Antique elevator in Kansas Capitol

Kansas personal income grows

A recent spurt of growth of personal income in Kansas is welcome, considering the history of Kansas in this regard.

Kansas personal income grew in the quarter ending in June, with the Wichita Business Journal reporting “Kansas ranked 14th among states for second-quarter personal income growth.” The article also noted “According to data released Tuesday by the Bureau of Economic Analysis, personal income grew by 1.7 percent in the second quarter of 2014, faster than the national growth rate of 1.5 percent.”

Strong growth in personal income is good. But strong growth is not the norm for Kansas. The nearby chart shows cumulative growth of personal income in the states since 1990, with Kansas highlighted. Total growth for Kansas is 190 percent. For the entire county, it is 198 percent. For Plains states, 196 percent.

This is relevant to the decision Kansans will make in November when deciding their vote for governor. Progressive voices urge a return to the policies of Kathleen Sebelius and her successor (2003-2011), and Bill Graves (1995-2003). Sebelius, a Democrat, and Graves, a Republican, are seen by Progressives as paragons of “moderate,” “common-sense” leadership that is now — they say — missing.

An interactive visualization of personal income data is available for use here. You may select different time periods and any grouping of states. One of more states may be highlighted. There are similar charts in the visualization that show change in personal income year-over-year, and change from previous quarter.

Personal Income Growth in the States, Kansas highlighted. Click for larger version.
Personal Income Growth in the States, Kansas highlighted. Click for larger version.
Kansas Flint Hills

Kansas economy has been underperforming

Those who call for a return to the economic policies of past Kansas gubernatorial administrations may not be aware of the performance of the Kansas economy during those times.

There are a variety of ways to measure the economic performance of states and countries. Job growth is one. Output, or gross domestic product, is another.

Real GDP by state, Kansas highlighted, through 2013.
Real GDP by state, Kansas highlighted, through 2013. Click for larger version.

The nearby chart contains two views of GDP for Kansas and nearby states. Kansas is the dark line. The charts shows GDP for private industries only. (By using the interactive visualization, you can show other industries, time periods, and states.)

The top chart shows the percentage change in GDP from the previous year. The bottom chart shows the cumulative growth in GDP since 1997. Both charts illustrate that the performance of the Kansas economy is nothing to crow about, and it’s been that way for a long time.

You may use the visualization yourself. Click here to open it in a new window. There are other visualizations of data, including jobs creation by states, available here.

At the city-owned garage on William Street in Wichita, a duct tape repair is still in use after six months.

Wichita sales tax does little to close maintenance gap

The proposed Wichita sales tax does little to close the city’s delinquent infrastructure maintenance gap. Despite this, there are rumors of another sales tax next year for quality of life items.

Earlier this year the steering committee for the Wichita/Sedgwick County Community Investments Plan delivered a report to the Wichita City Council. The report contains facts that are very relevant to the proposed Wichita one cent per dollar sales tax. Voters will decide on this in November.

Community Investments Plan document, February 2014
Community Investments Plan document, February 2014. Click for larger version.
The most important thing Wichita voters need to know that the city is delinquent in maintaining the assets that taxpayers have purchased. The cost to remedy this lack of maintenance is substantial. On an annual basis, Wichita needs to spend $180 million on infrastructure depreciation/replacement costs. Currently the city spends $78 million on this, the presentation indicates.

The “cost to bring existing deficient infrastructure up to standards” is given as an additional $45 to $55 million per year.

How does this relate to the proposed sales tax? Of the funds the sales tax is projected to raise over five years, $27.8 million is allocated for street maintenance and repairs. That’s $5.6 million per year.

Wichita/Sedgwick County Community Investment PlanSubtract that from what the Community Investments Plan says we need to spend on deficient infrastructure, and we’re left with (roughly) $40 to $50 million per year in additional spending on deficient infrastructure. Remember, that’s on top of ongoing infrastructure depreciation/replacement costs.

Does the proposed sales tax do anything to address those needs? No, it doesn’t.

So what about the deficiency? Is it likely that Wichitans will be asked to provide additional tax revenue to address the city’s deficient infrastructure? So far, city hall hasn’t asked for that, except for recommending that Wichita voters approve $5.6 million per year for streets from a sales tax.

But if we believe the numbers in the Community Investments Plan, we should be prepared for city hall to ask for a lot more tax revenue. That is, if the city is to adequately maintain the things that taxpayers have paid to provide.

It gets even worse.

Wichita has unmet maintenance requirements, and many wants on top of that.
Wichita has unmet maintenance requirements, and many wants on top of that.
Earlier this year the city council considered various proposals for spending a new source of tax money. Four survived the discussion and will be the recipient of sales tax funds, if Wichita voters approve. Those needs are a new water supply, jobs and economic development, transit, and street maintenance and repair.

There were proposals that did not make the cut for the proposed sales tax, generally in the category of “quality of life” facilities. These include a new convention center, new performing arts center, new central library, newly renovated Lawrence-Dumont Stadium, renovation of the Dunbar Theater, renovation of O.J. Watson Park, and help for the homeless.

Evidently there are many who are not happy that these proposals will not receive sales tax money. Rumors afloat that groups — including city officials — are plotting for another sales tax increase to fund these items.

People are rightly concerned that even though the proposed Wichita sales tax ordinance specifies an end to the tax in five years, these taxes have a way of continuing. The State of Kansas recently had a temporary sales tax. It went away, but only partly. The Kansas state sales tax rate we pay today is higher than it was before the start of the “temporary” sales tax.

But the people who want to spend your tax dollars on these “quality of life” items aren’t content to wait five years for the proposed sales tax to end. They are plotting to have it start perhaps one year from now.

These are things that Wichita voters need to consider: There is a backlog of maintenance, and there is appetite for more tax revenue for more spending. Even if the sales tax passes, these remain unfulfilled.

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Wichita water projections from 2008

Do you get the feeling that Wichita’s promises and projections regarding water are quite, well, fluid?

Wichita's Future Water-Supply Plan Moves Ahead (excerpt)Six years ago a Wichita city news release stated “Through the ASR project, Wichita will receive the water it needs through the year 2050 …” (“Wichita’s Future Water-Supply Plan Moves Ahead,” July 3, 2008)

But now, Wichitans are told there is a water crises, and the way to solve it is by voting for a sales tax of one cent per dollar. Either that, or the city will meet the crisis by borrowing money and having water users pay an extra $221 million in interest on a $250 million project.

Perhaps the city’s 2008 news release was based on overly-optimistic engineering. Perhaps the claim of being able to meet our water needs through 2050 is based on all four phases of ASR being completed.

Now, the most recent city documents promise much less: “A new water supply is expected to delay the year (with no conservation) in which drought protection for a 1% drought is provided. This date is projected to be 2030.”

Do you get the feeling that the city’s promises and projections regarding water are quite, well, fluid? Do you remember that eleven years ago then-Mayor Bob Knight was told we had sufficient water for the next 50 years?

An adequate water supply is vitally important. But we are not in a crisis. We had plenty of water this year. Cheney Reservoir has been full most of the year, although currently a little less than full as it’s been dry the last month or so.

Wichita’s water crisis — to the extent it exists — does not need to be solved in a rush. The risks of making big-dollar mistakes are too high to hurry.

Speaking of the ASR project: At a time of heightened interest in ASR, the project’s website has been abandoned. Readers will find language like Phase II “will be complete by the end of 2011.” The last newsletter was for December 2011.

The first years of operation of Phase II of ASR have not been a total success. Maybe that’s why there’s been no news.

Cheney Reservoir 2014-09-29

About Activate Wichita September 29, 2014

‘Activate Wichita’ illustrates city approach to citizen involvement

A City of Wichita outreach system is lightly used, and risks gathering only positive feedback.

Activate Wichita is touted by Wichita city officials as an “online conversation about the future of the Greater Wichita metropolitan area.”

Described on its companion Facebook page as “Activate Wichita is an innovative new way to be heard on the issues your passionate about. Whether your passion is local arts, the environment, or employment creation, you can log on and voice your opinion and local leaders will respond. Together communities come up with solutions and vote on the best course.”

For a system designed to be an interactive conversation, there aren’t many people talking. And maybe I didn’t look diligently enough, but I didn’t see local leaders responding. (Sometimes ideas were marked as “referred to appropriate party.”)

Here’s a real problem: When citizens are asked to rate ideas, to express their approval or — well, that’s the problem. Your choices for voting on an idea are:

  • I Love It!
  • I Like It.
  • It’s OK.
  • Neutral.
Activate Wichita feedback possibilities.
Activate Wichita feedback possibilities.

That’s it. There’s no voting option for expressing disagreement or disapproval with an idea. “Neutral” is as much dissent as Wichitans are allowed to express in this system.

On this system that city leaders say they rely on for gathering citizen input, there needs to be a voting selection that expresses disagreement or disapproval with an idea. Otherwise when votes are tallied, the worst that any idea can be is “neutral.”

Wichita Water Task Force findings presented

Karma Mason, President of iSi Environmental, presents the Water Task Force Findings from the Wichita Chamber of Commerce during the Wichita Water Conference on July 17, 2014. Kansas Policy Institute organized the conference as an educational and discussion opportunity before citizens vote on a one cent per dollar sales tax increase to fund water infrastructure and other spending by the City of Wichita.

Key advice: “Conservation planning is not the same as drought planning.”

View below, or click here to view at YouTube. The presentation shown is contained within this document.

WichitaLiberty.TV July 2, 2014

WichitaLiberty.TV: Arrival of Uber a pivotal moment for Wichita

In this excerpt from WichitaLiberty.TV: Now that Uber has started service in Wichita, the city faces a decision. Will Wichita move into the future by embracing Uber, or remain stuck in the past? View below, or click here to view at YouTube. Originally broadcast on September 14, 2014.

For more in this topic, see Arrival of Uber a pivotal moment for Wichita.

Open box 02

Stuck in the box in Wichita, part two

Wichitans are threatened with shutdown of the city’s bus system if voters don’t approve a sales tax. We need out-of-the-box thinking here.

In November Wichita voters will decide whether to create a sales tax of one cent per dollar. Part of the funds would be directed to the Wichita transit system.

In another example of “either/or” thinking, members of the Wichita Transit board floated the idea that if the sales tax doesn’t pass, we’ll shut down the entire system. The Wichita Business Journal reported “The rhetoric surrounding the November sales tax referendum heated up on Friday, when reports surfaced that some Wichita Transit advisory board members think the system should be shuttered if the sales tax fails.”

City hall pushed back. The official city position is that without a sales tax, there would be service reductions of 25 percent. But the shutdown threat was made and reported. It will undoubtedly have an effect on some people.

This is another example of the false choices Wichita city hall presents to Wichitans. Another is either pass the sales tax or we’re going to borrow money for a new water supply and you’ll pay a lot of interest.

Why does city hall give us such a limited range of choices? Why would members of the Wichita Transit board seed rumors that are so far away from the city’s official position?

Uber drivers in Wichita, September 18, 2014, 7:06 pm
Uber drivers in Wichita, September 18, 2014, 7:06 pm
Aren’t there other ways to provide transit in Wichita? One new choice in Wichita is the Uber ridesharing service. Its arrival increases transit options in Wichita. Will city hall allow Uber to stay in Wichita?

In some cities so-called “dollar vans” are operated by private industry in competition with city-owned traditional transit. Would Wichita city hall allow such services here?

