Wichita CID illustrates pitfalls of government intervention

A proposed special tax district in Wichita holds the potential to harm consumers, the city’s reputation, and the business prospects of competitors. Besides, we shouldn’t let private parties use a government function for their exclusive benefit.

This week the Wichita City Council will consider the formation of a Community Improvement Districts to benefit a proposed hotel in west Wichita.

CIDs are a relatively recent creation of the Kansas Legislature. In a CID, merchants may charge additional sales tax, up to an extra two cents per dollar. For more about their mechanism, see Community improvement districts in Kansas. In the present case, the developer proposes to charge hotel guests an extra two cents per dollar in tax. If retail stores are developed, their customers will pay the CID tax too. This extra sales tax, minus a handling fee, will be periodically remitted to the developer.

From Google Earth, a view of the restaurant and hotel on the subject property. If a house this blighted had been owned by a poor inner-city resident, the city would have long ago condemned and demolished the building, at the homeowner's expense.
From Google Earth, a view of the restaurant and hotel on the subject property. If a house this blighted had been owned by a poor inner-city resident, the city would have long ago condemned and demolished the building, at the homeowner’s expense.
One reason to oppose the formation of this CID is it contributes to Wichita’s reputation as a city of high taxes. The nearby table gives an example of what a hotel bill will look like. There’s the existing guest tax of 6 percent. The city started collecting the 2.75 percent “tourism fee” this year. 1 (How many cities charge visitors a fee for visiting?) There’s the combined state and county sales tax of 7.5 percent, and then the CID tax of 2 percent. The total of these taxes is 18.25 percent.

A sample hotel bill in Wichita.
A sample hotel bill in Wichita.
The mayor and city council members note that these taxes are paid by people from out of town. They think it’s a smart strategy. But some significant fraction of these taxes are paid by Wichitans, particularly the many companies that have their scattered employees travel to Wichita. And, has anyone ever paid a hotel bill for visiting friends and relatives?

Welcome to Wichita Tourism Fee billboardBesides this, do we really want to punish our guests with these taxes? A city tourism fee? Welcome to Wichita, indeed.

Another important public policy issue regarding CIDs is this: If merchants feel they need to collect additional revenue from their customers, why don’t they simply raise their prices? We can easily see their rationalization: It’s better for us that unwitting customers pay higher sales taxes rather than higher prices. We can blame government for the taxes, but we get the money. 2

There is the competitive effect on other hotels in the area to consider. Some hotel owners feel the ability of one hotel to collect the CID tax for its own benefit gives an unfair competitive advantage.

Customers of merchants in CIDS ought to know in advance that an extra tax is charged. Some have recommended warning signage that protects customers from unknowingly shopping in stores, restaurants, and hotels that will be adding extra sales tax to purchases. Developers who want to benefit from CID money say that merchants object to signage, fearing it will drive away customers.

State law is silent on this. The City of Wichita requires a sign indicating that CID financing made the project possible, with no hint that customers will pay additional tax. The city also maintains a website showing CIDs. This form of notification is so weak as to be meaningless, but this was the decision the city council made. 3

CIDs allow property owners to establish their own private taxing district for their exclusive benefit. This goes against the grain of the way taxes are usually thought of. Generally, we use taxation as a way to pay for services that everyone benefits from, and from which we can’t exclude people. An example would be police protection. Everyone benefits from being safe, and we can’t exclude people from participating in — benefiting from — police protection.

But CIDs allow taxes to be collected for the benefit of one specific entity. This goes against the principle of broad-based taxation to pay for an array of services for everyone. But in this case, the people who benefit from the CID are quite easy to identify: the property owners in the district. We shouldn’t let private parties use a government function for their exclusive benefit.

  1. Weeks, B. (2014). Wichita seeks to add more tax to hotel bills. Online. Voice For Liberty in Wichita. Available at: http://wichitaliberty.org/wichita-government/wichita-seeks-add-tax-hotel-bills/ Accessed 31 Aug. 2015.
  2. The premise of this question is not accurate, as it is not the merchants who receive CID funds. Landlords do. The more accurate question is why don’t landlords raise their rents?
  3. Weeks, B. (2014). Wichita City Council fails to support informing the taxed. Online. Voice For Liberty in Wichita. Available at: http://wichitaliberty.org/wichita-government/wichita-city-council-fails-support-informing-taxed/ Accessed 31 Aug. 2015.

Richard Ranzau on core American values in Sedgwick County

Sedgwick County Commission Chairman Richard Ranzau spoke on the topic “Returning Core American Values to Sedgwick County” before a luncheon audience of the Wichita Pachyderm Club Friday, August 28, 2015. View below, or click here to view at YouTube.

Videography by Paul Soutar.

Politics, the courts, and innovative solutions

Voice for Liberty radio logo square 02 155x116The Honorable 18th Judicial District Court Judge Phil Journey presented an inspiring and forward thinking presentation at the Wichita Pachyderm Club luncheon meeting titled, “Politics, the Courts, and Innovative Solutions.” Said Pachyderm Club vice-president John Todd: “Judge Journey’s common-sense, fair, effective, and innovative methods of dealing with people who appear in his court is superb.” This audio presentation was recorded on July 24, 2015. The accompanying visual presentation is here.

WichitaLiberty.TV: Congressman Mike Pompeo

In this episode of WichitaLiberty.TV: Congressman Mike Pompeo talks about passing legislation like the Safe and Accurate Food Labeling Act, the Iran nuclear deal and his role in discovering the secret side deals, and other topics. View below, or click here to view at YouTube. Episode 94, broadcast August 30, 2015.

Randall Harris, Utility Manager of Chisholm Creek Utility Authority

Voice for Liberty radio logo square 02 155x116Randall Harris, Utility Manager of Chisholm Creek Utility Authority, spoke on the topic “An Overview of the Chisholm Creek Utility Authority.” This was recorded on August 26, 2015, at the Park City (Kansas) Chamber of Commerce meeting. This is an audio presentation. The accompanying visual presentation is here.

The Kansas economy and agriculture

There’s no need for Kansas state government to exaggerate the value of agriculture to the Kansas economy.

A recent press release from the office of Kansas Governor Sam Brownback quoted the governor thusly: “Agriculture is our largest economic driver, bringing more than $63 billion into the Kansas economy.” (Governor Sam Brownback visits will reinforce the importance of Kansas agriculture, August 17, 2015.)

$63 billion is a lot of output. It’s about 43 percent of the Kansas economy. A document supplied by the Kansas Department of Agriculture provides more detail: “As shown in the above table, agriculture, food, and food processing supports 229,934.1 jobs, or 12% of the entire workforce in the county [sic]. These industries provide a total economic contribution of approximately $62.8 billion, roughly 43% of Gross Region Product (GRP).” (Estimated Economic Impact of Agriculture, Food, and Food Processing Sectors, May 7, 2015.)

The document explains how such a large number is obtained. It includes three components, explained here: “Direct, indirect, and induced effects sum together to estimate the total economic contribution in the state. Direct effects capture the contribution from agricultural and food products. Indirect effects capture the economic benefit from farms and agricultural businesses purchasing inputs from supporting industries within the state. Induced effects capture the benefits created when employees of farms, agricultural businesses, and the supporting industries spend their wages on goods and services within the state.”

This method of reckoning economic impact is from a model called IMPLAN. It is a proprietary system with methodology and assumptions not open to inspection. It often used by those who are asking government for money or tax breaks. IMPLAN comes up with some real whoppers as to how important an industry is to the economy. When shown these figures, government officials are usually swayed to grant incentives.

There’s a problem, however. Agriculture cannot possibly be responsible for 43 percent of Kansas GDP. The U.S. Bureau of Economic Analysis (BEA) has figures for each state showing the contribution to GDP for industry categories. I’ve gathered the data and calculated percentages for each industry. As you can see, the category “Agriculture, forestry, fishing, and hunting” accounts for $8,136 million or 5.5 percent of Kansas GDP. There are seven other industry categories that rank above agriculture.

Gross Domestic Product for Kansas by Industry.
Gross Domestic Product for Kansas by Industry.

5.5 percent is a long way from the governor’s claim of 43 percent. It is true that the title of the paper is “Estimated Economic Impact of Agriculture, Food, and Food Processing Sectors.” So consider these industry subsectors:

Food and beverage and tobacco products manufacturing of $3,463 million (2013 value; 2104 not available)
Food services and drinking places $2,776 million (Also 2013 value)

If we add these to agriculture, we have production worth 9.8 percent of Kansas GDP. This is being overly generous to agriculture. It counts all bars and restaurants as part of the agriculture industry, something that makes no sense.

So how do we take these numbers and pump them up to 43 percent? IMPLAN, that’s how. It’s true that when an industry causes economic activity to occur, it spawns other economic activity. These are the indirect and induced effects that IMPLAN produces. But these numbers are hugely inflated. And when we take all industries, economic activity is counted more than once.

Recall there are seven industry categories ranking above agriculture. When it suits its needs, each of these uses IMPLAN to boost its importance to the state. Consider manufacturing, which at 13.1 percent of GDP is the third-largest industry in Kansas. When manufacturing companies appeal to state or local government for subsidies, they use IMPLAN or related mechanisms to inflate their importance. Almost everyone does this. It’s standard procedure.

Except: When everyone claims the same indirect and induced economic activity, such analysis becomes meaningless. If we added up the IMPLAN-calculated value of each industry to the Kansas economy, we’d end up with a value several times larger than the actual value.

This is what the Kansas Department of Agriculture and Governor Sam Brownback have done. We expect this behavior from companies or local economic development agencies when they appeal for economic development incentives. They need to inflate their importance to gullible government bureaucrats and elected officials. But Governor Brownback doesn’t need to do this, and neither does the Kansas Department of Agriculture. From them, all we want is the truth, and nothing more.

Wichita Business Journal reporting misses the point

Reporting by the Wichita Business Journal regarding economic development incentives in Wichita makes a big mistake in overlooking where the real money is.

In a recent article discussing economic development incentives, the Wichita Business Journal looks at the situation in North Texas. (Incentives have meant big business in North Texas, Aug 24, 2015.)

Wichita Business Journal reporting misses the pointAn example used in the article is Toyota’s decision to move its North American headquarters to Plano. Toyota received incentives in conjunction. The article quotes Jim Lentz, CEO of Toyota North America, as saying “The incentives are really important.” But that hasn’t always been the line from Toyota.

At the time of the announcement last year, Forbes reported that incentives were a small part of Toyota’s decision, and that other cities likely offered more. Similar reporting came from the Houston Chronicle.

We can easily imagine Lentz coming to his senses, realizing that he needs to credit the incentives with at least some role in Toyota’s decision. Otherwise the local taxpayers — who have to pay for the incentives — might feel duped.

But a serious problem with the article is the claim that “But incentives now seem to be off the table in Wichita.” This is an assertion made by others, including our mayor and city council members. Usually it’s qualified that cash incentives are off the table.

But incentives are far from gone in Wichita. Cash incentives — most commonly forgivable loans — may be gone, but these loans amounted to just a small fraction of the value of incentives used. (Would you like to be able to reference a database of incentives granted in Wichita? Many people would. But to my knowledge, no such list or database exists.)

Instead, the incentives most commonly used — where the real money is — are tax abatements.

