Individual liberty, limited government, and free markets in Wichita and Kansas
Monday’s meeting of the board of USD 259, the Wichita public school district didn’t go well.
At one time board president Betty Arnold admonished the audience: “This board meeting is held in public, but it is not for the public, or of the public.”
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A message from Bob Weeks, campaign chair of Tax Fairness for All Wichitans, upon the campaign’s victory of 61 percent to 39 percent in an election regarding a tax rebate to the Ambassador Hotel:
First, I’d like to thank my campaign leadership team and all the volunteers. Many started working in October by carrying the petition and gathering signatures, sometimes in cold and windy winter weather. My job as campaign chair was made much easier through the efforts of dedicated people like Susan Estes, John Todd, Derrick Sontag, and the many others who helped.
Usually, winning an election is a happy time. In most elections the winning side is happy because they elected a candidate to office who they feel has the better ideas.
I’m glad we won. But my happiness is tempered by the realization that we simply prevented something bad from happening in Wichita.
I’m proud that the electorate responded positively to our accurate and truthful campaign. When citizens have the facts, they make the right decision.
Going forward, I’d like to remind Wichitans that the Ambassador Hotel is receiving assistance from eight taxpayer-funded government programs with costs of $15.4 million up-front and several hundred thousand annually. None of these were affected by the election. Wichita city hall and its allies are ready, willing, and able to use these incentive programs in the future for other hotels and businesses.
So to the extent that these economic development programs actually help Wichita, they are still available, and will likely be used.
But we feel these programs are not wise. Often, we’ve found that they’re not needed. And when used, they direct public investment to where politicians and bureaucrats want it, not where people want it.
The best way to create jobs is to get government out of the way. Instead of entrepreneurs spending resources applying for grants, finding government programs and taking handouts, we would be much better off if they could directly invest those resources in job creation. That is what the voters said tonight.
We need to reform our economic development efforts. Our present methods, which are just about the same as most other cities, are not working. We need to realize that there are several long-serving politicians and bureaucrats that have presided over this failure.
These people have presided over the system of political cronyism that passes for economic development in Wichita. Politicians like Mayor Carl Brewer and most members of the Wichita City Council pocket thousands in campaign contributions from opportunists like David Burk and David Wells, who are partners in the Ambassador Hotel project. These people make contributions to those they know are in a position to vote to give them money.
This is such a foul system that we need pay-to-play laws to reform it. I’m suggesting that Kansas pass such a law, and name it “Davids’ Law.”
I hope that Wichita City Hall, the economic development machinery in our city, and the Wichita Eagle editorial board will be more receptive to the message of economic freedom, free markets, and limited government that was expressed in the results of this election.
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As USD 259, the Wichita public school district struggles with potentially five closed school buildings to be closed, there is an easy solution at hand. It would require, however, that the school board and administration change their hostile attitude towards charter schools and school choice.
The Wichita Eagle reports that the district is considering closing five schools, and that these schools may become “a drain on the district’s already strapped budget.” (Vacant schools will challenge Wichita district, February 26, 2012.)
A natural use for these buildings is to be reused as schools, in this case charter or private schools. But neither is likely to happen.
In Kansas, charter schools must be authorized by the local school district. The Wichita school district’s hostility towards educational freedom — of which charter schools are one part — is so ingrained that it is difficult to imagine the district approving a charter school under any circumstances. This attitude is so brazen that it is unlikely anyone would spend any effort preparing a charter school proposal.
Further, as Kansas has no school choice programs like tax credit scholarships or vouchers, most parents can’t afford to send their children to private schools that might be formed to make use of these school buildings.
The Wichita school district, then, is likely to forgo a way to reuse existing school buildings in a way that would increase the opportunities for Wichita schoolchildren to get a good education. They’d rather see the buildings remain idle — and an expense to taxpayers.
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Recently the Greater Wichita Economic Development Coalition issued its annual report on its economic development activities for the year. That report, along with a Wichita Eagle article from January, tells us that the traditional methods of economic development used in the Wichita area isn’t working very well.
In the Eagle article, (Why isn’t Wichita winning projects?, January 22, 2012 Wichita Eagle), after listing four items economic development professionals say Wichita needs but lacks, the reporter wrote “The missing pieces have been obvious for years, but haven’t materialized for one reason or another.”