Both Uber and “dollar vans” are, in my opinion, not compatible with Wichita’s existing laws and regulations. I fully expect the city to crack down on Uber soon. We’re then left with “big empty buses” and traditional taxi service as our transit choices, and perhaps higher taxes too.

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Stuck in the box in Wichita, part one

To pay for a new water supply, Wichita gives voters two choices and portrays one as bad. But the purportedly bad choice is the same choice the city made over the last decade to pay for the last big water project. We need out-of-the-box thinking here.

In November Wichita voters will decide whether to create a sales tax of one cent per dollar. By far the largest intended purpose of the funds is to create a new water supply.

Set aside for a moment the question whether Wichita needs a new water source. Set aside the question of whether ASR is the best way to provide a new water source. What’s left is how to pay for it.

City of Wichita information on proposed sales tax
City of Wichita information on proposed sales tax
To pay for a new water source, the city gives us two choices: Either (a) raise funds through the sales tax, or (b) borrow funds that Wichitans will pay back on their water bills, along with a pile of interest.

As you can see in the nearby chart prepared by the city, the costs are either $250 million (sales tax) or $471 million (borrow and pay interest). The preference of the city is evident: sales tax. The “Yes Wichita ” group agrees.

Here’s what is happening. City hall gives us two choices. It’s either (a) do what we want (sales tax), or (b) we’ll do something that’s really bad (borrow and pay interest). Wichitans shouldn’t settle for this array of choices.

Are there other alternatives for raising $250 million for a new water source? Of course there are. The best way would be to raise water bills by $250 million over five years. In this way, water users pay for the new water supply, and we avoid the long-term debt that city council members and “Yes Wichita” seem determined to avoid.

Water bills would have to rise by quite a bit in order to raise $50 million per year. But it’s important to have water users pay for water. The benefit of having water users pay for a new water source is that water users will become acutely aware of the costs of a new water supply. That awareness is difficult to achieve. Many citizens are surprised to learn that the city has spent $247 million over the past decade on a water project, the ASR program.

It will be easier to let people know how much a new water supply costs and how it affects them personally when its cost appears on their water bills. The money that is collected through water bills can be placed in a dedicated fund instead of flowing to the city’s general fund. Then, after the necessary amount is raised, water bills can be immediately adjusted downwards. That’s more difficult to do with a sales tax.

If we pay for a new water supply through a general retail sales tax, the linkage between cost and benefit is less obvious. There is less transparency, and ultimately, less accountability. And we need more accountability. Eleven years ago former mayor Bob Knight was assured that the city had adequate water for the next 50 years. Since then we’ve spent $247 million on the ASR project. Yet, the city says there is a water crisis that demands passage of a sales tax.

Speaking of accountability: Last week the city issued $147,391,828 in long-term bonds to permanently finance short-term bonds used to pay for phase II of the ASR project. That’s right. The ASR project, which by any account has been under-performing, was largely paid for with borrowed funds.

If borrowing to pay for a new water supply is bad, was it also bad to borrow to pay for ASR? Who do we hold accountable for that decision?

Art Hall, WichitaLiberty.TV, September 19, 2014

WichitaLiberty.TV: Economist Art Hall on Wichita’s water and economic development

In this episode of WichitaLiberty.TV: Economist Dr. Art Hall of the Center for Applied Economics at The University of Kansas talks about issues relevant to the proposed Wichita sales tax, particularly water and economic development. View below, or click here to view on YouTube. Episode 60, broadcast September 28, 2014.

Art Hall, Wichita Pachyderm Club, September 19, 2014

Water, economic development discussed in Wichita

Dr. Art Hall, Executive Director of the Center for Applied Economics at the University of Kansas School of Business, presented his “Thoughts on Water and Economic Development” at the Wichita Pachyderm Club Friday, September 19, 2014. Wichita voters will determine whether the city enacts a one cent per dollar sales tax increase to be used for water infrastructure and economic development incentives. View below, or click here to view at YouTube.

More from Dr. Hall on the subject of economic development in Kansas may be found in Embracing Dynamism: The Next Phase in Kansas Economic Development Policy.

Wichita Chamber of Commerce 2013-07-09 004

For Wichita Chamber’s expert, no negatives to economic development incentives

An expert in economic development sponsored by the Wichita Metro Chamber of Commerce tells Wichita there are no studies showing that incentives don’t work.

At a conference produced by Kansas Policy Institute on Friday September 19, a panel presented the “nuts and bolts” of the jobs portion of the proposed Wichita sales tax that voters will see on their November ballots. The Wichita Metro Chamber of Commerce chose Jeff Finkle, president of the International Economic Development Council, to appear on a panel. Here’s part of what he told the Wichita Business Journal. He said similar things in his presentation.

Finkle was in town to present the argument for the jobs fund to the pro free-market Kansas Policy Institute on Friday.

And it was something of a surprise to him that he had to come help make such a pitch at all.

“This is the first place I’ve been where this hasn’t been considered a highly successful model,” Finkle told the WBJ.

Contrary to the stance of the Coalition For A Better Wichita — the group leading the charge against the sales tax referendum — that there are numerous studies that show incentives don’t work, Finkle said the opposite is true.

“I don’t know of one study that says incentives don’t work,” he said.

Finkle said there are studies that “nick” at certain parts of certain packages, but none to his knowledge that condemn the idea as a whole.

I can help Finkle update his knowledge of the literature of economic development. Here’s a paper from Michael J. Hicks, Ph.D., titled Why Tax Incentives Don’t Work: The Altered Landscape of Local Economic Development. Its abstract holds this: “I find that benefits to communities of traditional business attraction efforts have significantly declined over the past three or four decades, and are likely to continue to decline through the middle of this century.”

In fairness to Finkle, this paper is still in draft stage and was published on September 16, just three days before the Wichita conference.

One paper that’s been around a while is from Gabe and Kraybill in 2002 titled The Effect of State Economic Development Incentives on Employment Growth of Establishments. Its conclusion holds this: “Our analysis suggests that incentives do not substantially increase, and may even decrease slightly, the amount of employment change in the two years after an establishment launched an expansion. After controlling for other factors, we found that the effect of incentives on establishments that received incentives is a decrease of 10.5 jobs per establishment.” Another result was that firms that received incentives substantially overstated growth in employment.

The Gabe and Kraybill paper is just one of several mentioned in the brief literature review section of the Hicks paper. Here is a summary of some other peer-reviewed academic research that examines the local impact of targeted tax incentives from an empirical point of view. “Peer-reviewed” means these studies were stripped of identification of authorship and then subjected to critique by other economists, and were able to pass that review.

Ambrosius (1989). National study of development incentives, 1969 — 1985.
Finding: No evidence of incentive impact on manufacturing value-added or unemployment, thus suggesting that tax incentives were ineffective.

Trogan (1999). National study of state economic growth and development programs, 1979 — 1995.
Finding: General fiscal policy found to be mildly effective, while targeted incentives reduced economic performance (as measured by per capita income).

Fox and Murray (2004). Panel study of impacts of entry by 109 large firms in the 1980s.
Finding: No evidence of large firm impacts on local economy.

Edmiston (2004). Panel study of large firm entrance in Georgia, 1984 — 1998
Finding: Employment impact of large firms is less than gross job creation (by about 70%), and thus tax incentives are unlikely to be efficacious.

Hicks (2004). Panel study of gaming casinos in 15 counties (matched to 15 non-gambling counties).
Finding: No employment or income impacts associated with the opening of a large gambling facility. There is significant employment adjustment across industries.

LaFaive and Hicks (2005). Panel study of Michigan’s MEGA tax incentives, 1995 — 2004.
Finding: Tax incentives had no impact on targeted industries (wholesale and manufacturing), but did lead to a transient increase in construction employment at the cost of roughly $125,000 per job.

Hicks (2007a). Panel study of California’s EDA grants to Wal-Mart in the 1990s.
Finding: The receipt of a grant did increase the likelihood that Wal-Mart would locate within a county (about $1.2 million generated a 1% increase in the probability a county would receive a new Wal-Mart), but this had no effect on retail employment overall.

Hicks (2007b). Panel study of entry by large retailer (Cabela’s).
Finding: No permanent employment increase across a quasi-experimental panel of all Cabela’s stores from 1998 to 2003.

(Based on Figure 8.1: Empirical Studies of Large Firm Impacts and Tax Incentive Efficacy, in Unleashing Capitalism: Why Prosperity Stops at the West Virginia Border and How to Fix It, Russell S. Sobel, editor. Available here.)

Finally, Alan Peters and Peter Fisher, in their paper titled The Failures of Economic Development Incentives published in Journal of the American Planning Association, wrote on the effects of incentives. Their conclusion is this:

On the three major questions — Do economic development incentives create new jobs? Are those jobs taken by targeted populations in targeted places? Are incentives, at worst, only moderately revenue negative? — traditional economic development incentives do not fare well. It is possible that incentives do induce significant new growth, that the beneficiaries of that growth are mainly those who have greatest difficulty in the labor market, and that both states and local governments benefit fiscally from that growth. But after decades of policy experimentation and literally hundreds of scholarly studies, none of these claims is clearly substantiated. Indeed, as we have argued in this article, there is a good chance that all of these claims are false.

The most fundamental problem is that many public officials appear to believe that they can influence the course of their state or local economies through incentives and subsidies to a degree far beyond anything supported by even the most optimistic evidence. We need to begin by lowering their expectations about their ability to micromanage economic growth and making the case for a more sensible view of the role of government — providing the foundations for growth through sound fiscal practices, quality public infrastructure, and good education systems — and then letting the economy take care of itself.

I can allow that Jeff Finkle might disagree with these studies. He might have problems with the methodologies. Perhaps he doesn’t think that peer-reviewed research is reliable or valid.

But for him to tell Wichita “I don’t know of one study that says incentives don’t work” indicates either willful blindness or intentional deception. These studies don’t merely “nick” at incentives packages. Instead, they show that there are widespread and severe problems that have been discovered many times over many years.


References:

Ambrosius, Margery Marzahn. 1989. The Effectiveness of State Economic Development Policies: A Time-Series Analysis. Western Political Quarterly 42:283-300.
Trogen, Paul. Which Economic Development Policies Work: Determinants of State Per Capita Income. 1999. International Journal of Economic Development 1.3: 256-279.
Gabe, Todd M., and David S. Kraybill. 2002. The Effect of State Economic Development Incentives on Employment Growth of Establishments. Journal of Regional Science 42(4): 703-730.
Fox, William F., and Matthew Murray. 2004. Do Economic Effects Justify the Use of Fiscal Incentives? Southern Economic Journal 71(1): 78-92.
Edmiston, Kelly D. 2004. The Net Effects of Large Plant Locations and Expansions on County Employment. Journal of Regional Science 44(2): 289-319.
Hicks, Michael J. 2004. A Quasi-Experimental Estimate of the Impact of Casino Gambling on the Regional Economy. Proceedings of the 93rd Annual Meeting of the National Tax Association.
LeFaivre, Michael and Michael Hicks 2005. MEGA: A Retrospective Assessment. Michigan:Mackinac Center for Public Policy.
Hicks, Michael J. 2007a. The Local Economic Impact of Wal-Mart. New York: Cambria Press.
Hicks, Michael J. 2007b. A Quasi-Experimental Test of Large Retail Stores’ Impacts on Regional Labor Markets: The Case of Cabela’s Retail Outlets. Journal of Regional Analysis and Policy, 37 (2):116-122.