Earlier this month I reported about an incentive considered and passed by the Wichita City Council. Through the city’s Industrial Revenue Bonds program, WSF developers avoid paying sales tax on $4,500,000 of building materials. City documents didn’t mention this number, but with the sales tax rate in Wichita at 7.5 percent, this is a savings of $337,500. It’s as good as a grant of cash. Better, in fact. If the city granted this cash, it would be taxable as income. But forgiveness of taxes isn’t considered income. 1 2 3

The sales tax abatement granted was on top of other incentives, most notably STAR bond financing of $7,525,000. These bonds will be repaid by sales tax collections from the project and surrounding merchants. The beneficiaries will pay nothing. 4

The incentives illustrated above are common in Wichita. Again, with the city failing to track the award of incentives, it’s difficult to know just how common.

But we can safely say that the assertion by the Wichita Business Journal that “Incentives now seem to be off the table in Wichita” is incorrect. Worse than that, it’s irresponsible to make such a statement.

  1. Stateandlocaltax.com, (2015). IRS Addresses Federal Tax Treatment of SALT Incentives : SALT Shaker : State & Local Tax Attorneys : Sutherland Asbill & Brennan Law Firm. Online. Available at: http://www.stateandlocaltax.com/policy-and-legislation/irs-addresses-federal-tax-treatment-of-salt-incentives/ Accessed 26 Aug. 2015.
  2. Journal of Accountancy, (2009). Location Tax Incentive Not Federal Taxable Income. Online. Available at: http://www.journalofaccountancy.com/issues/2009/apr/locationtaxincentive.html Accessed 26 Aug. 2015.
  3. American Institute of CPAs, (2015). Federal Treatment of State and Local Tax Incentives. Online. Available at: http://www.cpa2biz.com/Content/media/PRODUCER_CONTENT/Newsletters/Articles_2008/CorpTax/Federaltreat.jsp Accessed 26 Aug. 2015.
  4. Weeks, Bob. (2015). In Wichita, an incomplete economic development analysis. Online. Voice For Liberty in Wichita. Available at: http://wichitaliberty.org/wichita-government/in-wichita-an-incomplete-economic-development-analysis/ Accessed 26 Aug. 2015.

A Republican dark horse?

Wondering if “the GOP isn’t on course to nominating their very own [Michael] Dukakis?” the Weekly Standard suggests a few possibilities, including Kansas’ Mike Pompeo:

Who could such a mysterious dark horse be? Well, it’s not as if every well-qualified contender is already on the field. Mitch Daniels was probably the most successful Republican governor of recent times, with federal executive experience to boot. Paul Ryan is the intellectual leader of Republicans in the House of Representatives, with national campaign experience. The House also features young but tested leaders like Jim Jordan, Trey Gowdy and Mike Pompeo. There is the leading elected representative of the 9/11 generation who has also been a very impressive freshman senator, Tom Cotton. There could be a saner and sounder version of Trump—another businessman who hasn’t held electoral office. And there are distinguished conservative leaders from outside politics; Justice Samuel Alito and General (ret.) Jack Keane come to mind.

From An October Surprise For the GOP?

Kansas schools ask to fund extraordinary needs

Asking taxpayer-funded entities whether they are operating efficiently is a perfectly legitimate question that, frankly, should be the starting point of every budget discussion. That some find it offensive is indication that the issue should be much more aggressively pursued across government, writes Dave Trabert of Kansas Policy Institute.

Extraordinary needs … or wants?

By Dave Trabert, Kansas Policy Institute.

Thirty-eight school districts have applied for additional state aid from the Extraordinary Needs fund based on increased enrollment, reduced property values, loss of state aid (just Hutchinson) and the reactivation of two refugee resettlement agencies in Wichita by the U.S. Office for Refugee Resettlement. The State Finance Council will decide whether — or the extent to which — each case merits additional funding from state taxpayers.

Several members of the Finance Council asked the applicants to provide information about steps taken to make their district operate more efficiently, to which some school districts, legislators and media responded with various forms of criticism. Asking taxpayer-funded entities whether they are operating efficiently is a perfectly legitimate question that, frankly, should be the starting point of every budget discussion; that some find it offensive is indication that the issue should be much more aggressively pursued across government. 

Kansas Policy Institute gathered the following data to help citizens make their own determinations, and even more information is available in our 2015 Public Education Fact Book. We requested a copy of each applicant’s Budget at a Glance for the current year from those who didn’t already have it posted to their web site in order to compare their current year budget with actual spending from prior years. We were only able to collect data on 21 of the 38 districts; remarkably, 8 applicants said their budget wasn’t finalized so the data wasn’t available. Seven applicants had the data but five of them would not provide it and two said they couldn’t provide it because those with access were away from the district. We were unable to get a response from the other two.

Some interesting information is found in the data shared by the 21 applicants, including:

  • 17 districts are budgeting more than an inflationary increase
  • 9 districts are budgeting more than a 10% increase
  • 10 districts plan to increase Administration more than Instruction.

Complete information on the applicants that provided information (dollar amounts by category including Capital, Debt Service and Total) can be downloaded here. The spreadsheet also shows the amounts each district received in block grant-equivalent funding for FY 2014 and the amounts for FY 2015 through FY 2017 as calculated by the Department of Education.

Kansas City’s 57% increase in Administration amounts to $15.7 million, which is ironically about the same amount that applicants are collectively requesting in Extraordinary Needs funding. A Legislative Post Audit efficiency study conducted in 2013 found that Kansas City was paying well above market for many positions and it appears that that may still be true.

The adjacent table is a sampling from the district’s payroll listing for the 2015 school year obtained through an Open Records request. Work of this nature could be outsourced at much better prices, with the savings made available for Instruction. 

Kansas City may be somewhat of an extreme example but it is very common for districts to have work performed by district employees that could be more efficiently outsourced. This is just one example of valid questions that should be asked of districts that are requesting additional aid. 

Allocation of resources to teaching and non-teaching positions would be another valid line of inquiry. Classroom teacher employment over the last ten years has outpaced enrollment in many cases and non-teacher employment has grown even faster. This is not to say that the relationship should be the same in every case, as there are a number of legitimate reasons for some degree of variance.  But the raw data — available here — allows for additional benchmarking that indicates opportunities more efficient staffing levels.

It would also be pertinent to ask applicants whether they provide lucrative payouts to employees who terminate or retire. The Blue Valley superintendent received a one-time payment for deferred compensation of $328,591 last year; the cost of that alone is significant but it could also dramatically increase his pension .. for life. The Shawnee Mission Assistant Superintendent collected $132,614 for unused sick leave and vacation upon retirement and could also collect additional pension as a result. Kansas City told us that the position of Chief Human Resources Officer was eliminated but his contract had to be paid out, which accounts for the large increase last year. 

Local school boards make these decisions to provide lucrative payouts but taxpayers all across Kansas pick up part of the tab, as there is no separation between what is paid with state and local tax dollars on items of this nature.

School districts may have made some spending adjustments but they are still organized and operating rather inefficiently according to Legislative Post Audit and other information. It would be appropriate for any grant of extraordinary aid to be conditional upon a commitment to implement substantive measures to implement specific operating efficiencies, including outsourcing to regional service centers and the private sector as appropriate.

Kansas school standards found lower than in most states

A second study finds that Kansas uses low standards for evaluating the performance of students in its public schools.

What is the relative strength of weakness of the standards your state uses to evaluate students? A new study provides answers to this question. The report is Why Proficiency Matters. It is a project of the Foundation for Excellence in Education.

This study is important because the most widely-reported source of data about student achievement is a state’s own assessment tests. But there are problems, as explained in the report:

A proficiency cut score is an actual number (score) on an assessment that draws the line determining where a student is proficient. States use different tests and set different proficiency cut scores to determine the proficiency level for knowledge and skill mastery. When proficiency cut scores are set too low, it conveys a false sense of student achievement.

Each state has its own tests, and each state sets the bar for what is considered “proficient,” as well as for other descriptive measures such as “basic.” It’s not surprising that states vary in the rigor of their standards:

The difference between NAEP and individual states’ proficiency expectations are wide and varied. Therefore, state-reported proficiency is not equivalent to proficiency on NAEP. This is referred to as the “proficiency gap”. States with large proficiency gaps are setting the bar too low for the proficiency cut score, leading parents and teachers to believe students are performing better than they actually are.

This study looks at the results students on tests in each state and compares them to a national standard, the National Assessment of Educational Progress (NAEP). By doing so, the study evaluates the strength or rigor of the standards used by each state. This does not judge the actual performance of the student. Rather, it assesses the decisions made by the state’s school administration as to what standards they will hold students.

This is not the only effort to assess state standards. The National Center for Education Statistics (NCES), which is part of the U.S. Department of Education, also performs a similar analysis. See Kansas school standards evaluated.

Results for Kansas

The results of the analysis show that Kansas holds students to low standards of achievement. Kansas says students are “proficient” at a very low level of accomplishment, relative to other states. This is consistent with the separate analysis performed by National Center for Education Statistics.

These are the findings for Kansas:

Grade 4 reading: Kansas standards are ranked 39 out of 50 states.
Grade 8 reading: 45 of 50 states.
Grade 4 math: 36 of 50 states.
Grade 8 math: 36 of 50 states.

Wichita property tax delinquency problem not solved

Despite a government tax giveaway program, problems with delinquent special assessment taxes in Wichita have become worse.

It’s surprising to read reporting in the Wichita Eagle that the city is owed millions in delinquent special assessment taxes. (City of Wichita owed $4.8 million in delinquent special assessments, August 15, 2015)

That’s because in 2012 the city adopted a program that rebated property taxes to buyers of new homes. The goal of the program was twofold: To help builders sell homes, and to help the city collect delinquent special assessment taxes.

In February of that year, according to city documents, “Current delinquent specials on vacant lots within the City of Wichita are an estimated $3.3 million.”

Now the delinquent taxes have risen to $4.8 million.

This wasn’t supposed to happen. At the council meeting Wes Galyon, president of the Wichita Area Builders Association, told the council, according to meeting minutes: “This program will also aid in eliminating current delinquencies on lots and new home subdivisions in the City and contribute to the developers and builders being able to keep taxes and specials current on buildable lots that they own and plan to build on.”

The city manager told the council, according to meeting minutes: “The other issue was the ability to collect on delinquent taxes and special assessments. Stated that is becoming a growing problem for us as we look at what is happening with the economy and home builders.”

A program that should not have been adopted

In his remarks to city council members in February 2012, Wichita city manager Robert Layton told the council, according to meeting minutes: “Stated they took a businesslike approach as they went through this and designed the program. Stated they consulted Wichita State University and the report references a 1.48 return on our investment just in terms of the present value of the direct and indirect jobs that are created as well as the construction expenditures, which was important to them.”

The manager was referring to an analysis prepared by Wichita State University Center for Economic Development and Business Research, titled Economic Impact of Proposed WABA Incentives, February 1, 2012.

In these analyses, the city attempts to estimate costs and benefits of a program, and adopt only those programs that have a positive ratio of benefits over costs. (Generally the city requires that the ration be 1.3 to 1 or greater.) Benefits are, according to the study, “sales tax revenues, from construction worker spending and construction material purchases, and property tax revenues.” The costs are the lost revenue due to the tax rebates. Following is an excerpt from a table that presents the results of analysis.

                   No Incentives    Incentives
Public Benefits       $2,364,429    $3,004,315
Public Costs                  $0    $2,032,312
Net Public Benefits   $2,364,429      $730,457
Return on Investment      N/A           1.48

Some, like the Wichita city manager, focused on the return on investment (ROI) ratio of 1.48 if the tax rebate incentive is used. (There is no such ratio if there are no incentives, as there is no investment.) The study explained the ratio this way: “For every dollar invested, the city will receive the initial dollar plus an additional 48 cents in return.”

That sounds like a good deal, and the ratios like this that are calculated by CEDBR are often used by the city to justify incentives.