If these pieces are truly needed and have been obviously missing for years: Isn’t that a startling assessment of failure of Wichita’s economic development regime?
While Wichita Mayor Carl Brewer was quoted in the article as saying “You hear a lot from the loud minority,” the fact is that the minority rarely wins. Six of seven members of the Wichita City Council will vote for almost any giveaway to any company, no matter how unnecessary or unwise the subsidy program is.
With two of its five members having a realistic view of government’s power to influence economic development, it’s a little tougher to push programs through the Sedgwick County Commission. But most programs make it through or don’t need the county’s participation.
The GWEDC report also shows us that power of government to influence economic development is weak. In its recent press release, the organization claimed to have created 1,509 jobs in Sedgwick County during 2011. According to the Bureau of Labor Statistics, the labor force in Sedgwick County in 2011 was 253,940 persons. So the jobs created by GWEDC’s actions amounted to 0.59 percent of the labor force. This is a very small fraction, and other economic events are likely to overwhelm these efforts.
In his 2012 State of the City address, Brewer took credit for creating a similar percentage of jobs in Wichita.
Not mentioned are the costs of creating these jobs. These costs have a negative economic impact on those who pay these costs. This means that economic activity and jobs are lost somewhere else in order to pay for the incentives.
Also, at least some of these jobs would have been created without the efforts of GWEDC. All GWEDC should take credit for is the marginal activity that it purportedly created. Government usually claims credit for all that is good, however.
If GWEDC is looking for ways to improve its efforts in marketing Wichita, it might start with its own website. While the site features a high level of design sophistication, examining its contents reveals a lack of attention being paid to the site.
For example, on a GWEDC page titled Recent Relocations Highlights, the most recent item is from 2009.
The “News” page holds as its most current story one encouraging attendance at a conference that took place in 2010. The second and final story on this page notifies us that someday in the future there will be an Intrust Bank Arena in downtown Wichita. That arena has now been open for two years.
The site also promotes an RFP (request for proposal) with a deadline in 2009 — three years ago.
Anyone who comes across the GWEDC site would conclude from this negligence that this is an organization — and by extension, a city — that simply doesn’t care about its online presence.
The danger we in Kansas, and specifically the Wichita area, face is the overwhelming urge of politicians to be seen doing something. For example, in response to the departure of Boeing, Wichita Mayor Carl Brewer called for the community to “launch an aggressive campaign of job recruitment and retention.”
It is likely that we will become susceptible to large-scale government interventions in an attempt to gain new jobs. Our best course would be to take steps to make Kansas and Wichita an inviting place for all firms to do business. The instinct of politicians such as Brewer, however, is to take action, usually in the form of targeted incentives as a way to spur economic development. GWEDC is the agency responsible for this.
We’ve seen the disappointing results — not only with Boeing, but also in a report showing that Wichita has declined in economic performance compared to other areas.
These targeted economic development efforts fail for several reasons. First is the knowledge problem, in that government simply does not know which companies are worthy of public investment. This, however, does not stop governments from creating policies for the awarding of incentives. It also doesn’t stop the awarding of incentives willy-nilly without a policy, as the Wichita City Council has done for a hotel.
This “active investor” approach to economic development is what has led to Boeing and other companies escaping hundreds of millions in taxes — taxes that others have to pay. That has a harmful effect on other business, both existing and those that wish to form.
Professor Art Hall of the Center for Applied Economics at the Kansas University School of Business is critical of this approach to economic development. In his paper Embracing Dynamism: The Next Phase in Kansas Economic Development Policy, Hall quotes Alan Peters and Peter Fisher: “The most fundamental problem is that many public officials appear to believe that they can influence the course of their state and 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 expectations about their ability to micro-manage economic growth and making the case for a more sensible view of the role of government — providing foundations for growth through sound fiscal practices, quality public infrastructure, and good education systems — and then letting the economy take care of itself.”
In the same paper, Hall writes this regarding “benchmarking” — the bidding wars for large employers that Wichita is sure to undertake in response to the loss of Boeing: “Kansas can break out of the benchmarking race by developing a strategy built on embracing dynamism. Such a strategy, far from losing opportunity, can distinguish itself by building unique capabilities that create a different mix of value that can enhance the probability of long-term economic success through enhanced opportunity. Embracing dynamism can change how Kansas plays the game.”