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Kansas schools shortchanged

Kansas schools could receive $21 million annually in federal funds if the state had adequate information systems in place.

One of the nuggets buried in a policy brief released last week by Kansas Policy Institute is that the state is not capturing all federal funds to which it is entitled. That is, would be able to capture if the state had adequate information systems in place. Here’s a section of the policy brief:

Capture federal reimbursement of K-12 KPERS costs

States are entitled to be reimbursed by the federal government for the pension costs of school employees engaged in the delivery of federally-funded services, such as Special Education and Food Service. Kansas, however, foregoes federal reimbursement because many school districts’ payroll systems lack the ability to properly capture the necessary information. (Estimates are not permitted; the information must flow through payroll systems.) The State should require that school districts utilize a single state-provided or outsourced payroll system to capture annual federal reimbursement of $21 million.

Here is a sum of money that Kansas schools could receive if only Kansas had the necessary information systems infrastructure in place. A side benefit would likely be better management of school systems’ payroll if such a system was in place.

Is $21 million a significant sum when the state spends several billions on schools each year? The Kansas school spending establishment contends that a tax credit scholarship that might divert $10 million from the state to private schools is something that schools can’t afford. But here’s an example of twice that amount being available if Kansas school leadership had to will to obtain it.

The Kansas Policy Institute policy brief “A Five-Year Budget Plan for the State of Kansas: How to balance the budget and have healthy ending balances without tax increases or service reductions” is just ten pages in length. It may be downloaded from KPI here or alternatively from Scribd here (may work better on mobile devices). A press release from KPI announcing the policy brief is at 5 Year Budget Plan Outlines Path To Protect Essential Services and Tax Refom.

Wichita Chamber presentation. Click for larger version.

To Wichita, a promise to wisely invest if sales tax passes

Claims of a reformed economic development process if Wichita voters approve a sales tax must be evaluated in light of past practice and the sameness of the people in charge. If these leaders are truly interested in reforming Wichita’s economic development machinery and processes, they could have started years ago using the generous incentives we already have.

At a conference produced by Kansas Policy Institute on Friday September 19, a panel presented the “nuts and bolts” of the jobs portion of the proposed Wichita sales tax that voters will see on their November ballots. I asked a question:

Listening to at least two of the three speakers, it sounds like Wichita’s not been using incentives. Two-and-a-half years ago when Boeing announced it was leaving Wichita, Mayor Brewer angrily produced a document saying since 1980, we’ve given Boeing $658 million in tax forgiveness. Last year the city and the state were somehow able to come up with $84,000 per job for 400 jobs here at NetApp. So we’ve been using a lot of incentives, haven’t we? What are we going to do different now, that hasn’t worked for us, clearly, in the past.

One of the panelists, Paul Allen, provided this answer:

I’m not sure that I agree that it hasn’t worked for us in the past. In fact, Boeing is still one of the largest taxpayers in the city. It has $6 million of real estate taxes paying a year. The Boeing facilities are still paying taxes in this community. Again, the jobs aren’t here, but Boeing on its rebates paid those back, those are on incremental property that it invested that came back on the tax rolls over time, and I think 6 million is the correct number last I looked there is still on the tax rolls in this city. So you have got pay back. And NetApp? NetApp is a win for the city. If you look at the economic models measuring the results of those 400 jobs and the fact that now the NetApp relationship likely to happen on the campus of Wichita State, that’s economic growth. Those are the kinds of jobs you need to attract. What are we going to do differently? We’re going to look at infrastructure more, we’re looking at a more integrated program across the spectrum. WSU is certainly a big part of that program, we’re going to get serious about diversification. We only talk about diversification in the city when the economy is down. We need to be a long-term program for diversification, taking the skills we have and looking at those skills and attracting companies here, helping our companies to expand. We need to invest in our work force, whether it’s at college level or particular to the technical colleges. Again those are the kinds of investments that are going to create a workforce that becomes attractive. It’s just one component, I think if we said it’s one tool in the toolbox. That’s a very important tool. And we are up against communities like Oklahoma City that has $75 million sitting in a fund and believe me that’s a lot more than we’ve invested in the last 10 years. And we will continue to get beaten in the competition if we don’t get more serious about being able to fight for the jobs and you can ask most business owners, particularly manufacturing, they’re called constantly from other communities trying to recruit then out of this community. And that competition is only going to get more intense, in my opinion. So we’ve got to be prepared to wisely invest our money.

(Paul Allen was Chair of Greater Wichita Economic Development Coalition for 2011, and Chair of Wichita Area Chamber of Commerce in 1998. The Wichita Chamber selected him to present the case for the sales tax at this conference.)

Allen’s pushback at the idea that the Boeing incentives were a failure produced a few gasps of astonishment from the audience. I’m sure that if any of Wichita’s elected officials had been in attendance, they would also have been surprised.

Response to Boeing AnnouncementIn January 2012, when Boeing announced it was leaving Wichita, people not happy. Mayor Carl Brewer in a written statement said “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.” 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.” (See Fact-checking Yes Wichita: Boeing incentives)

But now an icon of Wichita’s business community says that since Boeing is paying $6 million per year in property taxes, it really was a good investment, after all. Today, however, no one is working in these buildings. No productive economic activity is taking place. But, government is collecting property taxes. This counts as an economic development success story, according to the people who support the proposed Wichita sales tax.

Wichita Chamber of Commerce 2013-07-09 004Another important thing to learn from this conference, which is hinted at in Allen’s answer, is that sales tax supporters are not recognizing all the incentives that we have in Wichita. One speaker said “It would be a travesty for you to do nothing.” (He was from out of town, but the Wichita Metro Chamber of Commerce selected him to speak and presented him as an expert.) But as we know from the premise of my question, we have many available incentives, and in large amounts, too.

Another problem is Allen’s disagreement that what we’ve done has not been working. This is contrary to the evidence the Wichita Chamber has been presenting, which is that we have lost thousands of jobs and are not growing as quickly as peer cities. That is the basis of their case for spending more on economic development.

Allen also spoke of a $75 million fund in Oklahoma City, saying it is much larger that what we’ve invested. I’m sure that Allen is not including all the incentives we’ve used. There were some years, for example, when the value of the abated taxes for Boeing was over $40 million. Last year the city initiated a process whereby NetApp saved $6,880,000 in sales tax, according to Kansas Department of Commerce documents. These tax abatements are more valuable than receiving the equivalent amount as a cash payment, as the company does not pay income taxes on the value of abated taxes.

"Yes Wichita" website
“Yes Wichita” website
Wichita voters will also want to consider the list of things Allen said we will do differently in the future. He spoke of concepts like infrastructure, an integrated program, diversification, investing in our work force, attracting companies, and helping existing companies expand. He told the audience “So we’ve got to be prepared to wisely invest our money.” There are two things to consider regarding this. First, these are the things we’ve been talking about doing for decades. Some of them we have been doing.

Second, the people saying these things — promising a new era of economic development in Wichita — are the same people who have been in charge for decades. They’ve been chairs of the Wichita Metro Chamber of Commerce, Greater Wichita Economic Development Coalition, Visioneering Wichita, Wichita Downtown Development Corporation, and Go Wichita Convention and Visitors Bureau. They’re the members of the leadership committee the Chamber formed.

These people are Wichita’s business establishment. They’ve been in charge during the time the Wichita economy has fallen behind. Now, they promise reform. We will do things differently and better, they say. Now, we will prepare to invest wisely, Allen told the audience.

If these leaders are truly interested in reforming Wichita’s economic development machinery and processes, they could have started years ago using the generous incentives we already have.

Wichita Transit Center, 2014.

Wichita Transit System and the proposed sales tax

Examining claims made by “Yes Wichita” provides an opportunity to learn about the finances of the Wichita bus transit system.

In November Wichita voters will vote yes or no on a one cent per dollar sales tax. Part of that tax, ten percent, would go to the Wichita Transit system to pay back loans, cover operating deficits, and allow for some service expansion.

Coalition for a Better Wichita, a group that opposes the sales tax, has mentioned that instead of expanding the existing Wichita Transit system, we ought to take a look at private sector alternatives for providing transportation options for Wichitans. An example is the Uber service, which started operations in Wichita last month. (Uber’s arrival is not without controversy. It appears that Uber is not compatible with Wichita’s regulations. I expect that soon the city will clamp down on Uber, which would be a mistake for the city. See Arrival of Uber a pivotal moment for Wichita.)

Yes Wichita Facebook page. Click for larger version.
Yes Wichita Facebook page. Click for larger version.
Regarding Uber, a Facebook user named Michael Ramsey wrote this on his Facebook profile:

Commuting to work every day from the College Hill area costs $1.90 each way and instead of using ONE PENNY from every ten dollars that we spend jumpstarting our transit system the Coalition for Better Wichita has suggested that we use Über instead. HOW DOES THAT SIMPLE MATH WORK??? VoteYes Wichita.

The “Yes Wichita” group that supports the sales tax shared Ramsey’s remarks and added this comment:

Michael Ramsey makes a great point. The simple math shows for Micahel to use public tansit to get to and from work it would cost $998.40 a year, to ride Uber it would cost $3,640 (using the low range estimate). The would cost riders an additional $2,641.60 a year. Simple reasoning shows a one-cent sales tax would be more economical for those in need. #voteyeswichita #yeswichita

Since Wichita voters are urged to consider and use “simple math” and “simple reasoning,” let’s do just that. It will help voters understand some of the finances of public transit.

First, far from “jumpstarting” our transit system, one use of sales tax funds would be to repay $1.2 million in loans the transit system owes to the city. But let’s not quibble about the enthusiasm of those who want to spend more of other people’s money.

The important consideration that needs examination is the idea that a bus ride costs $1.90. (The actual adult fare, according to the Wichita Transit website, is $1.75 or $2.00 with transfer, so I’m not sure where the $1.90 figure comes from.)

Statistics from the Wichita Transit System reveal that the fare that passengers pay is nowhere near the cost of providing the bus ride. I happen to have handy financial figures from 2011 for the Wichita transit system. For that year, total operating funds spent were $13,914,580. Revenue from fares was $1,876,991. This means that considering operating expenses only, 13.5 percent of the cost of a bus trip was paid by the passenger’s fare.

If we include capital expenses of $1,570,175, the portion of the cost of a bus trip that was paid by the passenger’s fare is 12.1 percent. Figures in this neighborhood are common for transit systems in other cities.

So far from costing $1.90 (assuming the author’s data), a bus trip actually costs much more. It’s not bus passengers that pay these costs. It’s taxpayers who pay, most of whom do not use transit.

There are a number of ways to look at the costs of providing bus service. For Wichita in 2011, and considering only the regular bus service and not the more expensive on-demand service, here are cost figures:

Operating expense per passenger mile: $0.97
Operating expense per unlinked passenger trip: $4.79

The 97 cents per mile is not the cost of moving a bus one mile down the road. It’s the cost of moving one passenger one mile. These costs are for operating expenses only and do not include the capital costs of purchasing buses.

Bus transit is very expensive. For the “Yes Wichita” campaign to imply that one-tenth of one cent per dollar sales tax will fix the system ignores the system’s tremendous costs and disrespects the taxpayer subsidy the system already receives.

There’s something else. The Facebook posts seem to imply that someone proposes replacing Wichita bus transit service with Uber. I don’t think that anyone has made that claim. Services like Uber could be a complement to traditional transit. There could be other market-based complementary services.