But there is another way to look at this deal: the net value to the city. In this case, if the city did not offer the incentives, the benefits to the city would be $2,364,429. If incentives were used, the benefits would be $730,457. This means that if the city does nothing, it is $1,633,972 to the better.

That’s right: Even though the city had an opportunity to make an investment with a purportedly high ROI, it would be better off, dollar-wise, if it did not make the investment.

This illustrates the caveats of working with ratios. They are simply “the relation between two similar magnitudes with respect to the number of times the first contains the second.” A ratio says nothing about the absolute magnitude of the numbers.

For more about the problems CEDBR study found with the program, see Wichita new home tax rebate program: The analysis.

Wichita’s WaterWalk apartment deal

From August 2012, an episode of cronyism in Wichita.

On Tuesday the Wichita City Council will consider the type of taxpayer-funded giveaway that voters have shown they don’t like. How council members vote may set the stage for city elections next March and April.

Tuesday’s item involves a proposed apartment development on the west bank of the Arkansas River across from the downtown WaterWalk development. The apartment developer is WaterWalk LLC, whose manager is Jack P. DeBoer.

The highlights of the deal include:

1. The lease of 4.4 acres of city-owned land for $1 per year, for the next 93 years. City documents say the land is valued by Sedgwick County at $479,000. The city paid $919,695 to acquire the land in 1994 and 1995. It’s listed as for sale with an asking price of $1,153,344. The city is, however, asking the apartment developer to pay the full $93 in advance.

2. Development of an amphitheater, which was part of the WaterWalk master plan. Originally planned to be just west of WaterWalk Place, the condominium development on Main Street, the amphitheater will now be implemented as a floating stage in the Arkansas River. A $247,500 Economic Development Initiative (EDI) grant from the U.S. Department of Housing and Urban Development (HUD) will pay for a portion of the cost. Tuesday’s agenda item asks authorization to issue a request for proposal (RFP) for this stage.

Besides the sweetheart land lease, there are two other components of this deal that are troubling. One will undoubtedly be presented to city council members and the public as a big benefit to taxpayers, something that will actually profit the city. This is a provision that requires the apartment developer to pay “Additional Annual Rent.” Under this concept, each year the apartment developer will calculate “Adjusted Net Cash Flow” and remit 25 percent of that to the city.

To the casual observer, this seems like a magnanimous gesture by the apartment developer. It makes it look like the city has been a tough negotiator, hammering out a good deal for the city, letting citizens profit along with the apartment developer.

But the definition of cash flow includes a comprehensive list of expenses the may be deducted, including the cost of repaying any loans. There’s also an allowable expense called “Tenant Development Cost Return,” which is the apartment developer’s profit. The agreement defines this profit as 20 percent, and it’s deducted as part of the computation of “Adjusted Net Cash Flow.”

If there is ever any money left over after the dedication of all these expenses and profit margin, I will be surprised. Shocked, even. Here’s one reason why. One of the allowable deductions that goes into the computation of “Adjusted Net Cash Flow” is, according to city documents: “Amounts paid into any capital, furniture, fixture, equipment or other reserve.” There’s no restriction as to how much can be funneled into these reserve accounts. We can be sure that if this project was ever in the position where it looked like it might have to remit “Additional Annual Rent” to the city, contributions to these reserve funds would rise. Then, no funds paid to the city.

This is an example of the city appearing to be concerned for the welfare of taxpayers. In reality, this concept of “Additional Annual Rent” is worse than meaningless. It borders on deception.

Then, there’s this: The city has agreed to allow its ownership of the land (remember, the city is leasing the land to the apartment developer) to be subordinated to other debt the apartment developer may take on, such as the mortgage that will certainly be obtained. This means that if the apartment complex doesn’t succeed and there is foreclosure, the lender takes ownership of the city’s land.

Last week the city council passed a revision to its economic development policy that states that economic development incentives should have a cost-benefit ratio of at least 1.3 to one. No such number is given for this project.

Waterwalk, a problematic development

This deal is another chapter in the history of the troubled WaterWalk development. So far, WaterWalk has received some $41 million in public spending, and we have little to show for that investment.

Three years ago the Wichita Eagle editorialized: “Seven years into a project that was supposed to give Wichita a grand gathering place full of shops, restaurants and night spots as well as offices and condos, some City Council members and citizens remain skeptical at best about WaterWalk’s ability to deliver on its big promises. … True, the skepticism to date is richly deserved.” When our newspaper’s editorial board is critical of a government spending project in downtown Wichita, that’s a red letter day.

In 2009, after DeBoer took over the management of WaterWalk, the Wichita Eagle reported: “‘I’m not going down to City Hall with my hand out,’ DeBoer said. ‘I can’t. The city has put their money in it, and I’m happy with that. We’ve put a lot of our own money in and that’s OK. Now, time to deliver.'”

Leasing land worth $479,000 or $1,153,344 for one dollar per year: To me, that smells like a handout. It doesn’t sound like delivering on promises.

Around the time DeBoer took over the management of WaterWalk, Wichita city manager Robert Layton said no more public money would be put in to WaterWalk, according to Eagle reporting. Later he said those remarks were misinterpreted, with the Eagle reporting “[Layton] said the city won’t spend more on infrastructure, and that specific developments would be analyzed case by case to make sure they offer a return on investment for taxpayers and fit with the master plan.”

Wichita, home to cronyism

Measures like the city council will consider on Tuesday are what leads to cynicism regarding city government. It reinforces that notion that there is a network of insiders — the “good ol’ boy network” — that gets what it wants from city staff and officeholders. This deal — the sweetheart land giveaway, the deceptive appearance of profit sharing, the subordination of the city’s interests — doesn’t generate prosperity for Wichita and citizen confidence in its government. Instead, this deal contributes to the stench of cronyism that permeates and infests Wichita City Hall.

Two recent elections have shown that Wichitans don’t much care for this culture of giveaways to the politically connected class. People don’t like crony capitalism. They know it doesn’t work. The city defends these giveaways by saying they create jobs. But Wichita economic development is failing. Our city is not doing well, in spite of all the money spent on economic development efforts.

Additionally, when it is apparent that a “good ol’ boy” network of insiders exists at Wichita City Hall, it creates a toxic and corrosive political and business environment. Companies are reluctant to expand into areas where they don’t have confidence in the integrity of local government. Will I find my company bidding against a company that made bigger campaign contributions than I did? If I don’t make the right campaign contributions, will I get my zoning approved? Will my building permits be slow-walked through the approval process? Will my projects face unwarranted and harsh inspections?

Last year Charles Koch, chairman of the board and CEO of Wichita-based Koch Industries, wrote in the pages of the Wall Street Journal this regarding cronyism: “Government spending on business only aggravates the problem. Too many businesses have successfully lobbied for special favors and treatment by seeking mandates for their products, subsidies (in the form of cash payments from the government), and regulations or tariffs to keep more efficient competitors at bay. Crony capitalism is much easier than competing in an open market. But it erodes our overall standard of living and stifles entrepreneurs by rewarding the politically favored rather than those who provide what consumers want.”

WaterWalk and Jack DeBoer have already received generous financial assistance ($41 million) from the taxpayers of Wichita. That the city would consider even one dollar more is a scandal.

Amendments to Wichita WaterWalk Developer Agreements

Intellectuals vs. the rest of us

Why are so many opposed to private property and free exchange — capitalism, in other words — in favor of large-scale government interventionism? Lack of knowledge, or ignorance, is one answer, but there is another. From August 2013.

brain-diagram-cartoonAt a recent educational meeting I attended, someone asked the question: Why doesn’t everyone believe what we (most of the people attending) believe: that private property and free exchange — capitalism, in other words — are superior to government intervention and control over the economy?

It’s question that I’ve asked at conferences I’ve attended. The most hopeful answer is ignorance. While that may seem a harsh word to use, ignorance is simply a “state of being uninformed.” That can be cured by education. This is the reason for this website. This is the reason why I and others testify in favor of free markets and against government intervention. It is the reason why John Todd gives out hundreds of copies of I, Pencil, purchased at his own expense.

But there is another explanation, and one that is less hopeful. There is an intellectual class in our society that benefits mightily from government. This class also believes that their cause is moral, that they are anointed, as Thomas Sowell explains in The vision of the anointed: self-congratulation as a basis for social policy: “What all these highly disparate crusades have in common is their moral exaltation of the anointed above others, who are to have their very different views nullified and superseded by the views of the anointed, imposed via the power of government.”

Murray N. Rothbard explains further the role of the intellectual class in the first chapter of For a New Liberty: The Libertarian Manifesto, titled “The Libertarian Heritage: The American Revolution and Classical Liberalism.” Since most intellectuals favor government over a market economy and work towards that end, what do the intellectuals get? “In exchange for spreading this message to the public, the new breed of intellectuals was rewarded with jobs and prestige as apologists for the New Order and as planners and regulators of the newly cartelized economy and society.”

There it is: Planners and regulators. We have plenty of these at all levels of government, and these are prime examples of the intellectual class. Is it any wonder that the locus of centralized planning in south-central Kansas — sustainable communities — is at a government university?

As Rothbard explains, intellectuals have cleverly altered the very meaning of words to suit their needs:

One of the ways that the new statist intellectuals did their work was to change the meaning of old labels, and therefore to manipulate in the minds of the public the emotional connotations attached to such labels. For example, the laissez-faire libertarians had long been known as “liberals,” and the purest and most militant of them as “radicals”; they had also been known as “progressives” because they were the ones in tune with industrial progress, the spread of liberty, and the rise in living standards of consumers. The new breed of statist academics and intellectuals appropriated to themselves the words “liberal” and “progressive,” and successfully managed to tar their laissez- faire opponents with the charge of being old-fashioned, “Neanderthal,” and “reactionary.” Even the name “conservative” was pinned on the classical liberals. And, as we have seen, the new statists were able to appropriate the concept of “reason” as well.

We see this at work in Wichita, where those who advocate for capitalism and free markets instead of government intervention are called, in the case of Wichita Mayor Carl Brewer and Wichita Eagle editorial writer Rhonda Holman, “naysayers.”

The sad realization is that as government has extended its reach into so many areas of our lives, to advocate for liberty instead of government intervention is to oppose many things that people have accepted as commonplace or inevitable. To advocate that free people should trade voluntarily with other free people — instead of forming a plan for them — is to be dismissed as “not serious.”

Rothbard further explains the role of intellectuals in promoting what they see as the goodness of expansive government:

Throughout the ages, the emperor has had a series of pseudo-clothes provided for him by the nation’s intellectual caste. In past centuries, the intellectuals informed the public that the State or its rulers were divine, or at least clothed in divine authority, and therefore what might look to the naive and untutored eye as despotism, mass murder, and theft on a grand scale was only the divine working its benign and mysterious ways in the body politic. In recent decades, as the divine sanction has worn a bit threadbare, the emperor’s “court intellectuals” have spun ever more sophisticated apologia: informing the public that what the government does is for the “common good” and the “public welfare,” that the process of taxation-and-spending works through the mysterious process of the “multiplier” to keep the economy on an even keel, and that, in any case, a wide variety of governmental “services” could not possibly be performed by citizens acting voluntarily on the market or in society. All of this the libertarian denies: he sees the various apologia as fraudulent means of obtaining public support for the State’s rule, and he insists that whatever services the government actually performs could be supplied far more efficiently and far more morally by private and cooperative enterprise.

