan Wagner that we do have a window of opportunity. I would mention that with respect to people being concerned about their own backyard I think I don't think

you can get rid of that and the founding founders of the country knew that where we get into trouble is when people drag both that and ideology and we get the governor in the Democrats and Republicans all playing ideology if we can focus on facts on this particular if we just look at our system we're more than 2% lower than Oklahoma City and Tulsa in terms of sales tax and yet our property tax for commercials about four times as high so that's the kind of thing it just has to be addressed. Two last things- You did address to some degree this question of a constitutional amendment my worry is that if you attack this problem and you don't deal with a constitutional amendment that helps commercial we'll get a temporary reduction which isn't still enough to stimulate that part of the economy and it'll go back up again and then so I would ask this question to you let's say we do all these things and particularly Joan to start this off maybe would you have an objection to a limitation on state expenditures this goes back to that first discussion which would be key to growths and personal income that's been done in a number of states

and it basically says the states simply can't spend out of scale with what the income and wealth of the population is and it has had a slight- those states that have it have slightly reduced their proportion of government spending and those that don't have it have increased how would you react to that Joan? I really don't like those artificial controls I mean we have the power just to not vote on spending it's my prediction we're going to cut fifty million dollars out of state budget this year because we're not going to come up with the money that's the way to do it rather than to put some gimmick in place like Graham Rudman or some spending lead my question is what's wrong with the facts of trying to decide that all people should be educated to the level of their ability to learn and that we have a education system that's geared to teach these people to that level I feel that we try to decide

how far someone could go we don't educate everybody for college we don't educate everybody for manufacturing jobs but for whatever level that ones have the ability to learn they should be a system and a public school system that will teach them to that level and I think until we decide that that's the way that we going to teach then we are missing the vote on how we're going to turn out educated people know what your action to that what's preventing you from doing that well that's one of our goals now is to teach to the level but I think what we need to do is to be able to identify what those levels are with each and every individual if you look at the true outcomes based education model that we're doing in our district and some others across the state that's exactly what you do each child has an individual education plan

that determines what their outcome will be but I go to what Phil was saying when that person comes to them we need some type of a document to be able to tell them the school system says that this is where the student is that you're able to know by the credentials of what that student has and is able to do because outcome says you know this is what they're able to do that's what they can demonstrate and then we must be able to show that to our publics would be the university the workplace where it may be but I do believe it's still important to work with the individual because otherwise where a dropout rate is going to go out much greater than they are today just just a follow on comment I think there you can see the significance and the importance of counselor advisory and vote app related education in K through 12 what we can educate children for $4,000 privately and we've demonstrated it for 30 years better than any school in Wichita or in the district and continue to do that and if you break up the

hundredth system schools into independent schools and let the parents choose and the voucher choose they will acquire a quality of excellence through competitive enterprise as you'll never achieve through the political centralized bureaucracy period I question is I well I brought up one of the problems we had we spitted each other across this fence and we raised up tensions of conflicts of ways to educate kids my feeling is and what we've been trying to do is get the business community the educators the school boards the superintendents the private sector to work together to see if there's a way that ideas can be expressed and expanded that we could read some type of consensus you will not solve this educational problem without some cooperative cooperative spirit and quit spitting at each other you got to sit down in the calm of looking at

those kids needs and approaching those needs in a calm manner and not trying to fire this or fire that and would answer that question that was brought up by the commission so I just plead for some way in this community we get a group of people who are willing to sit down and determine how best to educate that kid and it may be that some of the ideas in the private school has valid opinion but we get our backs up because somebody says voucher and we say oh that's the private says folks trying to take over the public school system and all of a sudden the wall goes up and we don't speak those walls got to come down education got to pull them down and say business you come help us business got to say I'm not going to interfere except getting a kid out that you can get a job and we want to work together but we don't do that we fight and we're going to