It’s important to remember that services like Uber generate revenue from people who willingly use and pay for its service. This is very different from Wichita Transit. As shown above, the Wichita bus system receives its revenue primarily from taxes. Money collected in the farebox is a small portion of the system’s revenues. Meeting the needs of customers is not an important factor in determining the revenue the system receives.

Wichita Transit System, showing total operating expense, passenger miles traveled, and cost per passenger mile traveled. This data is for the regular bus service only.
Wichita Transit System, showing total operating expense, passenger miles traveled, and cost per passenger mile traveled. This data is for the regular bus service only.
Budget Calculator 385506_1280

For Kansas budget, balance is attainable

A policy brief from a Kansas think tank illustrates that balancing the Kansas budget while maintaining services and lower tax rates is not only possible, but realistic.

The State of Kansas has implemented tax reform that reduces the tax burden for Kansans. A remaining challenge that has not yet been tackled is spending reform, that is, aligning Kansas state government spending with a smaller stream of tax revenue. Critics of tax reform say the Kansas budget is a mess or a train wreck, pointing to projections of large deficits before long. Tax increases or service cuts will be required to balance the budget, contend critics.

In a policy brief released today, Kansas Policy Institute presented a plan for bringing the budget in balance while retaining low tax rates (and future reductions) and accommodating projected future spending needs for Medicare and schools.

KPI’s analysis and proposed budgets are based on revenue and expenditure data from Kansas Legislative Research Department as of August. Because of some uncertainty of future revenue estimates, KPI used three different levels of starting revenue going to create three different scenarios. KPI then applied the same growth rate that KLRD uses.

Even with the changes proposed by KPI, spending will still increase in most cases. Baked into KPI’s tables are projections by KLRD of increases of $299 million for Medicaid caseloads and $215 million for additional K-12 school spending.

The changes that KPI recommends are primarily structural in nature. For example, one recommendation is to reform KPERS, the state employee retirement system, so that newly hired employees are covered by a defined contribution program. Another is reducing sales tax transfers to Kansas Department of Transportation to the level used in fiscal year 2013.

Another change is to improve accounting systems. The report illustrates one instance where inadequate payroll systems mean that the state can’t claim some payments that it is due:

States are entitled to be reimbursed by the federal government for the pension costs of school employees engaged in the delivery of federally-funded services, such as Special Education and Food Service. Kansas, however, foregoes federal reimbursement because many school districts’ payroll systems lack the ability to properly capture the necessary information. (Estimates are not permitted; the information must flow through payroll systems.)

KPI president Dave Trabert said: “We do have to have some structural changes that should have occurred in 2012 when tax reform was first implemented. We can do that now by making more effective use of existing resources.” Except in a few instances, the budget plan advanced by KPI doesn’t depend on government eliminating waste or becoming more efficient. While these goals are important, Trabert said, they take time to accomplish.

The policy brief is just ten pages in length. It may be downloaded from KPI here or alternatively from Scribd here (may work better on mobile devices). A press release from KPI announcing the policy brief is at 5 Year Budget Plan Outlines Path To Protect Essential Services and Tax Refom.

Video: Fact-checking ‘Yes Wichita’ on paved streets

In this excerpt from WichitaLiberty.TV: Will the proposed Wichita sales tax result in more paved streets? It depends on what you mean by “pave.” Bob Weeks explains. View below, or click here to view at YouTube.

For more on this issue, see Fact-checking Yes Wichita: Paved streets.

Bar char statistics

Beechcraft incentives a teachable moment for Wichita

The case of Beechcraft and economic development incentives holds several lessons as Wichita considers a new tax with a portion devoted to incentives.

In December 2010 Kansas Governor Mark Parkinson announced a deal whereby the state would pay millions to Hawker Beechcraft to keep the company in Kansas. The company had been considering a purported deal to move to Baton Rouge, Louisiana. (Since then the company underwent bankruptcy, emerged as Beechcraft, and has been acquired by Textron.) The money from the state was to be supplanted by grants from the City of Wichita and Sedgwick County.

At the time, the deal was lauded as a tremendous accomplishment. In his State of the City address for 2011, Wichita Mayor Carl Brewer told the city that “We responded to the realities of the new economy by protecting and stabilizing jobs in the aviation industry. … The deal with Hawker Beechcraft announced last December keeps at least 4,000 jobs and all existing product lines in Wichita until at least 2020.”

Kansas Payments to Hawker Beechcraft and Employment

The nearby table shows data obtained from the Kansas Department of Commerce for Hawker Beechcraft. “MPI” means “Major Project Investment,” a class of payments that may be used for a broad range of expenses, including employee salaries and equipment purchases. SKILL is a program whereby the state pays for employee training. The MPI payments have been reduced below the $5 million per year target as the company has not met the commitment of maintaining at least 4,000 employees.

Besides these funds, the City of Wichita and Sedgwick County approved incentives of $2.5 million each, to be paid over five years at $500,000 per year (a total of $1,000,000 per year). The company has also routinely received property tax abatements by participating in an industrial revenue bond program.

It’s unfortunate that Beechcraft employment has fallen. The human cost has been large. But from this, we can learn.

First, we can learn it’s important to keep the claims of economic development officials and politicians in perspective. Mayor Brewer confidently claimed there would be at least 4,000 jobs at Beechcraft and the retention of existing product lines in Wichita. As we’ve seen, the promised employment level has not been maintained. Also, Beechcraft shed its line of business jets. The company did not move the production of jets to a different location; it stopped making them altogether. So “all existing product lines” did not remain in Wichita — another dashed promise.

Second, Wichita officials contend that our city can’t compete with others because our budget for incentives is too small. The figure of $1.65 million per year is commonly cited. As we see, Beechcraft alone received much more than that, and in cash. Local economic development officials are likely to say that the bulk of these funds are provided by the state, not by local government. I doubt it made a difference to Beechcraft. The lesson here is that Wichita officials are not truthful when telling citizens the amounts of incentives that are available.

Third, this incident illuminates how incentives are extorted from gullible local governments. In his 2011 address, the Wichita mayor said “We said NO to the State of Louisiana that tried to lure Hawker Beechcraft.” (Capitalization in original.) But a Baton Rouge television station reported that the move to Louisiana was never a possibility, reporting: “Today, Governor Bobby Jindal said the timing was not right to make a move. He says Hawker could not guarantee the number of jobs it said it would provide.”

The Associated Press reported this regarding the possible move to Louisiana: “They [Hawker Beechcraft] weren’t confident they could meet the job commitments they would have to make to come to Baton Rouge so it just didn’t make sense at this time.”

The threat the mayor said Wichita turned back with tens of millions of dollars? It was not real. This is another lesson to learn about the practice of economic development.

chalkboard-portion-800

For Wichita city hall, an educational opportunity

Will Wichita city officials and sales tax boosters attend an educational event produced by a leading Kansas public policy institute? It will be an opportunity for city officials to demonstrate their commitment to soliciting input from the community.

Wichita voters will face a choice in November — whether to vote for or against a proposed sales tax of one cent per dollar. Wichita city council members and city hall bureaucrats say they have spent great effort educating Wichitans on issues relevant to the sales tax. Members of the “Yes Wichita” group are holding events to educate the public on why they should vote in favor of the tax.

Wichita City Budget Cover, 1975All of the information presented by the city and the “Yes Wichita” group has a common ideological thread: That our city has problems, and the way to fix things is to implement a new tax and rely on government to provide the solutions it has determined we need.

City hall might be surprised to learn that there are differing opinions as to the nature and extent of our city’s problems, and different ideas about how to fix them. Some of these ideas are novel. Some may work, and some may not. (It’s far from certain that government-provided solutions will work.) Most of these diverse ideas are well-researched. They often rely on private sector initiative rather than government taxation and spending. They may rely on voluntary cooperation through markets rather than coercive government action.

Since city hall says that knowing the facts is important, you might think that city council members and city bureaucrats would welcome the production of educational events on sales tax topics. That’s why it was discouraging that a July forum on water issues produced by Kansas Policy Institute was attended by just a handful of city officials. Even worse, the city officials that attended left the meeting at its midpoint, as soon as the city’s public works director finished his presentation.

I understand that city council members are part-time employees paid a part-time salary. Some have outside jobs or businesses to run. But that’s not the case with the city’s public works director or its governmental affairs director. That’s not the case with the city manager, or the assistant city manager, or the city’s economic development staff.

It’s especially not the case for Mayor Carl Brewer. He is paid a full-time salary to be the leader of our community. When he shows little willingness to consider views other than those produced by city hall sycophants that work — directly or indirectly — for him and the council, we have a deficit of leadership in Wichita.

It’s especially grating because several city council members and the “Yes Wichita” group contend their opponents — like me — are misinformed and/or lying. (When pressed for specific examples, few are produced.)

If you’ve attended a city council meeting, you may have to sit through up to an hour of the mayor issuing proclamations and service awards before actual business starts. Fleets of city bureaucrats are in the audience during this time.

But none of these would spend just one hour listening to a presentation in July by a university professor that might hold a solution to our water supply issue.

kansas-policy-institute-logoI understand that city officials might not be the biggest fans of Kansas Policy Institute. It supports free markets and limited government. But city officials tell us that they want to hear from citizens. The city says it has gone to great lengths to collect input from citizens, implementing a website and holding numerous meetings.

About 70 people attended the KPI forum in July. Citizens were interested in what the speakers had to say. They sat politely through the presentation by the two city officials, even though I’m sure many in the audience were already familiar with the recycled slides they’d seen before.

But it appears that Wichita city officials were not interested in alternatives that weren’t developed by city hall. They can’t even pretend to be interested.

Now, this Friday morning September 19, Kansas Policy Institute is producing another forum on issues relevant to the proposed sales tax. The event’s agenda features six speakers over about four hours. Three speakers were selected by the Wichita Metro Chamber of Commerce. Two are from out of town. Another is an expert on the Wichita and Kansas economy. There will be opportunities for attendees to ask questions.

Will city council members, city hall bureaucrats, and members of the “Yes Wichita” leadership team attend this event?

The Fostering Economic Growth in Wichita event is open to everyone and presented at no charge by Kansas Policy Institute. For more information and registration, click here.

water fountain gargoyles fountain-197334_640

Before spending on new infrastructure, Wichita voters should ask why so much deferred maintenance

As the City of Wichita asks for more tax money for infrastructure, Wichita voters need to be aware of the projected costs of the city’s deferred maintenance.

When the Wichita City Council voted to increase water rates in November 2013, meeting minutes reported these remarks from the city manager explaining that Wichita has not adequately maintained its infrastructure:

Bob Layton City Manager stated the Council told staff last year that they wanted staff to continue to look at operation efficiencies to reduce the operating costs, which they are doing. Stated the rate recommendation does reflect the three percent efficiency increase. Stated over the last several years 80% of those rate increases have gone to infrastructure improvements and a lot of it is because of deferred maintenance that occurred over a long period of time. Stated they recognize even with these increases that it will difficult to keep up with the maintenance requirements of our system but are also aware of concerns residents have about significant rate increases.

This was not the first time, nor the last time, that Wichitans might have heard about problems with deferred maintenance of city infrastructure. In his 2013 State of the City address Mayor Carl Brewer told the city that over the next 30 years, “Wichita’s aging water, sewer, and storm drainage systems will require significant maintenance or replacement. Total replacement of these systems is estimated to cost $2.1 BILLION.” (emphasis in original)

Earlier this year a report presented to the Community Investments Plan Steering Committee held language like “Decades of under-investment in infrastructure maintenance … 38% of Wichita’s infrastructure is in ‘deficient/fair’ condition.”