The libertarian therefore considers one of his prime educational tasks is to spread the demystification and desanctification of the State among its hapless subjects. His task is to demonstrate repeatedly and in depth that not only the emperor but even the “democratic” State has no clothes; that all governments subsist by exploitive rule over the public; and that such rule is the reverse of objective necessity. He strives to show that the very existence of taxation and the State necessarily sets up a class division between the exploiting rulers and the exploited ruled. He seeks to show that the task of the court intellectuals who have always supported the State has ever been to weave mystification in order to induce the public to accept State rule, and that these intellectuals obtain, in return, a share in the power and pelf extracted by the rulers from their deluded subjects.

And so the alliance between state and intellectual is formed. The intellectuals are usually rewarded quite handsomely by the state for their subservience, writes Rothbard:

The alliance is based on a quid pro quo: on the one hand, the intellectuals spread among the masses the idea that the State and its rulers are wise, good, sometimes divine, and at the very least inevitable and better than any conceivable alternatives. In return for this panoply of ideology, the State incorporates the intellectuals as part of the ruling elite, granting them power, status, prestige, and material security. Furthermore, intellectuals are needed to staff the bureaucracy and to “plan” the economy and society.

The “material security,” measured in dollars, can be pretty good, as shown by these examples: The Wichita city manager is paid $185,000, the Sedgwick county manager is paid $175,095, and the superintendent of the Wichita school district is paid $224,910.

Wichita water statistics update

The Wichita ASR water project produced little water in July, continuing to fail to produce water at the projected rate or design capacity.

An important part of Wichita’s water supply infrastructure is the Aquifer Storage and Recovery program, or ASR. This is a program whereby water is taken from the Little Arkansas River, treated, and injected in the Equus Beds aquifer. That water is then available in the future as is other Equus Beds water.

With a cost so far of $247 million, the city believes that ASR is a proven technology that will provide water and drought protection for many years. Last year the city recommended that voters approve $250 million for its expansion, to be paid for by a sales tax. Voters rejected the tax.

According to city documents, the original capacity of the ASR phase II project to process water and pump it into the ground (the “recharge” process) was given as “Expected volume: 30 MGD for 120 days.” That translates to 3,600,000,000 (3.6 billion or 3,600 million) gallons per year. ASR phase II was completed in 2011.

At a city council workshop in April 2014, Director of Public Works and Utilities Alan King briefed the council on the history of ASR, mentioning the original belief that ASR would recharge 11,000 acre feet of water per year. But he gave a new estimate for production, telling the council that “What we’re finding is, we’re thinking we’re going to actually get 5,800 acre feet. Somewhere close to half of the original estimates.” The new estimate translates to 1,889,935,800 (1.9 billion) gallons per year.

Gallons of Water Recharged Through Recharge Basins and Wells during Wichita ASR Phase II, cumulative.
Gallons of Water Recharged Through Recharge Basins and Wells during Wichita ASR Phase II, cumulative.
Based on experience, the city has produced a revised estimate of ASR production capability. What has been the actual experience of ASR? The U.S. Geological Survey has ASR figures available here. I’ve gathered the data and performed an analysis. (Click charts for larger versions.)

Gallons of Water Recharged Through Recharge Basins and Wells during Wichita ASR Phase II, cumulative since July 2013.
Gallons of Water Recharged Through Recharge Basins and Wells during Wichita ASR Phase II, cumulative since July 2013.
I’ve produced a chart of the cumulative production of the Wichita ASR project compared with the original projections and the lower revised projections. The lines for projections rise smoothly, although it is expected that actual production is not smooth. The second phase of ASR was completed sometime in 2011, but no water was produced and recharged that year. So I started this chart with January 2012.

2013 was a drought year, so to present ASR in the best possible light, I’ve prepared a chart starting in July 2013. That was when it started raining heavily, and data from USGS shows that the flow in the Little Arkansas River was much greater. Still, the ASR project is not keeping up with projections, even after goals were lowered.

Gallons of Water Recharged Through Recharge Basins and Wells during Wichita ASR phase II.
Gallons of Water Recharged Through Recharge Basins and Wells during Wichita ASR phase II.
On the chart of monthly production, the horizontal line represents the revised annual production projection expressed as a constant amount each month. This even rate of production is not likely, as rainfall and river flow varies. In the three years that ASR phase II has been in production, that monthly target been exceeded in two months.

In July 2015, the ASR project recharged 64 million gallons of water. Its design capacity is 30 million gallons per day, so the work done in July represents slightly more than two days of design capacity. The ASR project is able to draw from the Little Arkansas River when the flow is above 30 cfs. As can be seen in the chart of the flow of the river, the flow was above this level for the entire month.

Flow of the Little Arkansas River at Valley Center. The ASR project is able to draw from the river when the flow is above 30 cfs at this measurement station.
Flow of the Little Arkansas River at Valley Center. The ASR project is able to draw from the river when the flow is above 30 cfs at this measurement station.
At one time the city was proud enough of the ASR project that it maintained an informative website at wichitawaterproject.org. That site no longer exists.
At one time the city was proud enough of the ASR project that it maintained an informative website at wichitawaterproject.org. That site no longer exists.

WichitaLiberty.TV: Rodger Woods of Americans for Prosperity-Kansas

In this episode of WichitaLiberty.TV: Americans for Prosperity is one of the largest grassroots political action groups. Its motto is “Economic Freedom in Action.” Rodger Woods, deputy state director for AFP-Kansas, joins me to explain AFP’s mission and goals, and some specific issues. View below, or click here to view at YouTube. Episode 92, broadcast August 16, 2015.

AFP’s website is Americans for Prosperity.

Wichita Chamber speaks on county spending and taxes

The Wichita Metro Chamber of Commerce urges spending over fiscally sound policies and tax restraint in Sedgwick County.

Today the Wichita Metro Chamber of Commerce issued a “key vote” alert. This procedure, used by political groups of all persuasions, alerts elected officials that the Chamber prefers a certain outcome on an issue. Those who vote in harmony with the Chamber are likely to receive support in their next election, while the noncompliant are implicitly threatened with opponents the Chamber will support.

Here’s what the Chamber sent to commissioners:

From: Barby Jobe
Sent: Tuesday, August 11, 2015 2:47 PM

TO: SEDGWICK COUNTY BOARD OF COUNTY COMMISSIONERS

FROM: WALTER BERRY, Vice Chair, Wichita Metro Chamber Government Relations Committee

RE: KEY VOTE ALERT

While we have not recently had many “key votes” at the local level, the Wichita Metro Chamber would like to alert you that we will be key voting the 2016 Budget.

The Chamber would like to encourage the Commission to consider a compromise by leaving the property tax rate as it is currently and reducing the amount of cash-funded roads thus allowing a reallocation of funds for economic development and education, culture and recreation, city partnerships, and health and human services.

Thank you for your consideration.

Wichita Pavement Condition Index, from the city's 2012 Performance Measure Report
Wichita Pavement Condition Index, from the city’s 2012 Performance Measure Report
It’s unclear precisely what the Wichita Chamber is asking commissioners to do. It seems likely the Chamber is asking for support of “Plan C.” That is the plan drafted by commissioners Tim Norton and Dave Unruh, which proposes deferring road maintenance in order to free funds for current spending. That plan sets the county on the course chosen by the city of Wichita some years ago. That is, defer maintenance on streets and other infrastructure to support current spending. That policy lead to declining quality of streets and a large backlog of other maintenance, with a recent report from the city finding that the “cost to bring existing deficient infrastructure up to standards” is an additional $45 to $55 million per year.

This deferral of maintenance needs is a form of deficit spending. It’s curious that a purportedly conservative organization like the Wichita Chamber of Commerce would support that.

Well, it’s not really surprising. The Wichita Chamber has long advocated for more taxation and spending, taking the lead in promoting the one cent per dollar sales tax proposal in Wichita last year. The Chamber has supported big-spending Republicans over fiscal conservatives for office at several levels.

Your chamber of commerce radio buttonsIn Wichita, and across the country, local chambers of commerce support crony capitalism instead of pro-growth policies that allow free enterprise and genuine capitalism to flourish.

That may be surprising to read. Most people probably think that local chambers of commerce — since their membership is mostly business firms — support pro-growth policies that embrace limited government and free markets. But that’s usually not the case. It’s certainly is not the case in Wichita, where the Chamber supports higher taxes, more government spending, more business welfare, more government planning and control, more cronyism — and less economic freedom. The predictable result is less prosperity, which has been the case in Wichita under the leadership of the Wichita Chamber, its policies, and the politicians and bureaucrats it supports.

Here, in an excerpt from his article “Tax Chambers” economist Stephen Moore — formerly of the Wall Street Journal and now with Heritage Foundation — explains the decline of the local chamber of commerce:

The Chamber of Commerce, long a supporter of limited government and low taxes, was part of the coalition backing the Reagan revolution in the 1980s. On the national level, the organization still follows a pro-growth agenda — but thanks to an astonishing political transformation, many chambers of commerce on the state and local level have been abandoning these goals. They’re becoming, in effect, lobbyists for big government.

In as many as half the states, state taxpayer organizations, free market think tanks and small business leaders now complain bitterly that, on a wide range of issues, chambers of commerce deploy their financial resources and lobbying clout to expand the taxing, spending and regulatory authorities of government. This behavior, they note, erodes the very pro-growth climate necessary for businesses — at least those not connected at the hip with government — to prosper. Journalist Tim Carney agrees: All too often, he notes in his recent book, “Rip-Off,” “state and local chambers have become corrupted by the lure of big dollar corporate welfare schemes.”

In the states, chambers have come to believe their primary function is to secure tax financing for sports stadiums, convention centers, high-tech research institutes and transit boondoggles. Some local chambers have reportedly asked local utilities, school administrators and even politicians to join; others have opened membership to arts councils, museums, civic associations and other “tax eater” entities.

“I used to think that public employee unions like the NEA were the main enemy in the struggle for limited government, competition and private sector solutions,” says Mr. Caldera of the Independence Institute. “I was wrong. Our biggest adversary is the special interest business cartel that labels itself ‘the business community’ and its political machine run by chambers and other industry associations.”

From Stephen Moore in the article “Tax Chambers” published in The Wall Street Journal February 10, 2007. The complete article is here.

Cost of restoring quality of life spending cuts in Sedgwick County: 43 deaths

An analysis of public health spending in Sedgwick County illuminates the consequences of public spending decisions. In particular, those calling for more spending on zoos and arts must consider the lives that could be saved by diverting this spending to public health, according to analysis from Kansas Health Institute.

Kansas Health Institute is concerned about proposed reductions in public health spending in Sedgwick County. Sunday it released a fact sheet titled Decreases in Public Health Spending Associated with More Deaths from Preventable Causes, subtitled “Analysis of how proposed public health funding reductions in Sedgwick County could lead to more preventable deaths over time.”

Kansas Health Institute infographic
Kansas Health Institute infographic
KHI’s analysis is based on the paper “Evidence Links Increases In Public Health Spending To Declines In Preventable Deaths,” Glen P. Mays and Sharla A. Smith, Health Affairs, 30, no.8 (2011):1585-1593, available here. Excerpts from the paper are below. KHI summarizes the findings of the paper as: “In short, the research showed that increased spending by local public health agencies over the thirteen-year period studied was linked to statistically significant declines in deaths from some preventable causes such as infant mortality, heart disease, diabetes and cancer.”

KHI developed a model based on the paper’s findings to conclude that the proposed reductions in spending on public health in Sedgwick County would result in the deaths show in the nearby table from their fact sheet. The total of these numbers is an additional 65 deaths per year.

Perhaps in response to these findings, two Sedgwick County Commissioners have proposed eliminating the proposed cuts. To help understand the effects of this spending, I duplicated the analysis performed by KHI. I took the proposed increases in spending (or reductions in cuts) and subtracted the spending for public health, leaving $1,019,499 in spending that loosely qualifies as “quality of life” spending. It’s for things like the zoo, Exploration Place, economic development, and the like.