In making his argument, Hall cites research on the futility of chasing large employers as an economic development strategy: “Large-employer businesses have no measurable net economic effect on local economies when properly measured. To quote from the most comprehensive study: ‘The primary finding is that the location of a large firm has no measurable net economic effect on local economies when the entire dynamic of location effects is taken into account. Thus, the siting of large firms that are the target of aggressive recruitment efforts fails to create positive private sector gains and likely does not generate significant public revenue gains either.’”
There is also substantial research that is it young firms — distinguished from small business in general — that are the engine of economic growth for the future. We can’t detect which of the young firms will blossom into major success — or even small-scale successes. The only way to nurture them is through economic policies that all companies can benefit from. Reducing tax rates is an example of such a policy. Abating taxes for specific companies through programs like IRBs is an example of precisely the wrong policy.
We need to move away from economic development based on this active investor approach. We need to advocate for policies — at Wichita City Hall, at the Sedgwick County Commission, and at the Kansas Statehouse — that lead to sustainable economic development. We need political leaders who have the wisdom to realize this, and the courage to act appropriately. Which is to say, to not act in most circumstances.
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On Sunday Bob Weeks, chair of Tax Fairness for All Wichitans, discussed the Wichita Ambassador Hotel election on the KAKE Television public affairs program This Week in Kansas.
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As campaign chair for Tax Fairness for All Wichitans, I’m very concerned that the campaign is accurate and truthful in everything it does. I insist on adhering to that standard, starting with myself.
Now that the Wichita Eagle has published its fact checking article (Fact-checking claims on the Ambassador Hotel vote), I can say that this goal has been met. While the Eagle took issue with one of my claims, upon closer examination, there really is no issue at all.
But the same can’t be said for the claims made by the “Vote Yes” side. That side of the issue is championed by a group named “Moving Wichita Forward,” managed by Sheila Tigert. While the Eagle article said there were “three instances where semantic liberties have been taken with the facts surrounding the development,” the article finds four problems.
Specifically, the jobs claim made by Moving Wichita forward “is a stretch,” according to the director of the Wichita State University Center for Economic Development and Business Research. The number claimed is grossly exaggerated.
Second, Moving Wichita Forward’s claim of “No new taxes” is refuted by the two cents per dollar Community Improvement District tax created for the hotel’s exclusive benefit.
Third, Moving Wichita Forward ignores the economic impact of the $7.3 million in tax credits the hotel is receiving. Taxpayers across Kansas ($3.8 million) and the entire country ($3.5 million) have to make up the missing tax revenue that was diverted to the hotel developer.
Fourth, Moving Wichita Forward “incorrectly frames the project’s return on investment for the city of Wichita.”
The Eagle took issue with my claim that Wichita’s Tourism and Convention fund is losing $2 million this year, and therefore needs revenue from hotel guest taxes.
The Eagle consulted Wichita assistant finance director Rob Raine, who disputed the claim of the loss. But to believe what Raine contends, you would have to suspend belief in the economic reality of events. You would also have to come to the realization that Wichita city budget documents can’t be taken at face value.
Dave Trabert, who is president of Kansas Policy Institute and has experience with accounting, left a comment to the Eagle article that explains. He wrote:
A little fact-checking of the city’s claims about its budget might be in order. Page 328 of Wichita’s 2012/2013 Annual Budget shows the following for the Tourism and Convention Fund:
2012 Adopted: Budgeted Revenues $5,977,210 Budgeted Expenses $7,983,130 Budgeted Loss ($2,005,919) 2012 Beginning Fund Balance $2,400,664 2012 Budgeted Loss ($2,005,919) 2012 Ending Fund Balance $394,745The City also budgeted for a $379,042 loss in 2013, which would bring the fund balance down to just $15,703.
The Vote No group is not misreading the budget as claimed by the city. If anything, the city is attempting to misguide the Eagle reporter. If the city isn’t going to lose money this year and next as budgeted, they should openly explain what costs are being eliminated or revenues added to make up the difference. Until then, citizens must reasonably conclude that the budget is accurate.
In a later comment Trabert added: “The city is also falsely claiming that reserves are ‘appropriated,’ implying that reserves are part of the $8 million in expenditures. Page 328 of the budget very clearly identifies the $8 million in budgeted expenditures and reserves are not part of that total. The budgeted $2 million net loss is deducted from beginning reserves as explained in my earlier post.”