The report also told the committee that the “cost to bring existing deficient infrastructure up to standards” is given as an additional $45 to $55 million per year.

It’s important to note that these costs are not for building new infrastructure. Also, these costs are not for routine, ongoing maintenance. Instead, these numbers are what it costs to catch up with what the city should have been doing. As the report says: To bring existing deficient infrastructure up to standards.

This is important for Wichita voters to know as they consider their decision on a proposed one cent per dollar sales tax that will appear on the November ballot. Almost two-thirds of the tax proceeds would be spent on water.

Wichita Area Future Water Supply: A Model Program for Other Municipalities
Wichita Area Future Water Supply: A Model Program for Other Municipalities
But it’s important to note that the purpose of the $250 million allocated for water is not for catching up on the maintenance backlog. Instead, it’s earmarked for building additional water supply capability.

Whether the sales tax passes or not, the deferred maintenance needs of our existing infrastructure will remain. There will be pressure for water rates to rise, or for some other source of revenue to catch up on maintenance.

It won’t do us much good to have a new water source (the purpose of which is to allow for the watering of lawns and washing of cars during droughts) if the water pipes are broken. Perhaps Wichita voters should ask that the city present a plan for maintaining the assets we have before sending more tax dollars to city hall.

And let’s also ask this: Why hasn’t the city maintained the infrastructure that taxpayers and water users have already paid for?

Is Kansas a rural, agriculture state?

One of the most-often repeated themes heard during the Kansas Governor debate at the Kansas State Fair is that Kansas is a rural state, and that agriculture is vital to our state’s economy. It’s not just gubernatorial candidates that say this. It seems to be common knowledge.

Rural populations of the states. Click for larger version.
Rural populations of the states. Click for larger version.
There may be several ways to measure the “ruralness” of a state. One way is the percent of the state’s people that live in rural areas. The U.S. Census Bureau has these statistics. In the chart made from these statistics, Kansas is right in the middle of the states. 25.80 percent of Kansans live in rural areas.

As for the importance of agriculture to the Kansas economy, figures from the Bureau of Economic Analysis (part of the U.S. Department of Commerce) tell us that in 2013 agriculture contributed $6,914 million to the Kansas GDP. Total GDP in Kansas that year was $144,062 million, meaning that agriculture accounted for 4.8 percent of total Kansas economic production. That is a pretty high number; only six states have a higher percentage of GDP from agriculture.

Do these numbers mean anything? It’s common for Kansas politicians to emphasize — and perhaps exaggerate — whatever connections they may have to a family farm. It’s part of a nostalgic and romanticized view of Kansas, the Kansas of Home on the Range. We are the “Wheat State” and “Breadbasket of the World,” and “One Kansas farmer feeds 128 people (plus you).”

So while Kansas is in the middle in the ranking of percent of population living in rural areas, agriculture is a larger component of state income than all but a few states. Still, agriculture is less than five percent of Kansas income. Policymakers should keep this in mind, although politicians may not.

For downtown Wichita, some progress in controlling waste

Downtown Wichita, September 12, 2014, 11:17 am
Downtown Wichita, September 12, 2014, 11:17 am
It was a cloudy day, and while the sidewalk bench lights were on, at least the tall street lights were off. Other good news: The outdoor lights at the Wichita Transit Center were also turned off. So Wichita’s making some progress in controlling the blatant waste of electricity. Either that, or the lights at the Transit Center finally burned out from being on all day.

The lights illustrated in these photographs are, undoubtedly, a small portion of the city’s spending. But you don’t have to look very hard to find waste like this, and we know that small examples of waste are multiplied many times. So when city leaders tell us that there is nowhere left to cut in the budget, that everything that can be done to trim the fat has already been done, and that the only thing we can do is raise taxes — well, think of this photograph and others illustrated in As Wichita asks for more taxes, it continues to waste what it has, Before asking for more taxes, Wichita should stop wasting what it has, Waste in Wichita, the seen and probably unseen, Wichita’s monsters on display, again, Forget the vampires. Let’s tackle the real monsters, Wichita advances in the field of cost savings, Another Friday lunch, and even more lights are on, To compensate, Wichita switched on the street lights, In Wichita, the streetside seating is illuminated very well, In Wichita, the rooftops are well-lit and On a sunny day in downtown Wichita you can see the street lights.

This is not to say that waste like this does not occur in the private sector. Of course it does. But businesses and individuals have a powerful incentive to avoid waste that isn’t present in government: Businesses and people are spending their own money. And even if they waste money, it’s their money, not ours.

Who does the proposed Wichita sales tax harm?

In this excerpt from WichitaLiberty.TV: Analysis of household expenditure data shows that a proposed sales tax in Wichita affects low income families in greatest proportion, confirming the regressive nature of sales taxes. View below, or click here to view on YouTube. For more on this, see Wichita sales tax hike would hit low income families hardest.

For Wichita’s Williams, $1.33 per month is too much

Wichita city council member Lavonta Williams (district 1, northeast Wichita) is a supporter of the proposed one cent per dollar Wichita sales tax. She has also spoken of her concern for Wichita’s low-income families, as she did in November 2013 when the Wichita City Council voted to increase water rates. City documents indicated that the average residential bill would rise by $1.33 per month for those who use modest amounts of water.

Wichita City Council Member Lavonta Williams
Wichita City Council Member Lavonta Williams
According to the meeting minutes, Williams said this:

Council Member Williams stated she realizes that some may think that $1.33 is not that big of an increase, but for so many of our constituents, it is quite an increase for them especially those who are on a fixed income. Stated this is concerning to her and appreciates staff looking at all options and are kicking off a program that will help those who need assistance from the City. Stated she realizes as a City that we have to continue moving forward and look at our infrastructure.

I wonder: When Williams voted in favor of the Wichita sales tax ballot placement, did she understand that anyone who spends $133.00 per month on taxable purchases will see a $1.33 rise in their monthly sales tax expense? Recall that Kansas applies sales tax to food, although there is a possibility of receiving a rebate. The rebate is implemented through a nonrefundable income tax credit.

Here’s something else: Since Williams applauded the formation of a payment assistance program for those who can’t afford their water bills, I wonder if she will propose a similar program for those who can’t afford a higher sales tax?

Yes Wichita logo

For Wichita sales tax, concern over conflicts of interest

Supporters of a proposed sales tax in Wichita promise there will be no conflicts of interest when making spending decisions. That would be a welcome departure from present city practice.

"Yes Wichita" website.
“Yes Wichita” website.
In November Wichita voters will decide on a new one cent per dollar sales tax, part to be used for economic development, specifically job creation. “Yes Wichita” is a group that supports the sales tax. Language on its website reads: “Conflict-of-interest policies will prohibit anyone from participating in decisions in which there is any self-interest.” The page is addressing the economic development portion of the proposed sales tax. It’s part of an effort to persuade Wichita voters that millions in incentives will be granted based on merit instead of cronyism or the self-interest of politicians, bureaucrats, and committee members.

The problem is that while the city currently has in place laws regarding conflicts of interest, the city does not seem willing to observe them. If the proposed sales tax passes, what assurances do we have that the city will change its ways?

Following, from October 2013, is one illustration of Wichita city hall’s attitude towards conflicts of interest and more broadly, government ethics.

Wichita contracts, their meaning (or not)

Is the City of Wichita concerned that its contracts contain language that seems to be violated even before the contract is signed?

This week the Wichita City Council approved a development agreement for the apartments to be built on the west bank of the Arkansas River. The development agreement the council contemplated included this language in Section 11.06, titled “Conflicts of Interest.”

section-1106

No member of the City’s governing body or of any branch of the City’s government that has any power of review or approval of any of the Developer’s undertakings shall participate in any decisions relating thereto which affect such person’s personal interest or the interests of any corporation or partnership in which such person is directly or indirectly interested.

At Tuesday’s meeting I read this section of the contract to the council. I believe it is relevant for these reasons:

Warren Theater Brewer's Best 2013-07-18

1. Wichita Mayor Carl Brewer is a member of a governing body that has power of approval over this project.

2. Bill Warren is one of the parties that owns this project.

3. Bill Warren also owns movie theaters.

4. Wichita Mayor Carl Brewer owns a company that manufactures barbeque sauce.

5. Brewer’s sauce is sold at Warren’s theaters.

The question is this: Does the mayor’s business relationship with Warren fall under the prohibitions described in the language of section 11.06? Evidently not. After I read section 11.06 I asked the mayor if he sold his sauce at Warren’s theaters. He answered yes. But no one — not any of the six city council members, not the city manager, not the city attorney, not any bureaucrat — thought my question was worthy of discussion.

(While the agreement doesn’t mention campaign contributions, I might remind the people of Wichita that during 2012, parties to this agreement and their surrogates provided all the campaign finance contributions that council members Lavonta Williams and James Clendenin received. See Campaign contributions show need for reform in Wichita. That’s a lot of personal interest in the careers of politicians.)

I recommend that if we are not willing to live up to this section of the contract that we strike it. Why have language in contracts that we ignore? Parties to the contract rationalize that if the city isn’t concerned about enforcing this section, why should they have to adhere to other sections?

While we’re at it, we might also consider striking Section 2.04.050 of the city code, titled “Code of ethics for council members.” This says, in part, “[Council members] shall refrain from making decisions involving business associates, customers, clients, friends and competitors.”

That language seems pretty clear to me. But we have a city attorney that says that this is simply advisory. If the city attorney’s interpretation of this law is controlling, I suggest we strike this section from the city code. Someone who reads this — perhaps a business owner considering Wichita for expansion — might conclude that our city has a code of ethics that is actually observed by the mayor and council members and enforced by its attorneys.

Hanging file folders

Claims of future transparency of Wichita tax money spending

Claims by boosters of a proposed Wichita sales tax that the city will be transparent in how money is spent must be examined in light of the city’s attitude towards citizens’ right to know.

When a city council member apologizes to bureaucrats because they have to defend why their agencies won’t disclose how taxpayer money is spent, we have a problem. When the mayor and most other council members agree, the problem is compounded. Carl Brewer won’t be mayor past April, but the city council member that apologized to bureaucrats — Pete Meitzner (district 2, east Wichita) — may continue serving in city government beyond next year’s elections. Wichita City Manager Robert Layton will likely continue serving for the foreseeable future.

Why is this important? Supporters of the proposed Wichita sales tax promise transparency in operations and spending. But requests for spending records by the city’s quasi-governmental agencies are routinely rebuffed. The city supports their refusal to comply with the Kansas Open Records Act. Many of the people presently in charge at city hall and at agencies like Greater Wichita Economic Development Coalition will still be in charge if the proposed sales tax passes. What assurances do we have that they will change their attitude towards citizens’ right to know how taxpayer funds are spent?

Following, from December 2012, an illustration of the city’s attitude towards citizens’ right to know.

Wichita, again, fails at open government

The Wichita City Council, when presented with an opportunity to increase the ability of citizens to observe the workings of the government they pay for, decided against the cause of open government, preferring to keep the spending of taxpayer money a secret.

The occasion was consideration of renewing its contract with Go Wichita Convention and Visitors Bureau. I asked, as I have in the past for this agency and also for Wichita Downtown Development Corporation and Greater Wichita Economic Development Coalition, that they consider themselves to be what they are: public agencies as defined in the Kansas Open Records Act.