Sedgwick County spending analysis based on Kansas Health Institute model. Click for larger version.
Sedgwick County spending analysis based on Kansas Health Institute model. Click for larger version.
As can be seen in the nearby illustration, if this quality of life spending was instead spent on public health, we could save 43 lives per year. Based on the methodology used by KHI, this is the human cost of restoring only the proposed cuts to quality of life spending in Sedgwick County. If we were to use the totality of quality of life spending, or even just a subset like the $5.3 million spent on an elephant exhibit, the cost in human lives is large. This, of course, assumes that the KHI methodology is valid and reliable.

In its summary, the KHI report states: “Budget decisions have real consequences.” Those supporting spending on quality of life issues instead of public health have some explaining to do.

Excerpts from Mays et al.

“On balance, there is very little empirical evidence about the extent to which differences in public health spending levels contribute to differences in population health. Several cross-national studies have found weak and conflicting associations between spending and health outcomes at a national level.”

In a section titled “Limitations” the authors note “Several limitations of this analysis are worthy of emphasis. Although we used strong statistical controls to address possible sources of bias, it remains possible that factors distinct from, but closely correlated with, public health spending may explain some of the observed associations between spending and mortality.”

Also, “Local public health activities may have important and perhaps more immediate effects on these other indicators of health … this analysis may underestimate the health consequences of changes in local public health spending.”

In conclusion, the authors write: “Our analysis supports the contention that spending on local public health activities is a wise health investment. Increasing such investments in communities with historically low levels of spending may provide an effective way of reducing geographic disparities in population health. However, more money by itself is unlikely to generate significant and sustainable health gains.”

In Sedgwick County, a moral crusade

In Sedgwick County the debate over the budget has the dimension of a moral crusade, except for one thing.

As Sedgwick County debates next year’s budget, the arguments against a three percent cut in spending have been heated. Proponents of spending say the commissioners are not honoring commitments (see here and here), the commissioners are being short-sighted and foolish for proposing cuts, the county has a moral obligation to use taxes to care for the needy, and that county spending has a great economic benefit.

But what isn’t often mentioned is the nature of taxation and government spending. A new video from Learn Liberty offers a perspective on the morality of government that seems to be totally missing in the debate. View the video below, or click here.

In summary, the video poses these questions:

1. Is it moral for you to donate your money and time to (the zoo, Exploration Place, arts, health care for the poor, vocational education, payments to companies so they remain in the county instead of moving, a livestock show, the river festival, the sports commission, etc.)?

2. Is it moral for you to force other people to donate their time and money to (same list as in question one)?

3. Is it moral for government to force people to donate their time and money to (same list as in question one)?

If you answer “no” to question two, then how do you justify answering “yes” to question three? All sorts of rationalizations are available to support these two answers, such as:

1. Society is like a club, and taxes are the dues.
2. Taxes are the price we pay for civilization.
3. Government owns the nation (state, county, city, school district), and if you want to live or do business there, you must pay rent.
4. Government gives (most) people back more in services and benefits than they pay in taxes.
5. Government makes investments with our taxes that earn it even more tax revenue.

Some of these have a grain of truth, such as taxes providing for the national defense and a justice system. These two things make it possible for us to be safe from foreign aggressors and to have our rights and property protected. It doesn’t take a whole lot — comparatively speaking — to provide these functions, but government goes way beyond.

In fact, the truth behind number four leads to a most uncivil society, where people spend vast amounts of time and money lobbying for government to take even more time and money away from others and give it to them — or to the things they think your money should be spent on. We end up fighting over things like zoos and arts, instead of cooperating to attain these desirable amenities.

And fight we do. The techniques are known in advance. The book Economics In One Lesson, first published in 1946 and available to read at the Foundation for Economic Education, explains fallacies (false or mistaken ideas) that are particularly common in the field of economics and public policy. At the very start of the book the author Henry Hazlitt explains:

Economics is haunted by more fallacies than any other study known to man. This is no accident. The inherent difficulties of the subject would be great enough in any case, but they are multiplied a thousandfold by a factor that is insignificant in, say, physics, mathematics or medicine — the special pleading of selfish interests. While every group has certain economic interests identical with those of all groups, every group has also, as we shall see, interests antagonistic to those of all other groups. While certain public policies would in the long run benefit everybody, other policies would benefit one group only at the expense of all other groups. The group that would benefit by such policies, having such a direct interest in them, will argue for then plausibly and persistently. It will hire the best buyable minds to devote their whole time to presenting its case. And it will finally either convince the general public that its case is sound, or so befuddle it that clear thinking on the subject becomes next to impossible.

In addition to these endless pleadings of self-interest, there is a second main factor that spawns new economic fallacies every day. This is the persistent tendency of men to see only the immediate effects of a given policy, or its effects only on a special group, and to neglect to inquire what the long-run effects of that policy will be not only on that special group but on all groups. It is the fallacy of overlooking secondary consequences.

An example of using the “best buyable minds” is the promotion of government spending on arts as having some magic power not present in other spending. These buyable minds have produced an impressive document titled Arts & Economic Prosperity III: The Economic Impact of the Nonprofit Arts and Culture Industry in the State of Kansas. It explains that when a theater company (presumably operating with a government grant) buys a gallon of paint, it sets off a chain of economic activity that benefits many people. True enough. It’s called commerce. But anyone buying the paint sets off the same chain of activity. The same, that is, except that homeowners spending their own money on paint are doing so voluntarily, while the government-subsidized theater company has used the force of government to take money from others.

That’s a big difference, and one lost on most residents of Sedgwick County. I’m hopeful that the people pleading for more taxation and spending are simply unaware of these considerations, as if so, their minds can change. The alternative is much more bleak.

In Wichita, an incomplete economic development analysis

The Wichita City Council will consider an economic development incentive based on an analysis that is nowhere near complete.

Tomorrow the Wichita City Council will consider granting a sales tax exemption for a real estate development in northeast Wichita. (For background, see In Wichita, benefitting from your sales taxes, but not paying their own.)

As evidence of the goodness of the project and why the city should forego collecting sales tax, the council has been presented with these benefit-cost figures:

City of Wichita General Fund: 44.67 to 1
City of Wichita Debt Service Fund: NA
Sedgwick County: 100.23 to 1
USD 375: NA
State of Kansas: 65.28 to 1

Undoubtedly council members will congratulate themselves on their wisdom and foresight for being able to invest $1.00 and get back $44.67 in return. And look at what a favor the council is doing for the county and state! For an investment of $1.00, they’ll get back $100.23 and $65.28.

If only these numbers were a true and accurate representation.

The source of these numbers is that the city is giving up a relatively small amount of sales tax revenue, but gaining a lot of property tax (and other tax) revenue in the future. This is true, as far as we can predict these things.

The problem is that one of the numbers used to calculate the benefit-cost ratio is incomplete, and far from being complete. (Click here to view the analysis prepared for the city.)

The source of the calculation starts with the city giving up $16,227 of its share of sales tax revenue, based on the action the council will likely approve on August 11. This is the city’s cost, according to city documents. Then, future tax revenues are estimated, discounted to present value, and compared to the cost. The result is the benefit-cost ratio.

This calculation could make sense if the city included all costs in the calculation. But it hasn’t done that. First, the project benefits from STAR bonds. These bonds carry a sales tax exemption on goods purchased with bond proceeds, which means that the city (and other jurisdictions) are forgoing the collection of other sales tax revenue in addition to the sales tax used in the present calculation. This foregone revenue is of precisely the same nature as other foregone sales tax revenue that the city includes in its calculation.

Additionally, the project benefits from up to $7,525,000 in STAR bonds financing. These bonds will be repaid by sales tax collections from the project and surrounding merchants. This represents more sales tax revenue that the city and other jurisdictions will not be able to spend on anything except paying principle and interest in these bonds.

If these costs were included in the benefit-cost ratio calculation, I don’t know what the result would be, except that it would be different, and probably a great deal lower. It might even be below the city’s threshold for projects.

No matter your opinion on the wisdom of the city investing in public-private partnerships, the city council ought to insist on complete information. That hasn’t happened in this case. The city is using only part of its costs, but pretending that these costs are responsible for producing all revenues.

Who do we hold accountable for this? The benefit-cost ratios are computed by the Center for Economic Development and Business Research (CEDBR) at Wichita State University. It uses figures provided by the city. In the past, when results like these have been questioned, the city has cited the economists at CEDBR as evidence that the figures are valid and reliable. By splitting the responsibility for these calculations, accountability is avoided.

Kansas school funding growing faster than inflation

Kansas school funding has been growing much faster inflation and enrollment, but for some, it will never be enough, and they will continue to use taxpayer money to press their monetary demands, writes Dave Trabert of Kansas Policy Institute.

Even by KASB standards, school operating spending is $3.9 billion ahead of inflation

By Dave Trabert

A recent blog post by the Kansas Association of School Boards (KASB) Associate Executive Director Mark Tallman says “Total school district funding is, in fact, at an all-time high, expected to top $6.1 billion this year” but “… the part of school funding available for day-to-day operating costs is not keeping up with inflation and enrollment.” There are several misleading aspects to his statement and the data does not support the intended message, but let’s first give credit for the courage to contradict education officials who say funding has been cut. Bravo!

KASB’s definition of operating costs does not comport with the official definition used by the Kansas Department of Education or the U.S. Department of Education1, but for the sake of argument, let’s say that it’s correct. Let’s also assume that their definition of current operating funding represents the amount needed to efficiently operate schools and achieve the required outcomes, even though the facts refute any such claim.

By increasing the KASB-defined operating spending for inflation (the calculation for 2006 is $6,928 times (191.41 ÷ 185.14) = $7,162), we find that schools received a lot more money each year than if KASB’s 2005 amount had been increased each year for inflation. The margin of difference is getting closer over the next two years (if one doesn’t count all of the funding), but funding will have exceeded inflation by almost $3.9 billion since 2005.

KASB uses a different methodology in their inflation analysis. They show prior years’ spending in 2014 inflation-adjusted (constant) dollars; i.e., $X spending in 2014 has the same buying power as $Y in prior years. That methodology is common for restating buying power but it is irrelevant to the question of whether schools are or have been adequately funded.

The Kansas Constitution says the legislature must make suitable provision for the finance of public education; it does not say that schools must be given whatever they want to spend or that efficient use of taxpayer money cannot be taken into account. The honest truth is that no one knows what schools need to achieve the necessary outcomes while making efficient use of taxpayer money, because no such analysis has ever been undertaken in Kansas. We do know, however, that every Legislative Post Audit has found schools to be operating inefficiently and school superintendents openly acknowledge that they choose to spend more than is necessary in many circumstances. We also know that school districts haven’t even spent all of the money they’ve received over the last ten years, as about $400 million has been used to increase operating cash reserves.

There may be ways to demonstrate that today’s funding has less buying power than a particular point in time but that doesn’t mean that each year’s funding didn’t keep up with inflation and enrollment — as shown above, per-pupil funding as defined by KASB was $3.9 billion more than an inflationary increase.

The gap is even greater for total funding, which would have been $6 billion less over the last ten years if per-pupil funding for the 2005 school year had been increased each year for inflation. School districts received large funding increases beginning in 2006 from a Supreme Court Montoy ruling based on a cost study that has since been abandoned by the Supreme Court in Gannon.