The tourism and convention budget may be viewed on page 328 of this document: Wichita Adopted Supplemental Budget 2012-2013. An excerpt from the budget of the relevant page may be viewed at Wichita Tourism and Convention Fund Budget 2012 – 2013.
Wichita voters should not be mislead by Moving Wichita Forward, a campaign that is now shown to have little concern for being truthful.
More information about the election and its issues are at Wichita Ambassador Hotel information sheet and Fact checking the Wichita Ambassador Hotel campaign.
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In Kansas, we have a lot of wind — no doubt about that. But the economics of wind as a source of electricity generation is another matter. There’s a split in Kansas over this. On one side are Kansas Governor Sam Brownback, who has been vocal in his support of wind power, along with Wichita Mayor Carl Brewer, who has been busy promoting Wichita as a site for wind energy-related industry. Now we see Kansas’ newest U.S. Senator Jerry Moran jumping in to promote the wind power subsidy program. Contrast this with U.S. Representative Mike Pompeo of Wichita, who has introduced legislation to end all tax credits related to energy production. It’s important to remember that the government subsidy program for wind power is in the form of tax credits, which are equivalent to grants by the government. The term “tax expenditures” is starting to see widespread usage to accurately describe the economic effect of tax credits.
If I were pressed to offer one anecdote exemplifying our failure to elect consistent conservatives to Congress last November, the story of Senator Jerry Moran and Big Wind would be at the top of the list.
In 2010, then-Congressman Jerry Moran beat former Congressman Todd Tiahrt for the Republican nomination for Senate in Kansas running as a red meat conservative. He easily won the seat in this solid Republican state and summarily joined the ‘Tea Party Caucus’ in the Senate. Nothing emblematizes the convictions of the Tea Party more than its fervent opposition to special interest handouts and government interventions in the private sector as a way of picking winners and losers. Yet, Senator Moran let the cat out of the bag last week that he has absolutely no compunction about picking winners and losers, or in the case of Big Wind, big losers.
Last week, Senator Moran announced that he is submitting an amendment to the terrible Senate highway bill (S.1813) that would extend the 2.2 cent/ per kilowatt-hour Production Tax Credit (PTC) for another 4 years. This special interest handout to Solar and Wind is slated to expire at the end of the year. What happened to Moran’s Tea Party views? Well, he unabashedly threw them under the solar-powered bus:
Asked about opposition to extending the credit expressed by Rep. Mike Pompeo of Wichita, Moran said: “There are members of Congress who feel we ought not to pick winners and losers, to let the markets decided. I believe it’s better to get this industry up and running, then let the country decide … rather than pull the rug out overnight.”
Wow! At least he’s honest. I wish we had known that before the election.
The PTC is the corporate version of the Earned Income Credit for green energy. It is among 51 ‘tax extenders’ that have either expired last December or are slated to expire this December. The PTC offers a 2.2 cent/per kilowatt-hour refundable credit for wind, solar, or geothermal. According to the Heritage Foundation, if the oil industry received a commensurate subsidy, they would get a $30 check for every barrel produced.
Headed into the November elections, one of our most potent and popular arguments we have is to paint the Democrats with the Solyndra economy — an economy where the government intervenes to pick winners and losers, at the detriment of consumers and taxpayers. How can we effectively articulate an alternative free-market vision when we have a member of “the Tea Party Caucus” supporting Obama’s policy of picking losers in the energy sector? Talk about pale pastels!
Folks, this is not how we win elections. Moreover, this type of special interest peddling — from energy subsidies to farm welfare — creates dependency in some of the reddest states. This is not a winning message for the future of conservatism, especially when it emanates from such a Republican state.
There is a better way. Congressman Mike Pompeo (R-KS) introduced legislation (HR 3308) to sunset all targeted energy tax credits and grants, including those for fossil fuels and nuclear power. The bill would use the savings from the repeal of these credits (roughly $90 billion over ten years) to lower the corporate tax rate on everyone. Senator DeMint has introduced a companion bill in the Senate (S.2064).
Every member of Congress who seeks a clean break from a centrally-planned Solyndra economy must cosponsor this bill. Additionally, as we look for more congressional candidates to endorse, it is these issues — energy and farm subsidies — that will separate the men from the boys. We must fight this election by offering voters a choice, not an echo.
Cross-posted from The Madison Project
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