In the past I’ve argued that Go Wichita is a public agency as defined in the Kansas Open Records Act. But the city disagreed. And astonishingly, the Sedgwick County District Attorney agrees with the city’s interpretation of the law.

So I asked that we put aside the law for now, and instead talk about good public policy. Let’s recognize that even if the law does not require Go Wichita, WDDC, and GWEDC to disclose records, the law does not prohibit them from fulfilling records requests.

Once we understand this, we’re left with these questions:

Why does Go Wichita, an agency funded almost totally by tax revenue, want to keep secret how it spends that money, over $2 million per year?

Why is this city council satisfied with this lack of disclosure of how taxpayer funds are spent?

Why isn’t Go Wichita’s check register readily available online, as it is for Sedgwick County?

For that matter, why isn’t Wichita’s check register online?

It would be a simple matter for the council to declare that the city and its taxpayer-funded partner agencies believe in open government. All the city has to have is the will to do this. It takes nothing more.

Only Wichita City Council Member Michael O’Donnell (district 4, south and southwest Wichita) gets it, and yesterday was his last meeting as a member of the council. No other council members would speak up in favor of citizens’ right to open government.

But it’s much worse than a simple failure to recognize the importance of open government. Now we have additional confirmation of what we already suspected: Many members of the Wichita City Council are openly hostile towards citizens’ right to know.

In his remarks, Wichita City Council Member Pete Meitzner (district 2, east Wichita) apologized to the Go Wichita President that she had become “a pawn in the policy game.” He said it was “incredibly unfair that you get drawn into something like this.”

He added that this is a matter for the Attorney General and the District Attorney, and that not being a lawyer, she shouldn’t be expected to understand these issues. He repeated the pawn theme, saying “Unfortunately there are occasions where some people want to use great people like yourself and [Wichita Downtown Development Corporation President] Jeff Fluhr as pawns in a very tumultuous environment. Please don’t be deterred by that.”

Mayor Brewer added “I would have to say Pete pretty much said it all.”

We’ve learned that city council members rely on — as Randy Brown told the council last year — facile legal reasoning to avoid oversight: “It may not be the obligation of the City of Wichita to enforce the Kansas Open Records Act legally, but certainly morally you guys have that obligation. To keep something cloudy when it should be transparent I think is foolishness on the part of any public body, and a slap in the face of the citizens of Kansas. By every definition that we’ve discovered, organizations such as Go Wichita are subject to the Kansas Open Records Act.”

But by framing open government as a legal issue — one that only lawyers can understand and decide — Wichita city government attempts to avoid criticism for their attitude towards citizens.

It’s especially absurd for this reason: Even if we accept the city’s legal position that the city and its quasi-governmental taxpayer-funded are not required to fulfill records request, there’s nothing preventing from doing that — if they wanted to.

In some ways, I understand the mayor, council members, and bureaucrats. Who wants to operate under increased oversight?

What I don’t understand is the Wichita news media’s lack of interest in this matter. Representatives of all major outlets were present at the meeting.

I also don’t understand what Council Member Lavonta Williams (district 1, northeast Wichita) suggested I do: “schmooze” with staff before asking for records. (That’s not my word, but a characterization of Williams’ suggestion made by another observer.)

I and others who have made records requests of these quasi-governmental taxpayer-funded organizations have alleged no wrongdoing by them. But at some point, citizens will be justified in wondering whether there is something that needs to be kept secret.

The actions of this city have been noticed by the Kansas Legislature. The city’s refusal to ask its tax-funded partners to recognize they are public agencies as defined in the Kansas Open Records Act is the impetus for corrective legislation that may be considered this year.

Don’t let this new law be known as the “Wichita law.” Let’s not make Wichita an example for government secrecy over citizens’ right to know.

Unfortunately, that bad example has already been set, led by the city’s mayor and city council.

Wichita City Hall

What Boeing received from Wichita was better than cash

Supporters of the proposed Wichita sales tax contend that the millions in incentives Boeing received were not cash. That’s true — they were more valuable than cash.

At a forum on the proposed Wichita sales tax on September 9, 2014, “Yes Wichita” co-chair Jon Rolph told the audience “The Boeing incentive thing? The city never gave Boeing incentives. They didn’t take our incentive money and run.” As explained at Fact-checking Yes Wichita: Boeing incentives, the claim that the “city never gave Boeing incentives” must be astonishing news to the Wichita city officials who dished out over $600 million in subsidies and incentives to the company.

"Yes Wichita" Facebook page.
“Yes Wichita” Facebook page.
In response, “Yes Wichita” posted this on its Facebook page: “Those who were at the event understand that the conversation was about cash incentives not about IRBs. Boeing never received cash incentives from the City.”

First, it’s interesting that the person commenting on behalf of “Yes Wichita” was able to read the minds of the audience members. That’s a neat trick. But let’s talk about something more important — the confusion that often surrounds economic development incentives.

“Yes Wichita” contends that although Boeing received an estimated $657,992,250 in property tax abatements over several decades, this doesn’t count as “cash incentives” because it wasn’t given to Boeing in the form of cash.

“Yes Wichita” is correct, in a way. As a result of the City of Wichita’s issuance of industrial revenue bonds, Boeing didn’t receive cash from the city. Instead, the benefits the city initiated on Boeing’s behalf are more valuable to the company than receiving an equivalent amount of cash.

Internal Revenue Service IRS logoAccording to IRS guidelines, “tax incentives, whether in the form of an abatement, credit, deduction, rate reduction or exemption, simply reduce the tax imposed by state or local governments.” The IRS says these incentives do not count as income. Therefore, Boeing did not pay income taxes on these benefits, as it would have if the city gave the company cash.

The claim by the “Yes Wichita” group — that tax abatements don’t count as cash incentives — is characteristic of the way economic development incentives are justified. Instead of passing out cash, it’s more common that government uses abatements, credits, tax increment financing, investment in training and infrastructure, or exemptions. Many of these programs are confusing to citizens, and perhaps also to the elected officials who approve them. This allows government to shroud the economic realities of the transaction, and “Yes Wichita” is contributing to this confusion.

Assistance needed in obtaining records from a government agency

September 12, 2014

Mr. Marc Bennett
Office of the District Attorney
Sedgwick County Courthouse

Dear Mr. Bennett,

I am writing to ask your assistance in obtaining records from a government agency. Specifically, I asked Go Wichita Convention and Tourism Bureau for a copy of a contract the organization recently formed with an external entity. My request was declined.

The Kansas Open Records Act says this in defining which agencies are subject to the open records law: “‘Public agency’ means the state or any political or taxing subdivision of the state or any office, officer, agency or instrumentality thereof, or any other entity receiving or expending and supported in whole or in part by the public funds appropriated by the state or by public funds of any political or taxing subdivision of the state.”

Go Wichita Convention and Tourism Bureau receives substantial public funds from the City of Wichita. According to the 2012 IRS form 990 for Go Wichita, the organization had total revenue of $2,609,545. Of that, $2,270,288 was tax money from the city, meaning the agency is 87 percent funded by public money. This year the Wichita City Council passed an ordinance that will add 2.75 percent to Wichita hotel bills starting on January 1, 2015. This public money will be sent to Go Wichita Convention and Tourism Bureau. The city estimates the proceeds of this tax to be $2.5 million per year, which will boost the percent of support by public money to a higher level.

I feel that this level of public funding qualifies as “supported in whole or in part by the public funds appropriated by the state or by public funds of any political or taxing subdivision of the state” as described in the Kansas Open Records Act.

It has been the position of Go Wichita Convention and Tourism Bureau that it is a non-profit private corporation and therefore not subject to the Kansas Open Records Act. The City of Wichita supports this position. But Go Wichita Convention and Tourism Bureau performs a governmental function, and is funded almost entirely by public funds.

Mr. Bennett, as your office considers this case, I ask that we remain mindful of the language from the preamble to the Kansas Open Records Act: “It is declared to be the public policy of the state that public records shall be open for inspection by any person unless otherwise provided by this act, and this act shall be liberally construed and applied to promote such policy.”

Respectfully,

Bob Weeks

WichitaLiberty.TV July 2, 2014

WichitaLiberty.TV: Unknown stories of economic development, Uber, Fact-checking Yes Wichita

In this episode of WichitaLiberty.TV: Wichita economic development, one more untold story. The arrival of Uber is a pivotal moment for Wichita. Fact-checking Yes Wichita on paved streets. View below, or click here to view at YouTube. Episode 58, broadcast September 14, 2014.

possibilities-opportunity-396265_1280

To pay for a Wichita water supply, there are alternatives

Supporters of a proposed Wichita sales tax contend there is only one alternative for paying for a new water supply, and it is presented as unwise.

The major component of the proposed Wichita one cent per dollar sales tax is to pay for a new water supply. Controversy surrounds how the water should be supplied (ASR? El Dorado? New reservoir?) and its urgency. But according to sales tax boosters, there is no controversy about how to pay for a new water supply.

"Yes Wichita" campaign material. Click for larger version.
“Yes Wichita” campaign material. Click for larger version.
The City of Wichita and the “Yes Wichita” group present two alternatives to Wichita voters: Either (a) approve a sales tax to pay for a new water supply, or (b) the city will borrow to pay for the water supply and water users will pay a lot of interest. Campaign material from “Yes Wichita” states that without a sales tax, “we end up paying 50% more over 25 years because of financing costs.”

Are there other alternatives? Here’s one: If the water supply project costs $250 million, let’s raise water bills by that amount over five years. In this way, water users pay for the new water supply, and we avoid the long-term debt that city council members and “Yes Wichita” seem determined to avoid.

It's best to have those who use something pay for it directly.
It’s best to have those who use something pay for it directly.
Water bills would have to rise by quite a bit in order to raise $50 million per year. But it’s important to have water users pay for water. Also, Wichitans need to be aware — acutely aware — of the costs of a new water supply. Many citizens are surprised to learn that the city has spent $247 million over the past decade on a water project, the ASR program. That money was mostly borrowed, much of it by the same mayor, council members, and city hall bureaucrats that now shun long-term debt.

It will be easier to let people know how much a new water supply costs and how it affects them personally when its cost appears on their water bills. The money that is collected through water bills can be placed in a dedicated fund instead of flowing to the city’s general fund. Then, after the necessary amount is raised, water bills can be immediately adjusted downwards. That’s more difficult to do with a sales tax.

If we pay for a new water supply through a general retail sales tax, the linkage between cost and benefit is less obvious. There is less transparency, and ultimately, less accountability.

Sales tax supporters like “Yes Wichita” claim that one-third of the sales tax collected in Wichita is paid by non-Wichitans. It’s smart, they say, to have visitors to Wichita pay for a portion of the costs of a new water supply. But don’t retail stores pass along their costs — including water bills — to their customers?

Consider this: What is probably the most expensive item sold on a routine basis by a Wichita water utility customer? A good guess would be a Boeing 737 fuselage manufactured by Spirit Aerosystems and sold to Boeing. This item isn’t subject to sales tax. But Spirit can pass along higher water bills to Boeing. (This assumes that shifting costs to outsiders is desirable. I’m not convinced it is.)

According to the Wichita budget, the Wichita water utility provides water to 425,000 customers. As the population of Wichita is about 385,000, there are some 40,000 Wichita water utility customers outside the city. How best to have them help pay for a new water supply: Through their water bills, or hoping that residents of Derby drive past their local Wal-Mart and Target stores to shop at identical stores in Wichita so they can pay sales tax to the city?