The Shawnee County District Court may believe that schools are not adequately funded, but they ignored the Kansas Supreme Court in arriving at what amounts to little more than a political perspective. School funding has been growing much faster inflation and enrollment, but for some, it will never be enough … and they will continue to use taxpayer money to fund KASB justifications (and attorneys) for their monetary demands.

 

1KSDE and the U.S. Department of Education say operating expenditures “…do not include equipment (700 object codes), Capital Outlay or Bond & Interest. [700 object codes include expenditures for acquiring fixed assets, including land or existing buildings; improvements of grounds; initial equipment; additional equipment; and replacement of equipment.]”  The KASB definition also excludes Food Service and employee retirement costs but they don’t disclose that their definition is not the official definition and it also does not comport with the Kansas Supreme Court, which says all funding sources, including retirement costs, should be considered as part of adequate funding.

WichitaLiberty.TV: The Sedgwick County budget and more episodes of “Love Gov”

In this episode of WichitaLiberty.TV: As Sedgwick County proposes small spending cuts, those who benefit are vocal in their displeasure. Then, two more episodes from “Love Gov” covering health care and the housing market. View below, or click here to view at YouTube. Episode 91, broadcast August 9, 2015.

In Sedgwick County, expectation of government entitlements

In Sedgwick County, we see that once companies are accustomed to government entitlements, any reduction is met with resistance.

When an executive of Spirit Aerosystems accused the Sedgwick County Commission of “working against us,” the company may have forgotten the assistance and special treatment the company has received from local governments and taxpayers. This assistance has amounted to hundreds of millions of dollars over several decades, when we consider both Spirit and its predecessor, Boeing.

Now, Spirit objects to a proposed reduction in funding to Wichita Area Technical College, and also cuts to local attractions such as the zoo. The proposed cut to WATC is less than the cut made the year before, although part of that cut was rescinded, making the proposed cut equal to last year’s cut. These cuts follow a trajectory recommended by the former county manager, who was widely praised as understanding and accommodating the needs of area business firms.

So when Spirit accuses county taxpayers as working against the company, it’s a little hard to stomach. Residents of Sedgwick County pay higher taxes so that Spirit can pay less.

Especially glaring is when companies ask for forgiveness of paying sales tax, as Spirit routinely does. In Kansas, low-income families must pay sales tax on their groceries, and at a rate that is among the highest in the country. Even more difficult to fathom are the companies that campaigned for a higher sales tax in Wichita, but engage in financial maneuvers designed to avoid paying any sales tax. Sometimes companies campaign for higher property taxes, especially school bonds, but then ask for exemption from paying those taxes. 1 2 3

Following, a discussion of a Spirit Aerosystems tax abatement request from 2014.

This week the Wichita City Council will hold a public hearing concerning the issuance of Industrial Revenue Bonds to Spirit AeroSystems, Inc. The purpose of the bonds is to allow Spirit to avoid paying property taxes on taxable property purchased with bond proceeds for a period of five years. The abatement may then be extended for another five years. Additionally, Spirit will not pay sales taxes on the purchased property.

City documents state that the property tax abatement will be shared among the taxing jurisdictions in these estimated amounts:

City: $81,272
State: $3,750
County: $73,442
USD 259: $143,038

No value is supplied for the amount of sales tax that may be avoided. The listing of USD 259, the Wichita public school district, is likely an oversight by the city, as the Spirit properties lie in the Derby school district. This is evident when the benefit-cost ratios are listed:

City of Wichita: 1.98 to one
General Fund: 1.78 to one
Debt Service: 2.34 to one
Sedgwick County: 1.54 to one
U.S.D. 260: 1.00 to one (Derby school district)
State of Kansas: 28.23 to one

The City of Wichita has a policy where economic development incentives should have a benefit cost ratio of 1.3 to one or greater for the city to participate, although there are many loopholes the city regularly uses to approve projects with smaller ratios. Note that the ratio for the Derby school district is 1.00 to one, far below what the city requires for projects it considers for participation. That is, unless it uses one of the many available loopholes.

We have to wonder why the City of Wichita imposes upon the Derby school district an economic development incentive that costs the Derby schools $143,038 per year, with no payoff? Generally the cost of economic development incentives are shouldered because there is the lure of a return, be it real or imaginary. But this is not the case for the Derby school district. This is especially relevant because the school district bears, by far, the largest share of the cost of the tax abatement.

Of note, the Derby school district extends into Wichita, including parts of city council districts 2 and 3. These districts are represented by Pete Meitzner and James Clendenin, respectively.

The city’s past experience

Wichita Mayor Carl Brewer Facebook 2012-01-04Spirit Aerosystems is a spin-off from Boeing and has benefited from many tax abatements over the years. In a written statement in January 2012 at the time of Boeing’s announcement that it was leaving Wichita, Mayor Carl Brewer wrote “Our disappointment in Boeing’s decision to abandon its 80-year relationship with Wichita and the State of Kansas will not diminish any time soon. The City of Wichita, Sedgwick County and the State of Kansas have invested far too many taxpayer dollars in the past development of the Boeing Company to take this announcement lightly.”

Along with the mayor’s statement the city released a compilation of the industrial revenue bonds authorized for Boeing starting in 1979. The purpose of the IRBs is to allow Boeing to escape paying property taxes, and in many cases, sales taxes. According to the city’s compilation, Boeing was granted property tax relief totaling $657,992,250 from 1980 to 2017. No estimate for the amount of sales tax exemption is available. I’ve prepared a chart showing the value of property tax abatements in favor of Boeing each year, based on city documents. There were several years where the value of forgiven tax was over $40 million.

Boeing Wichita tax abatements, annual value, from City of Wichita.
Boeing Wichita tax abatements, annual value, from City of Wichita.
Kansas Representative Jim Ward, who at the time was Chair of the South Central Kansas Legislative Delegation, issued this statement regarding Boeing and incentives:

Boeing is the poster child for corporate tax incentives. This company has benefited from property tax incentives, sales tax exemptions, infrastructure investments and other tax breaks at every level of government. These incentives were provided in an effort to retain and create thousands of Kansas jobs. We will be less trusting in the future of corporate promises.

Not all the Boeing incentives started with Wichita city government action. But the biggest benefit to Boeing, which is the property tax abatements through industrial revenue bonds, starts with Wichita city council action. By authorizing IRBs, the city council cancels property taxes not only for the city, but also for the county, state, and school district.

Federal rules serve as ‘worms’ buried in promises of ‘free money’

An often unappreciated mechanism throughout the Kansas budget severely limits the ability of legislators and governors to adapt to changing state priorities. A new paper from Kansas Policy Institute explains.

Federal Rules Serve as “Worms” Buried in Promises of “Free Money”

Mandates remove state control of budgets, exemplify increasing federal overreach

July 30, 2015 — Wichita — An often unappreciated mechanism throughout the Kansas budget severely limits the ability of legislators and governors to adapt to changing state priorities. These Maintenance of Effort (MOE) requirements are highlighted in a new paper by Kansas Policy Institute and is authored by former state budget director Steve Anderson. MOE stipulations force state and local governments to maintain a constant level of funding for several federal grant programs, most notably Medicaid and the Elementary and Secondary Education Act, two major components of Lyndon Johnson’s “Great Society;” in FY 2014 these two programs accounted for over two-thirds of Kansas general fund expenditures.

Maintenance of Effort cover Kansas Policy InstituteDave Trabert, president of Kansas Policy Institute, offered the following in conjunction with the release of the paper, “Maintenance of Effort requirements are an end-run on the U.S. Constitution, which prohibits the federal government from dictating how states operate.  The feds use MOE to create contractual obligations that effectively control large chunks of states’ budgets and limit legislators’ ability to make appropriate decisions for their constituents.”

Unfortunately, policy makers are bound by MOEs regardless of the state’s budget situation, changing priorities, or new-found efficiencies. A previous legislature can effectively tie the hands of future elected officials. Sometimes it is even agency bureaucrats who sign up for “free federal dollars” apart from the normal appropriations process with little legislative input.

Steve Anderson, author of the “Maintenance of Effort: The Federal Takeover of State Budgets” and current Senior Fiscal Policy Fellow with KPI, said, “The constitutional right of a state to control the appropriation of their citizens’ tax dollars is too often being abrogated by the federal government’s MOE requirements. This takeover of the state budgets is like an addictive drug from which withdrawal is painful. Unlike a drug, this addiction can be created by prior legislatures, governors or even bureaucrats.  The pervasiveness of MOE goes to almost every function of state government.”

The report outlines several strategies that can be utilized by state governments to mitigate the negative effects of MOEs. One proposal may prove difficult with existing programs but brings some common sense to policy making moving forward — avoid federal funds as much as possible. Conversely, a similar recommendation would be that all new grant programs be approved by the state legislature.

In conclusion KPI President Trabert said, “MOE requirements are not about improving outcomes, but dictating how states operate. Until Congress puts a stop to this practice state legislators must say no to the promise of ‘free money’ from the feds and avoid the problems brought by MOEs.”

Michael Tanner: Going for Broke: Deficits, Debt and the Entitlement Crisis

Cato Institute Senior Fellow Michael Tanner speaks about his new book, “Going for Broke: Deficits, Debt and the Entitlement Crisis,” at a luncheon of the Wichita Pachyderm Club, July 31, 2014. View below, or click here to view at YouTube. Video production by Paul Soutar.

Tanner’s appearance on Wichitaliberty.TV is here.

Sedgwick County WATC funding trajectory following manager’s recommendations

Sedgwick County taxpayers have been generous with funding for Wichita Area Technical College, and the former county manager has recommended reducing its funding.

During the July 16, 2014 meeting of the Sedgwick County Commission, county manager Bill Buchanan presented the recommended budget for 2015. It included a cut in funding for Wichita Area Technical College in the amount of $150,000. In response to a question, Buchanan told the commissioners:

“The new president has been assertive and aggressive in trying to deal with their financial issues. They have, he has turned that financial, that institution around financially. They are in pretty healthy shape. They have a fund balance that’s relatively strong, and it’s in my opinion that our subsidy, although it was critical in the beginning, is less critical in their operations now, and perhaps it would be time for us, when we face our own fiscal issues, to reduce their funding so we can address some of ours.”

Under the leadership of Chair Dave Unruh, this reduction in funding was approved.

At the January 7, 2015 meeting of the commission, again under the leadership of Unruh, the commission heard an off-agenda item to restore $50,000 of the funding for 2015, making the cut $100,000. That item passed. Being an off-agenda item, there is little or no public notice. Commissioner Karl Peterjohn noted this in his remarks: “I frankly would feel much more comfortable if we postponed this issue until we could get it published in the paper and have at least whatever public attention that that would generate provided, as opposed to taking another Off Agenda item that’s going to increase county spending.”

In support of Peterjohn’s motion to delay the decision for a week, Commissioner Richard Ranzau expressed concern over the lack of financial information made available to commissioners. He also repeated the manager’s recommendation that WATC needs less county funding: “Well, I’d like to have more financial information. It’s my understanding that since the state has increased funding for Vocational Ed, they’re doing very well, their reserves increased significantly, and that’s why, I mean, I was told the reason we could reduce it $150,000 was because they were doing so well. I support what they’re doing out there, but if they’ve had an influx of money from the state, a result of Vocational Ed legislation then I think it’s appropriate to adjust our spending, and I’m not prepared to increase it by $50,000 without more financial information, and that’s why I support Commissioner Peterjohn’s motion to postpone this a week so we can get more information and make a more educated decision on this. There is really no reason for hurry through this in my estimation.”

In summary, the Sedgwick County manager recommended that commissioners reduce funding to WATC, as its need for county funding has declined. Under commission chair Unruh, the commission did so, in the net amount of $100,000. The same amount is proposed for cuts this year. In light of this, the criticism of WATC beneficiaries like Spirit Aerosystems is unfounded.