continue to fight and we won't do anything in education at which top eight years okay John this kind of bringing together the the constituencies does the legislature have the luxury of time and and and does it have the expertise and the structure to bring those groups together prior to the judge's opinion coming down which had a significant impact and really flip-flopped the agenda in one sense the work that was coming out the Children's Initiatives Committee and the Education Committee really recognize that educational reform is something that we've got to undertake not so much that I think our schools are going to hell in a hand basket because if we compare kids of statistics with national statistics they're not just got awful they're just not going to get us where we need to be in the next century I look at companies in this area we're all trading internationally the competitive demands on people so it's a question of getting where we need to go we still need to go through the steps of building the

groundwork a conversation in every school district across this state to determine what it is that we want our schools to do because if I knock on doors my constituents will say just teach of the basics and don't spend any more money and yet that doesn't meet the things that we've been talking about here so until we build a consensus across the state it won't happen that's why I think the Blue Ribbon Commission on Education Reform stands the best chance of bringing the business leaders the the community leaders and all those groups together to do that we don't have time to fuss around and not change the school finance formula that's what we have to do quick but the rest of it is a process that involves pulling together a statewide consensus on what kind of schools do we want in Kansas for the future this state has been proud of its educational product and its young people and I think we can get to that point again but it's going to be a slow and painful task yes I wanted I thought you might clear up this misconception I thought that the tax levy would be the uniform tax levy but the amount for each student even though it's been

said it would be divided the same there there would be weighted categories and that the judges' decision said that equal money might not be an equal education and it might take more money for a particular student with certain needs such as special ed or at risk or transportation and the other thing is I'd like to come in on equalized capital outlay that plan too and if you've got time dual track diplomas I believe that there is in the proposal awaiting for students in a variety of categories that would reflect some difference in the cost of educating that student. Jerry it helps if you set the levy question and how you're going to pay for it over here and think of it there's the proposal on school finances how do we figure out how to distribute the money and that's the waiting formula that's what the judge is talking about that you make and spend more in one area on a student than another because of unusual needs English is

the second language transportation special ed children at risk all of those things but that that's how we distribute the money keep that separate from how we're going to raise the money to pay for schools there are two separate issues well we also can put as I read it we put a population density figure in there too in the waiting in the waiting and and that should decrease the rural urban split we did that in the school consolidation bill I think it was 75 square miles but that's a separate issue from the statewide mill levy and have anything to do with the mill levy I think the question was raised about dual track diplomas and I'll presume that that means maybe a track for a university bound student and another track that that is for that student that at least immediately wants to enter the workforce what are the arguments pro and con on that I was trying to think it must have been eight or nine years ago I proposed that and I was

looked upon as a leper because one reason for that is then we began to label students at that particular time if you talked about vocational track that was labeling the vocation I'll never forget sitting through a conference with Dr. Daggett and 50 of us in the room he said how many of you want your children to go to vocational technical school well we were a group of educators all with doctors do you think we held up our hand our kids were going to Stanford and Harvard he spoke for an hour and after he spoke he asked the same question and every hand went up and the reason for that is when we talk about dual diplomas system we're still talking about both tracks meeting a certain level of outcomes and your diploma then would only indicate the direction that you chose your curriculum you chose a technical area or you will be choosing the college bound area and sometimes you'll find that the technical area has as much preparation for college as does the college bound area and neither diploma would bar you from going to college but it would identify those subjects that you didn't teach and I think if it would do that then I would be for it but if there

isn't any common level of outcome I wouldn't be for it thank you and I'll turn it over to Buzz thank you for watching the Kansas Economic Conference for 1992 we hope that what you've seen and heard will be of use to you in the coming year if you have any questions or comments about this conference you may write Kansas Economic Conference 1992 the Wichita Eagle PO Box 820 Wichita Kansas 6-7-201-08-20 for the Wichita Eagle in KPTS I'm Davis Merritt the Wichita Eagle PO Box 820

Major funding for the production of Kansas Economic Conference 1992 was provided by the Wichita Eagle and Beacon Publishing Company.