There are alternatives for paying for a new water supply other than a sales tax and long-term debt. As has been illustrated by sales tax opponents, water is important, but the need for a new water supply is not as urgent as sales tax supporters portray. There is time to consider other alternatives.

City of Wichita Spends 2 million Rebuffs Citizen’s Transparency Request

For proposed Wichita sales tax, claims of transparency

Claims of valuing and promoting government transparency by the City of Wichita are contradicted by its taxpayer-funded surrogates.

As boosters of a proposed Wichita sales tax promise accountability and transparency in how money will be spent, especially the portion designated for jobs and economic development, voters may want to consider the city’s past and present attitude towards government transparency and open records.

Brochure from Kansas Attorney General's office
Brochure from Kansas Attorney General’s office
The city has three surrogate quasi-governmental agencies that are almost totally taxpayer-funded, specifically Go Wichita Convention and Visitors Bureau, Wichita Downtown Development Corporation, and Greater Wichita Economic Development Coalition. Each agency contends it is not a “public agency” as defined in Kansas law, and therefore does not have to fulfill records requests.

These agencies spend considerable sums of tax money. In December the city approved funding Go Wichita with $2,322,021 for 2014, along with a supplemental appropriation of $150,000. Earlier this year the council voted to increase the city’s hotel tax by 2.75 cents per dollar, with the proceeds going to Go Wichita. That tax is thought to raise $2.5 million per year.

That’s a lot of tax money. It’s also a very high portion of the agency’s total funding. According to the 2012 IRS form 990 for Go Wichita, the organization had total revenue of $2,609,545. Of that, $2,270,288 was tax money from the city. That’s 87 percent taxpayer-funded. When the surge of higher hotel tax money starts flowing in, that percent will undoubtedly rise, perhaps to 93 percent or more.

Despite being nearly totally funded by taxes, Go Wichita refuses to supply spending records. Many believe that the Kansas Open Records Act requires that it comply with such requests. If the same money was being spent directly by the city, the records would be supplied.

City of Wichita Spends 2 million Rebuffs Citizen’s Transparency RequestI’ve appeared before the council several times to ask that Go Wichita and similar organizations comply with the Kansas Open Records Act. See Go Wichita gets budget approved amid controversy over public accountability, City of Wichita Spends $2 million, Rebuffs Citizen’s Transparency Request, and articles at Open Records in Kansas.

This week Go Wichita refused to provide to me its contract with a California firm retained to help with the re-branding of Wichita. If the city had entered into such a contract, it would be public record. But Go Wichita feels it does not have to comply with simple transparency principles.

Supporters of the proposed one cent per dollar Wichita city sales tax promise transparency in the way decisions are made and money is spent. Below, Mike Shatz explains how this promise is hollow.

City of Wichita wants to increase sales tax by 14%

The City of Wichita funnels your tax dollars into “non-profit” development groups that refuse to show us how that money is spent, and now the City wants you to vote in favor of a sales tax increase so they can give these organizations even more of your money.

These groups, Go Wichita, The Downtown Development Corporation, and the Greater Wichita Economic Development Coalition, get roughly 90% of their overall funding from Wichita tax dollars, but claim that they are exempt from the Kansas Open Records Act, because they are “private” organizations.

The City of Wichita could easily place conditions on the money it gives to these groups, requiring them to show taxpayers how their tax dollars are being spent, but the City refuses to do so. This is not transparency.

Continue reading at Kansas Exposed.

Coalition for a Better Wichita logo

Fact-checking Yes Wichita: Sales tax cost per household

The cost of the proposed Wichita sales tax to households is a matter of dispute. I present my figures, and suggest that “Yes Wichita” do the same.

At a forum on the proposed Wichita sales tax on September 9, 2014, Jennifer Baysinger told the audience that “the average family bringing in about $50,000 a year would pay about $240 a year tax.” She was speaking on behalf of Coalition for a Better Wichita, a group that opposes the one cent per dollar sales tax that Wichita voters will see on their November ballots.

In his rebuttal, “Yes Wichita” co-chair Jon Rolph disputed these figures, saying that Baysinger’s claim would mean that the average family spends $24,000 per year on “groceries and sweaters and socks.” He said a family would need to make $200,000 per year to spend that much on taxable items.

So who is correct? It’s relatively easy to gather figures about sales taxes and households. Here’s what I found.

According to a report from the Kansas Department of Revenue, in fiscal year 2013 the City of Wichita generated $372,843,844 in retail sales tax collections. With a population of 385,577 (2012 value), the tax collected per Wichita resident was $966.98.

Supporters of the proposed sales tax say that one-third of the sales tax collected in Wichita is paid by non-Wichitans. If true, that leaves $248,562,563 in sales tax paid by 385,577 Wichita residents, or $645 per person. This figure is from sales tax being collected at a rate of 7.15 percent, which implies that one cent per dollar of sales tax generates $90 per person. (This assumes that people do not change their purchases because of higher or lower sales taxes, which does not reflect actual behavior. But this is an estimate.)

According to the U.S. Census Bureau, there are 2.49 persons per household in Wichita. That means that a one cent per dollar sales tax has a cost of $224 per household. That’s close to Baysinger’s figure of $240.

We could also take sales tax collections of $248,562,563 and divide by the 151,309 households in Wichita to get a figure of $1,642.75 in sales tax paid per household. Again, since that is tax paid at the rate of 7.15 percent, it implies that one cent per dollar of sales tax generates $230 per household, subject to the same caveats as above. Again, this is close to Baysinger’s figure.

These results are close to my estimation of the cost of the proposed sales tax derived in an entirely different way. I took Census Bureau figures for the amount spent in various categories by families of different income levels. For each category of spending, I judged whether it was subject to sales tax in Kansas. The result was that the average household spent $22,287 per year on taxable items. One percent of that is $223, which is an estimate of the cost of a one cent per dollar sales tax per household. For households in the middle quintile of income, the value was $194. See Wichita sales tax hike would hit low income families hardest for details and charts.

How can the claims of Baysinger and Rolph be so far apart? I’ve presented my reasoning and calculations. The results are figures very close to what Coalition for a Better Wichita is using. Wichita voters might ask that Jon Rolph or one of the other co-chairs of “Yes Wichita” do the same.

Yes Wichita logo

Fact-checking Yes Wichita: Boeing incentives

The claim that the “city never gave Boeing incentives” will come as news to the Wichita city officials who dished out over $600 million in subsidies and incentives to the company.

At a forum on the proposed Wichita sales tax on September 9, 2014, “Yes Wichita” co-chair Jon Rolph told the audience “The main reason I’m here, I need to educate folks on this. There’s been a lot of misinformation out there.”

The proposed one cent per dollar Wichita sales tax will be voted on by Wichita voters in November. The city plans to use the proceeds for four areas: A new water supply, bus transit, street maintenance and repair, and economic development, specifically job creation. It is the last area that is the most controversial. Sales tax boosters make the case that Wichita has a limited budget for incentives, generally pegged at $1.65 million per year. They say that other cities have much larger budgets, and unless Wichita steps up with additional incentives, Wichita will not be able to compete for jobs.

Wichita has, however, many available incentive programs that are worth much more than $1.65 million per year. Just this week the city extended property tax abatements to one company that are valued at $108,541 per year. The company will receive this benefit annually for five years, with a likely extension for another five years. The city will also apply for a sales tax exemption on behalf of the company. City documents estimate its value at $126,347.

None of this money counts against the claimed $1.65 million annual budget for incentives, as these incentive programs have no cash cost to the city. There is a cost to other taxpayers, however, as the cost of government is spread over a smaller tax base. To the recipient companies, these benefits are as good as receiving cash. I’ve detailed other incentive programs and some recent awards at Contrary to officials, Wichita has many incentive programs.

The nature of, and value of, available incentive programs is important to understand. “Yes Wichita” co-chair Jon Rolph is correct. There is much misinformation. Here’s what he told the audience of young Wichitans after warning about misinformation: “The Boeing incentive thing? The city never gave Boeing incentives. They didn’t take our incentive money and run.”

Wichita Mayor Carl Brewer Facebook 2012-01-04The claim that the “city never gave Boeing incentives” will come as news to the Wichita city officials who dished out the subsidies and incentives. In a written statement 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.

We’re left wondering, as we have wondered before, whether the “Yes Wichita” campaign is uninformed, misinformed, or intentionally deceptive in making its case to Wichita voters.

Fostering economic growth in Wichita

Kansas Policy Institute is hosting a conference titled “Fostering Economic Growth in Wichita.” This is the second in a series of events looking at issues surrounding the proposed sales tax in Wichita. Voters will see the sales tax question on the ballot in November.

Wichita job development sales tax Kansas Policy InstituteThis event focuses on the economic development, or jobs, portion of the sales tax. The other areas sales tax funds would be spent on are a new water supply, street maintenance and repair, and bus transit.

This is event on Friday September 19, from 7:30 am to noon, held in room 132 of the Wichita State University MetroPlex. the event is free, and you may register here.

Here is the lineup of speakers and topics:

  • Nuts and Bolts of the “Jobs Fund” Proposal: Wichita Metro Chamber of Commerce with:
    • Paul Allen, Allen Gibbs & Houlik, Leadership Council Jobs Task Force
    • Jeff Finkle, President/CEO, International Economic Development Council
    • Dr. John Tomblin, Vice President for Research and Technology Transfer, Wichita State University
  • Examining Kansas’ Incentive History:
    • Nathan Jensen, Ph.D., Associate Professor at George Washington University
  • Trends of Wichita’s Economy:
    • Jeremy Hill, Director of Wichita State University’s Center for Economic Development and Business Research
  • Creating a Dynamic Local Economy:
    • Pamela Villarreal, Senior Fellow at the National Center for Policy Analysis

This is the second in a series of KPI-sponsored forums covering the various aspects of the 1% sales tax proposal. A forum on the water proposal was held in July, and a forum on the street and transit portion will be held in the near future. Kansas Policy Institute is hosting these events to give citizens the opportunity to hear experts address all sides of the issues, and is not taking a position on the individual aspects of the 1% sales tax proposal.

Wichita City Budget Cover, 1990

Wichita economic development, one more untold story

Readers of the Wichita Eagle might be excused for not understanding the economic realities of a proposed tax giveaway to a local development.

Tomorrow’s meeting of the Wichita City Council holds an item of economic development that might be confusing to citizens unless they read the meeting’s agenda packet. Here’s what the Wichita Eagle is reporting to readers: “The owner of the former Wichita Mall is seeking $3.6 million in industrial revenue bonds for a new parking lot — a request that the Wichita City Council will consider at its Tuesday meeting.” (Owners of former Wichita Mall seek IRBs for new parking lot, kansas.com, September 8, 2014)

The article doesn’t present much more about the economics of this transaction and its importance to public policy. That’s unfortunate, as after reading this article, citizens could be excused for thinking that the city is making a loan to a private entity.

But that isn’t the purpose of industrial revenue bonds, or IRBs, in Kansas. By issuing these bonds, the City of Wichita is not lending any money, and is not guaranteeing — not even hinting — that any loan will be repaid. Instead, city documents — but not Wichita Eagle reporting — tell us that Co-Co Properties, LLC will purchase the bonds. Who is Co-Co, you may be wondering? It’s the company that owns the Wichita Mall property, the same company that wants to borrow money to repair its parking lot. By purchasing the IRBs, the company is, in effect, lending money to itself. (It’s possible that Co-Co may seek other loans to get the funds to buy the IRBs, but if so, these would be private transactions and therefore not a matter of public policy.)