By the way, the commission has been criticized for considering off-agenda items since Ranzau became chair in January, with the Wichita Eagle editorial board describing one off-agenda vote as “abrupt.” In another op-ed, Rhonda Holman complained that “The move came in an off-agenda item, with little opportunity for GWEDC and the business community to argue against it.”

Whether off-agenda items are good or bad public policy seems to depend on the whim of the Eagle editorial board.

Release the secret Iran deals

For those of us who are elected officials, few votes will be more consequential than whether to approve or disapprove the nuclear agreement President Obama has reached with Iran. Yet the president expects Congress to cast this vote without the administration’s fully disclosing the contents of the deal to the American people, write Representative Mike Pompeo and Senator Tom Cotton.

Release the Secret Iran Deals

By Tom Cotton and Mike Pompeo
As printed in the Wall Street Journal

U.S. Representative Mike Pompeo of Kansas
U.S. Representative Mike Pompeo of Kansas
For those of us who are elected officials, few votes will be more consequential than whether to approve or disapprove the nuclear agreement President Obama has reached with Iran. Yet the president expects Congress to cast this vote without the administration’s fully disclosing the contents of the deal to the American people. This is unacceptable and plainly violates the Iran Nuclear Agreement Review Act — a law the president signed only weeks ago.

During a recent trip to Vienna to meet with the International Atomic Energy Agency, the organization charged with verifying Iran’s compliance, we learned that certain elements of this deal are — and will remain — secret. According to the IAEA, those involved with the negotiations, including the Obama administration, agreed to allow Iran to forge the secret side deals with the IAEA on two issues.

The first governs the IAEA’s inspection of the Parchin military complex, the facility long suspected as the site of Iran’s long-range ballistic-missile and nuclear-weapons development. The second addresses what — if anything — Iran will be required to disclose about the past military dimensions of its nuclear program.

Yet the Iran Nuclear Agreement Review Act specifically says that Congress must receive all nuclear agreement documents, including any related to agreements “entered into or made between Iran and any other parties.” It expressly includes “side agreements.” This requirement is not strictly limited to agreements to which the U.S. is a signatory. This law passed in May, well before the nuclear negotiations ended. The Obama administration should have held firm in negotiations to obtain what was necessary for Congress to review the agreement. Iran, not the U.S., should have conceded on this point.

Weaponization lies at the heart of our dispute with Iran and is central to determining whether this deal is acceptable. Inspections of Parchin are necessary to ensure that Iran is adhering to its end of the agreement. Without knowing this baseline, inspectors cannot properly evaluate Iran’s compliance. It’s like beginning a diet without knowing your starting weight. That the administration would accept side agreements on these critical issues — and ask the U.S. Congress to do the same — is irresponsible.

The response from the administration to questions about the side deals has brought little reassurance. At first the administration refrained from acknowledging their existence. Unable to sustain that position, National Security Adviser Susan Rice said on July 22 during a White House press briefing that the administration “knows” the “content” of the arrangements and would brief Congress on it.

Yet the same day Secretary of State John Kerry, in a closed-door briefing with members of Congress, said he had not read the side deals. And on July 29 when pressed in a Senate hearing, Mr. Kerry admitted that a member of his negotiating team “may” have read the arrangements but he was not sure.

That person, Undersecretary of State and lead negotiator Wendy Sherman, on July 30 said in an interview on MSNBC, “I saw the pieces of paper but wasn’t allowed to keep them. All of the members of the P5+1 did in Vienna, and so did some of my experts who certainly understand this even better than I do.”

A game of nuclear telephone and hearsay is simply not good enough, not for a decision as grave as this one. The Iran Nuclear Agreement Review Act says Congress must have full access to all nuclear — agreement documents — not unverifiable accounts from Ms. Sherman or others of what may or may not be in the secret side deals. How else can Congress, in good conscience, vote on the overall deal?

On July 30 we sent a letter to the Obama administration asking for a “complete and thorough assessment of the separate arrangements” and the names of anyone who has reviewed them. Iran’s ayatollahs have access to the side agreements. The American people’s representatives in the U.S. Congress should too.

When he announced his nuclear deal with Iran on July 14, President Obama said, “This deal is not built on trust, it is built on verification.” Those words are hollow unless Congress receives the full text of all documents related to the nuclear agreement.

Mr. Cotton, a Republican from Arkansas, is a member of the Senate Select Committee on Intelligence. Mr. Pompeo, a Republican from Kansas, is a member of the House Permanent Select Committee on Intelligence.

Cash incentives in Wichita

Wichita city leaders are proud to announce the end of cash incentives, but they were only a small portion of the total cost of incentives.

Wichita city leaders say that cash incentives are on the way out. That’s a welcome change. Cash incentives, however, were only a small part of the city’s spending on incentives. Far more costly are property and sales tax abatements, tax increment financing, and various programs at the state level. There seems to be no appetite to reduce reliance on these.

Forgiveness of taxes is more valuable to business firms than receiving cash. That’s because cash incentives are usually taxable as income, while forgiveness of taxes does not create taxable income. Each dollar of tax that is forgiven adds one dollar to after-tax profits. 1

Wichita city leaders will take credit for reforming the use of incentives, but cash incentives were only a small portion of the total cost of incentives. It’s up to citizens to be watchful of the total cost of incentives, as the city does not make this data available.

  1. Site Selection magazine, September 2009. 2015. ‘INCENTIVES — Site Selection Magazine, September 2009’. Siteselection.Com. Accessed May 1 2015. http://www.siteselection.com/issues/2009/sep/Incentives/

WichitaLiberty.TV: Michael Tanner of Cato Institute on deficits, debt, and entitlements

In this episode of WichitaLiberty.TV: Michael Tanner of the Cato Institute talks about his new book “Going for Broke: Deficits, Debt, and the Entitlement Crisis.” View below, or click here to view at YouTube. Episode 90, broadcast August 2, 2015.

Tanner’s page at Cato is here. Video of a book forum on “Going for Broke: Deficits, Debt, and the Entitlement Crisis” is here. Video of Tanner at the Wichita Pachyderm Club is here. A good discussion of the book on C-SPAN is here.

In Wichita, benefitting from your sales taxes, but not paying their own

A Wichita real estate development benefits from the sales taxes you pay, but doesn’t want to pay themselves.

STAR bonds in Kansas. Click for larger version.
STAR bonds in Kansas. Click for larger version.
In Kansas, the STAR bond program allows cities to issue bonds (that is, to borrow money), give the proceeds (that is, cash) to a private business firm, and then pay off the bonds with the sales taxes paid by the business firm’s customers.

But sometimes this gift by taxpayers isn’t sufficient. In Wichita, despite benefitting from STAR bonds, a company wishes to skip paying sales taxes itself. This is what the Wichita City Council will consider tomorrow.

The Wichita Sports Forum (WSF) project on North Greenwich Road, according to city documents, is a project with a cost of $14,025,000. Of that, $7,525,000 (53.6 percent) may be paid for by the STAR bonds. These bonds will be paid off at no cost to the owners of WSF.

Additionally, according to city documents, the STAR bonds program carries with it a sales tax exemption. That is, if any of the bond proceeds are spent on items subject to sales tax (like building materials), WSF doesn’t pay the sales tax.

There’s another consideration, however. Some of the project is being paid for by the developers themselves rather than by STAR bonds. Stuff purchased with their money will be subject to sales tax. Evidently that is a problem, and the city has a way to step in and solve it.

Through the Industrial Revenue Bonds program, the WSF developers can avoid paying sales tax on $4,500,000 of building materials. City documents don’t mention this number, but with the sales tax rate in Wichita at 7.5 percent, this is a savings of $337,500. It’s as good as a grant of cash. Better, in fact. If the city granted this cash, it would be taxable as income. But forgiveness of taxes isn’t considered income.

In Kansas, low-income families must pay sales tax on their groceries, and at a rate that is among the highest in the country. Is it unseemly that having already benefited from millions in taxpayer subsidy and sales tax exemption, the developers of Wichita Sports Forum seek even more sales tax exemptions?

Sedgwick County spending beneficiaries overwhelm others

That so many speakers at a public hearing were in favor of government spending is not surprising.

In a letter to the editor of the Wichita Eagle the writer stated “But apparently few of them felt strongly enough to come to the commission hearing and express their support of budget cuts.” He was referring to the public hearing on Wednesday July 29, when some 50 people spoke, and just three supported cuts.

This lopsided ratio is not surprising. It’s an example of the well-known phenomenon of concentrated benefits and dispersed (or diffuse) costs. Explained in this video, it observes that for most government spending programs, the benefits are showered on a few very visible recipients who benefit greatly. There were 47 of these speaking at last week’s public hearing.

But the costs of these spending programs are spread across everyone, or at least a large group. For them, the cost is small. In fact, politicians use this argument in favor of their spending programs. Dave Unruh observed that the proposed county property tax cuts amount to savings of $1.37 per year for a $100,000 house. His arithmetic is correct, and so is his understanding of human nature. Most people look at the small cost of any single government spending program and realize it’s not worth much personal effort to save $1.37 (or whatever) per year.

Since the costs of each spending program is small for any single person, not many get worked up and take action. That’s why only three of 50 speakers opposed the spending programs. Politicians and beneficiaries of spending programs rely on this imbalance of motives.

Not often mentioned is that most of the organizations seeking county funding are charities. Anyone may make contributions directly to them. Some people have testified that they don’t need a cut in taxes, or that they would be willing to be taxed more so that these organizations could have more funding. Perhaps these people don’t realize that it is within their power to make contributions to these charities at any time.

It seems we have forgotten that charity is a voluntary act, and that government taxation and spending is not charitable. This is evidence of further drift from a civil society where things like zoos and medical care for the poor are handled on a voluntary and cooperative basis. Instead, we fight.

Public radio ignores facts, pushes rhetoric on Kansas school funding

A Kansas radio news reporter seems not to care about reporting facts about Kansas school spending. Dave Trabert of Kansas Policy Institute reports.

Public radio ignores facts, pushes rhetoric on school funding

By Dave Trabert

The latest attempt to undermine Kansas tax reform comes from KCUR-FM and National Public Radio: “Huge income tax cuts have led to … shrinking classroom budgets for public schools.” That statement might make a captivating movie ad but the film would be classified as fiction.

The Kansas Department of Education says school funding last declined by 0.045% in the 2011 school year and has increased every year since. To put that tiny reduction in perspective, it’s the equivalent of cutting spending from $1,000.00 to $999.55. Income tax cuts hadn’t even been proposed at that point and didn’t go into effect for another eighteen months. Tax reform had nothing to do with the 2011 reduction in school funding, but why let facts get in the way of a popular tale.

The final numbers aren’t in yet, but funding for the 2015 school year just ended is estimated at about $6.1 billion and more than $13,000 per student. That would be the fourth consecutive record for total funding and the third consecutive record for per-student funding, using data from the Kansas Department of Education and the Kansas Division of the Budget.

Why do KCUR and NPR say school budgets are “slashed” and “shrinking” given this data? Because school officials say so. Seriously. No data was cited — just statements made by school officials.

The first story on KCUR-FM ran on July 2 and included this false statement: “The Legislature has cut classroom funding.” First of all, the Legislature does not set classroom funding and there is no official definition of ‘classroom funding;’ the amount that goes to Instruction (defined by the Department of Education) is determined by each local school board. On average, school districts spend about 55 cents of every education dollar on Instruction — and that ratio has remained about the same since 2005 even though total funding increased by nearly $2 billion.