So if Co-Co is buying these IRBs itself, what is the purpose of the transaction? Why is Co-Co taking $3.6 million from one of its corporate pockets and transferring it to another pocket, and incurring costs in the process?

At this point, if all you’ve done is read the Wichita Eagle story, you may be confused. Actually, you’d be uninformed, because the Eagle story says nothing about who will purchase the IRBs. Further, the Eagle story tells us nothing about the reason for this transaction, which is to avoid paying two forms of taxes.

The city council agenda packet, available on the city’s website, explains that property tax forgiveness accompanies the IRBs. Specifically:

The one year estimated tax abatement on Co-Co’s proposed $3.6 million real property improvements when fully complete would be $108,541. … The value of a 100% real property tax exemption as applicable to taxing jurisdictions is:

City of Wichita, $29,258
Sedgwick County, $26,439
State of Kansas, $1,350
Wichita school district, $51,494

These annual numbers would be repeated for five years, plus another five years if the city council approves, based on council review. That’s potentially over one million dollars of forgiven property taxes.

That’s not all. City documents say city staff will also apply for a sales tax exemption. No value is given for how much sales tax Co-Co may avoid paying. If all purchases were taxable the value of the sales tax exemption would be $257,400, but it’s unlikely the value of the exemption would reach that level.

So there it is. The purpose of the industrial revenue bonds transaction is to avoid paying taxes. That inspires a question. In its application, Co-Co says it has spent millions renovating the building in order to attract tenants, done without public incentive or financing. But now we’re told the parking lot can’t be repaired without two forms of tax giveaways?

When the city finds it necessary to forgive taxes in order to make investment possible, it tells us that taxes in Wichita are too high. Those high taxes are blocking investment. It’s either that, or cronyism — a simple taxpayer-funded gift to a city council crony.

One more thing: Boosters of the proposed Wichita sales tax, part to be used for economic development, tell us that Wichita has only $1.65 million per year to fund incentives. The incentives being considered for Co-Co are worth over $1 million, but have no cash cost to the city. These incentives aren’t part of the $1.65 million annual budget for incentives. But the incentives do have a cost, paid by taxpayers when the city, county, state, and school district spend and expect taxpayers to make up this missing tax revenue.

Arrival of Uber a pivotal moment for Wichita

Now that Uber has started service in Wichita, the city faces a decision. Will Wichita move into the future by embracing Uber, or remain stuck in the past?

Uber is a ridesharing service, although that word doesn’t describe it adequately. Here’s how it works. People apply to be Uber drivers. Uber does background checks to its satisfaction. Drivers must have a relatively late-model car. If Uber accepts drivers, they receive a smartphone with an app, and they’re in business.

Customers who want to use Uber must have a smartphone. Then, customers create an account and make payment arrangements such as credit card, Google Wallet, or PayPal.

Being driven by Uber on the Washington Beltway.
Being driven by Uber on the Washington Beltway.
When customers want a ride, they use the Uber smartphone app to make a request. A driver accepts the request and picks up the passenger. At the end of the ride, payment is made through the Uber app. There is no tipping.

After the ride, passengers rate drivers. (Drivers rate passengers, too.) Passengers receive a receipt via email that shows the route taken on a map.

I’ve used Uber a few times in Washington and was pleased with the experience: No extortion of tips, polite and courteous drivers, clean cars, offers of bottled water, a bowl of wrapped candy on the seat beside me, and magazines in front of me.

People like Uber. Especially the young millennials I know that live in cities where Uber operates. These are people that Wichita is desperately trying to appeal to. So you may be thinking “isn’t it great that Uber has expanded to Wichita?”

Uber in Wichita is good if you value innovation and progress. But not everyone does. There will be a scuffle.

Available Uber drivers on a Sunday morning in Kansas City. There were no Uber drivers available in Wichita at the time.
Available Uber drivers on a Sunday morning in Kansas City. There were no Uber drivers available in Wichita at the time.
In 2012 Wichita passed new taxi regulations. They create substantial barriers to entering the taxicab market. Some of the most restrictive include these: A central office, staffed at least 40 hours per week; a dispatch system operating 24 hours per day, seven days per week; enough cabs to operate city-wide service, which the city has determined is ten cabs; and a supervisor on duty at all times cabs are operating.

These regulations protect Wichita’s existing traditional taxi industry. There are three taxi companies in Wichita, with two having the same ownership. Already one owner is speaking out against Uber. The public agenda for Tuesday’s meeting of the Wichita City Council lists a citizen speaking on the topic “Taxi Cab Insurance.” I imagine this speaker is inspired to speak on this topic due to Uber’s arrival.

The taxi companies that benefit from the restrictive Wichita regulations are likely to fight to keep their competitive barriers in place. The question is this: Does Uber fall under these regulations?

So far, the city’s position is this, according to the Wichita Eagle: “From the government side, interim City Attorney Sharon Dickgrafe said Uber is not a taxi service because the private cars its drivers use aren’t equipped with taxi meters.” (Ride-sharing app begins offering Wichitans a lift, August 28, 2014)

I’ll expect the city’s position to change when the city realizes that Uber cars do have meters. Not clunky old-fashioned meters, but meters running on smartphones that track journeys using GPS. After all, Uber charges for its trips just like traditional cabs: A fee to enter the cab, and then charges based on distance traveled, and in some cases, time. (In Wichita, Uber charges a base fare of $2.00 plus $0.20 per minute and $1.65 per mile, plus $1.00 safe rides fee. There is a $5.00 minimum. When you request a ride, Uber can give you a fare quote.)

The overhaul of Wichita taxi regulations in 2012 was partly inspired by the perception that drivers were not projecting a good image for the city. Now there are regulations in addition to the above that require standards of dress and hygiene, and “knowledge of the geography of the city and the area, and knowledge of local public and tourist destinations and attractions.” Cabbies must take a customer service class delivered by city bureaucrats.

Taxi driver was on sex offender registrySo Wichita has many regulations for the taxi industry. But as I explain in more detail below, the city admitted that it failed to enforce a really important regulation: Convicted sex offenders shouldn’t be taxi drivers. But through the city’s mistake, one such man was granted a taxi driver license. He’s now serving a lengthy prison sentence for raping a passenger.

The standard argument against Uber is that it is unfair because Uber doesn’t have to follow laws and regulations. But Uber is regulated by a very powerful force: The marketplace. Remember, passengers rate Uber drivers. Can you rate your traditional Wichita taxi driver? What if you felt that your traditional taxi driver was padding the fare by taking a roundabout route? Uber trips are monitored by GPS. Passenger receipts have a map that shows the route taken, which can be the basis for a fare review.

The traditional taxi industry complains that Uber doesn’t have to follow follow laws and regulations. That’s nonsense. Uber drivers must follow traffic laws. Uber drivers and passengers must observe the most fundamental of laws: “Don’t hit people, and don’t take their stuff.” Beyond that, the taxi industry laws and regulations are from a bygone era. The traditional taxi industry is comfortable with these laws and regulations. The taxi companies can cope with them, and they make it difficult for competition to form. The purpose of these laws and regulations is not to benefit passengers, in most cases. They exist for the benefit of the taxicab industry.

But there is a transformation underway. Wichita can stop it if it wants to, but that would be a mistake.

The city says it is considering whether this industry — Uber — needs regulation. The question I have is this: Has the City of Wichita earned the right to regulate taxis? The answer is no. The city has created regulations that prop up the near-monopoly of traditional taxi companies and stifle innovation, but failed to protect passengers from being raped by convicted sex offenders.

Beyond that, the city has to decide whether it can back off its heavy-handed regulation and allow market-based innovation to thrive. The city has to decide in favor of customers or the traditional taxi industry and its near-monopoly ownership. It’s a decision that will let us learn a lot about the future direction of Wichita.

Regulation failure leads to tragedy in Wichita

wichita-taxi regulationsWhen the Wichita City Council passed new taxicab regulations in 2012, the focus was on dirty cabs and slovenly drivers who were not acting as goodwill ambassadors for the city. Mayor Carl Brewer said he was “tired” of hearing complaints about drivers.

So the council passed new regulations regarding taxicabs, including the requirement that drivers attend customer service training provided by Go Wichita Convention and Visitors Bureau. Other regulations determine taxicab office staffing levels and level of supervision.

Bryon Scott Spohn, a taxi driver accused of raping a passenger.

But something very important slipped through the cracks. The Wichita Eagle has reported the city didn’t competently enforce regulations designed to protect passenger safety:

A Wichita taxicab driver now in prison for raping a passenger last year shouldn’t have been allowed to operate a taxi in the first place.

That’s because at the time Bryon Scott Spohn applied for a taxi driver’s license in late 2012, he was on a state sex offender registry for possession of child pornography. A city ordinance that went into effect in July 2012 says a taxi driver’s license shall not be issued to anyone who “is now or has ever been registered as a sexual offender with any state, county or local government.”

Spohn shouldn’t have received a taxi license but did because the new change banning registered sex offenders wasn’t communicated to staff members doing background checks on taxi driver applicants, city officials told The Eagle on Friday. The city has fixed the problem that led to the oversight in Spohn’s case, they said. Taxi driver in prison for raping passenger was on sex offender registry, March 3, 2014

The regulations regarding customer service training were implemented. But the really important regulations? Lack of oversight, says the city.

I wonder: Who is regulating the regulators?

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Fact-checking Yes Wichita: Arithmetic

A group promoting the proposed Wichita sales tax makes an arithmetic error, which gives us a chance to ask a question: Is this error an indication of Yes Wichita and the city’s attitude towards, and concern for, factual information?

VoteYesWichita website, September 6, 2014. Click for larger version.
VoteYesWichita website, September 6, 2014. Click for larger version.
“Yes Wichita” is a group that promotes a one cent per dollar sales tax that Wichita voters will see on the November ballot. Using a $10 purchase as an example, a page on the Yes Wichita website breaks down the tax among the four areas of spending sales tax revenue, informing voters that means 6.3 cents to water, 2 cents to jobs, 1 cent to transit, and .07 cent to streets.

These numbers, however, don’t add up. On a $10 purchase, the one percent sales tax generates ten cents of sales tax revenue. The numbers used in the Yes Wichita example sum to 9.37 cents. The correct number is 0.7 cent to streets, not 07.

Should we be concerned about errors like this? For what it’s worth, this error is repeated at least once more on the voteyeswichita.com site. This site has been online with these errors for at least two weeks. Haven’t any of the members of the Yes Wichita team noticed this error? Or have they noticed the error, but don’t think it’s worth a correction?

Most importantly for Wichita voters: Is this error an indication of Yes Wichita and the city’s attitude towards, and concern for, factual information?

This does give us a chance to look at the cost of the sales tax for various levels of taxable purchases. I’ve prepared a table. As you can see, once we make purchases that add up to large amounts, so too does the amount of the extra sales tax Wichita city hall recommends citizens pay. Click on it for a larger version.

Proposed Wichita Sales Tax Amounts 01

WichitaLiberty.TV July 2, 2014

WichitaLiberty.TV: Wichita’s blatant waste, Transforming Wichita, and how you can help

In this episode of WichitaLiberty.TV: Let’s ask that Wichita trim its blatant waste of tax dollars before asking for more. We’ll look back at a program called Transforming Wichita. Then: We need to hold campaigns accountable. I’ll give you examples why, and tell how you can help. View below, or click here to view at YouTube. Episode 57, broadcast September 7, 2014.

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