Secondly, the Legislature increased funding. Administrators may not be getting as much funding as they want (in government parlance that is a “cut”) but KSDE data shows block grant funding increased last year by $142.2 million without counting KPERS and increased another $4.5 million this year. (The spreadsheets are no longer on the KSDE site but we have them for anyone interested.)

I shared this information with KCUR reporter Sam Zeff but the data apparently didn’t matter to him. He said KSDE Deputy Commissioner Dale Dennis told the court that schools were getting less money and superintendents say they are getting less money, so that’s all the proof he needed. But school officials’ claims are based on getting less money than they want or feel they are entitled to receive … school officials are not saying that they are getting less money than they actually received in the previous year, but that is the message they want to send.

For example, USD 259 said the block grants cut their funding by $4.8 million last year but the district’s chief financial officer said spending was expected to increase by $87 million, or 14 percent. Only government could call that a “cut.” (See here for details.)

The reporter was even given an email from Dale Dennis (also documented in a KPI Blog post), confirming that school funding increased last year.

Mr. Zeff agreed to get together and look at the KSDE data but that meeting never occurred. Two days later, another version of the story ran on NPR’s “All Things Considered.” And just to make sure listeners got the message, there were four false references to school funding “shrinking” or being “slashed.” That story also falsely said the Kansas Legislature “…stripped teachers of tenure.” No such thing occurred. The Legislature merely said ‘due process’ procedures associated with efforts to remove a teacher would be determined by individual school districts rather than be mandated by state law. If any districts actually eliminated due process, it must be a well-kept secret; we can’t find any media stories citing elimination of due process and inquiries to various education organizations produced no results in that regard.

There was another breach of sound journalistic principles in both stories — no alternate views were included. Both stories dealt with opinions on the perceived ramifications of political actions but only one viewpoint was presented.

Reporters should be able to rely on school officials to make clear, factual statements but that still is no substitute for actual examination of hard data and the inclusion of multiple viewpoints in these plainly political stories.

The real free lunch: Markets and private property

As we approach another birthday of Milton Friedman, here’s his article where he clears up the authorship of a famous aphorism, and explains how to really get a free lunch. Based on remarks at the banquet celebrating the opening of the Cato Institute’s new building, Washington, May 1993.

I am delighted to be here on the occasion of the opening of the Cato headquarters. It is a beautiful building and a real tribute to the intellectual influence of Ed Crane and his associates.

I have sometimes been associated with the aphorism “There’s no such thing as a free lunch,” which I did not invent. I wish more attention were paid to one that I did invent, and that I think is particularly appropriate in this city, “Nobody spends somebody else’s money as carefully as he spends his own.” But all aphorisms are half-truths. One of our favorite family pursuits on long drives is to try to find the opposites of aphorisms. For example, “History never repeats itself,” but “There’s nothing new under the sun.” Or “Look before you leap,” but “He who hesitates is lost.” The opposite of “There’s no such thing as a free lunch” is clearly “The best things in life are free.”

And in the real economic world, there is a free lunch, an extraordinary free lunch, and that free lunch is free markets and private property. Why is it that on one side of an arbitrary line there was East Germany and on the other side there was West Germany with such a different level of prosperity? It was because West Germany had a system of largely free, private markets — a free lunch. The same free lunch explains the difference between Hong Kong and mainland China, and the prosperity of the United States and Great Britain. These free lunches have been the product of a set of invisible institutions that, as F. A. Hayek emphasized, are a product of human action but not of human intention.

Continue reading The real free lunch: Markets and private property

Sedgwick County Zoo funding

The Sedgwick County Commission has been generous with zoo funding, spending far more than agreed upon and granting a moratorium on loan payments and interest.

Funding agreement from 2013.
Funding agreement from 2013.
In September 2013 the Sedgwick County Commission agreed on a new funding plan with the Sedgwick County Zoo for years 2014 through 2018. For 2016 the recommended budget calls for keeping funding the same as the 2015 level instead of a 6.9 percent increase as indicated by the 2013 plan.

That’s the plan. What actually happened is quite different.

In September 2014 the commission voted to give the zoo $5.3 million to help pay for a new elephant exhibit. This contribution was not in any funding agreement, and the money was paid in January 2015. This extra funding is almost as large as the planned funding for 2015, which was about $5.6 million.

Sedgwick County Zoo funding, planned and actual.
Sedgwick County Zoo funding, planned and actual.
For next year the commission proposes drawing back just a little, proposing that 2016 funding be the same as 2015 planned and actual funding.

But instead of being grateful for the contribution of $5.3 million for the elephant exhibit, zoo boosters are bitter because the commission is proposing to keep zoo funding level from 2015 to 2016. Level, that is, if one ignores an extra $5.3 million from the county in 2015.

When considering zoo funding we also need to factor in the zoo’s failure to keep its commitment to the county. The zoo has borrowed money from the county so it could build a restaurant. Now the zoo is enjoying a deferral of loan payments and a break from accumulating interest charges. See For Sedgwick County Zoo, a moratorium on its commitment.

By the way, the 2013 funding plan holds that “either party may terminate this agreement by giving written notice.” The parties contemplated that one may not be able or willing to meet the plan.

For Sedgwick County Zoo, a moratorium on its commitment

As the Sedgwick County Zoo and its supporters criticize commissioners for failing to honor commitments, the Zoo is enjoying a deferral of loan payments and a break from accumulating interest charges.

In 2007 the Sedgwick County commission authorized a loan of up to $2.4 million to the zoo to build a restaurant. The idea for this is credited to just-retired County Manager Bill Buchanan. According to meeting minutes from February 21, 2007, the Manager told the commissioners “A new restaurant in the zoo will make some money for the zoo, it is a feature that zoos around the country use as a way to attract people and as an additional revenue source.” As for the county’s role in the venture, the manager said “I’ve viewed this as a way to invest our money, rather than with a Treasury note[,] with a partner.”

Buchanan pitched the loan as a way for the county to earn a little bit more interest than a Treasury note, and as a way for the Zoo to save over $100,000 in interest. If the Zoo was not able to repay the loan, the manager said the county’s annual contribution to the Zoo could be a repayment source. “No one is anticipating that,” said Buchanan.

Immediately after the manager spoke Chris Chronis, the county’s Chief Financial Officer, told the commissioners that “despite what you may have concluded from what the Manager just said, we do not consider this an investment. In fact, it would not be a permitted investment under State law.” Instead, he told the commissioners it should be considered “a loan for economic development purposes.”

Mark Reed, the Zoo Director, told the commissioners “it is my desire and hope to have this paid off in five to seven years.”

What has been the result of this loan?

The zoo borrowed a total of $2,251,100 in two draws in 2007 and 2008. Payments were made through 2013. As of the end of 2014 the zoo owed $936,044 on this loan, according to the county’s annual financial report and other documents.

In 2013 the commission authorized a five-year moratorium on loan payments, to start in 2014. Besides deferring loan payments, the commission decided that interest will not accrue during the moratorium. The deferred payments are in the amount of $234,011.11 for each year.

Sedgwick County budget outlook

The Sedgwick County recommended budget for 2016 reduces projected deficits.

Sedgwick County budget outlook as presented to commissioners in February.
Sedgwick County budget outlook as presented to commissioners in February.
In February Sedgwick County Commissioners were presented with a forecast of budget deficits through 2020, as can be seen in the nearby illustration provided by the county. (Click charts for larger versions.)

Sedgwick County budget outlook as contemplated by recommended budget in July.
Sedgwick County budget outlook as contemplated by recommended budget in July.
The recommended budget reduces the deficits in each year, as can be seen in the second chart provided by the county. The bar chart provides a different view of the same figures.

During a meeting with commissioners, the county’s financial officer said “In each year this budget provides for a reduction in the anticipated deficit.” He also added that it improves the county’s financial picture.

The recommended budget cuts spending in some areas. An alternative that could be proposed by commissioners is to raise taxes, either property or sales.

An alternate presentation of the projected deficits based on the recommended budget.
An alternate presentation of the projected deficits based on the recommended budget.

Sedgwick County commissioners oppose Westar rate increase

The following resolution was voted on during the July 22, 2015 meeting. All five Sedgwick County commissioners voted in favor. More about the proposed rate increase may be found from Westar, from the Citizens’ Utility Ratepayer Board, and also the Kansas Corporation Commission.

A RESOLUTION OPPOSING $152 MILLION ELECTRIC RATE HIKE

WHEREAS, electricity is a key utility needed for life and a strong, functioning economy in the 21st century; and

WHEREAS, the Consumer Price Index (CPI) as measured by the federal government’s measurement is well under two percent a year; and

WHEREAS, the $152 million dollar rate hike proposed by Westar would average an increase of almost 8 percent for rate payers; and

WHEREAS, between 2009 and 2014 Westar has received 22 electric rate hikes that have totaled $536.9 million (this is the net that also includes two rate reductions that totaled $6 million during that same period of time) at a time when the Sedgwick County economy was struggling and with almost no growth in the assessed value of the taxable property base; and

WHEREAS, residential rates would see another dramatic increase of 12.1 percent if this request is approved as requested according to the Citizens Utility Rate Board (CURB); and

WHEREAS, further electric rate hikes of $24 million are either pending or projected within the next year according to CURB; and

WHEREAS, the competitiveness of this region is dependent upon having competitive rates for basic utility functions, with electricity production a vital key; and

WHEREAS, we are aware that the federal government is opposing carbon based energy production and intent on raising costs, while limiting low cost energy production.

NOW, THEREFORE, BE IT RESOLVED BY THE BOARD OF COUNTY COMMISSIONERS OF SEDGWICK COUNTY, KANSAS, that:

1. Sedgwick County opposes this proposed $152 million rate hike by Westar. This opposition also extends to any other rate hikes sought by Westar this year.

2. Sedgwick County opposes unfunded federal mandates onto energy production that would raise costs, inhibit production, and make Kansas and the rest of the U.S. less energy competitive with foreign competition and does so without significant environmental benefits.

‘Roast of Trump’ best left unserved

A celebrity roast of Donald Trump provides insight into the honoree’s character.

Anyone who is thinking of supporting Donald Trump for president might want to view the Comedy Central Roast of Trump. This was recorded in 2011, and several roasters referred to Trump’s possible presidential candidacy. You can find it on YouTube.

In these roasts the humor is raunchy and vulgar. The language is foul. I’m not sure I understand all the jokes, and I’m a little ashamed to admit that I do understand many. The roasters — a collection of has-beens like Larry King and celebrities who seem to do nothing but appear on roasts — poke fun at the roastee, in this case Donald Trump.

Well, it’s much more than poking fun. The roasters skewer Trump. No aspect of his life seems off limits. Multiple jokes refer to his several young wives and his sex life. These jokes are often funny. They’re funny because they exaggerate some aspect of Trump. They have to have a whiff of plausibility, some grounding in reality, in order to be funny.

If, for example, a roaster were to poke fun at Trump for being poor or short, that wouldn’t be funny. Trump is not poor; he’s extremely wealthy, and he’s tall. There’s no platform from which to exaggerate for humorous effect.

But when a roaster crudely jests at how Trump’s ego intrudes on his sex life (it has to do with Trump being more interested in himself than in his partner), that’s pretty funny. It references things that are true about Trump — his massive ego and his several beautiful young wives — and exaggerates a little.

Jokes like this could not have been a surprise to Trump. He (or his people) must have known the nature of the humor employed at these roasts. So the question is: Why did he appear in such a forum? Is this a way to appear presidential?

Individual liberty, limited government, economic freedom, and free markets in Wichita and Kansas