Category Archives: Wichita city government

Downtown Wichita business trends

There has been much investment in Downtown Wichita, both public and private. What has been the trend in business activity during this time?

According to the 2016 report from the Wichita Downtown Development Corporation, over the past decade there has been $602 million in private investment and $369 million in public investment in downtown. An additional $190 million investment is in the form of the Intrust Bank Arena. The total, according to WDDC, is $1,161 million.1

Business activity in zip code 67202, Downtown Wichita. Click for larger.
What has been the result of this investment? If you expected business growth in downtown Wichita, you may be disappointed.

The United States Census Bureau tracks business data by zip code.2 The data that is available includes the number of business establishments, the number of employees, and the annual payroll, expressed in thousands of dollars not adjusted for inflation.

Nearby are results for zip code 67202, which has nearly the same boundaries as the Self-Supporting Municipal Improvement District (SSMID). This is a district that pays extra property tax for supporting the WDDC. Its boundaries are from Kellogg north to Central, and the Arkansas River east to Washington. It is greater Downtown Wichita plus Old Town.

Zip Code 67202.
The results since 2007 show fewer business establishments, fewer people working downtown, and lower earnings generated in downtown Wichita. In all cases, the trend is lower.

This is movement in the wrong direction, the opposite of progress. There may be good news in that the number of people living downtown may be rising. But business activity is declining.

Trends in business establishments, employment, and payroll for zip code 67202, which is Downtown Wichita. Click for larger.


Notes

  1. Wichita Downtown Development Corporation. State of Downtown Report, 2016. http://www.downtownwichita.org/2016StateofDowntown/?page=1.
  2. U.S. Census Bureau. County Business Patterns (CBP). https://www.census.gov/programs-surveys/cbp/data.html.

Cargill subsides start forming

Details of the subsidy programs used to keep Cargill in Wichita are starting to take shape.

This week the Wichita City Council will consider one of the (potentially many) subsidy programs offered to keep Cargill in Wichita.

Cargill Protein Group is currently located at 151 N. Main. The plan is for Cargill to purchase and demolish the Wichita Eagle building at 825 E. Douglas, then build a new office building in its place. The subsidy program to be considered this week is the Industrial Revenue Bond program1. The city won’t be lending Cargill money. Instead, IRB’s are a (convoluted) method whereby local governments are able to forgive the payment of property taxes. For the case of Cargill, city documents state the tax forgiveness could be worth $1,359,531 per year.2 This would be shared by these taxing jurisdictions, again according to city documents.

  • City of Wichita: $378,450
  • Sedgwick County: $340,958
  • USD 259, the Wichita Public School District: $622,723
  • State of Kansas $17,400

Of note, the city is in a hurry to handle this matter. Pending legislation would reduce the amount of property tax able to be exempted.3

In addition to the property tax exemption, the IRBs also carry a sales tax exemption for purchases related to construction. City documents give an estimated value of $2,026,291 for the sales tax Cargill will not have to pay.

Not the entire subsidy package

The action to be considered this week is likely just a portion of total subsidy package. For example, at one time it was speculated that the City of Wichita would build a parking garage and let Cargill use it as their own. With a proposed capacity of 750 parking spots, this would cost many millions.4

Now, the city plans to let Cargill construct the garage, and the city will, according to city documents, “purchase a parking easement from Cargill to obtain public access to the parking structure Cargill will complete as part of this project.” It sounds like the city will rent spaces in the garage. It will be interesting to see the rate the city will agree to pay.

From the state of Kansas Cargill is likely to receive PEAK benefits. Under this program, the Kansas state withholding tax deducted from Cargill employees’ paychecks will be routed back to Cargill.5 (Well, only 95 percent goes back to Cargill. The state keeps five percent.)


Notes

  1. Weeks, Bob. Industrial revenue bonds in Kansas. http://wichitaliberty.org/kansas-government/industrial-revenue-bonds-kansas/.
  2. City of Wichita. Council agenda packet for April 18, 2017.
  3. Kansas Legislature. SB 146: Continuation of 20 mill statewide levy for schools and property tax exemption of certain portion of property used for residential purposes from such levy. http://www.kslegislature.org/li/b2017_18/measures/sb146/.
  4. Recently the city paid $4.73 million (not including change orders) to build a downtown garage with 270 parking spaces, a cost of about $17,500 per stall. Applying that to a 750 stall garage results in a cost of $13.1 million).
  5. Weeks, Bob. In Kansas, PEAK has a leak. http://wichitaliberty.org/kansas-government/kansas-peak-leak/.

Cash incentives in Wichita, again

The City of Wichita says it does not want to use cash incentives for economic development. But a proposal contains just that.

Update: The council did not approve this project, by a vote of four to three.

This week the Wichita City Council will consider a package of incentives for the developer of a large downtown building, the Finney State Office Center. While the city has said that it does not want to use cash incentives, they are proposed for this project.1

Finney State Office Building environs
Elements of the proposal are these:

The Wichita Public Building Commission will sell the building for $100,000.

The project is also asking for the city to issue Industrial Revenue Bonds. Despite the use of the term “bond,” the city is not lending money to anyone. Someone else will purchase the bonds. Instead, the IRBs are a vehicle for conveying property tax abatements and sales tax exemptions.

In this case, the developer requests a sales tax exemption for purchases during the renovation. City documents don’t give a value for the sales tax that might be exempted. But the developer has requested IRBs for an amount up to $35,000,000. Therefore, a sales tax exemption might be worth up to $2,625,000, depending on the price of taxable products and services purchased, and the sales tax rate at the time.

If someone excuses you from paying millions in sales tax, that’s better than receiving cash. But cash incentives are proposed, too. The city proposes a grant of up to $2,000,000, although the city calls this an “investment.”2

Whatever it is called, this is a cash incentive.

Also, the Wichita Public Building Commission will pay up to $1,000,000 for improvements to the building.3

This proposed payment from the WPBC seems to be in violation of the city statutes governing the commission, which read: “Under no circumstances shall any income of the public building commission inure to the benefit of any private person.”4

I’m sure the city will characterize its $2 million “investment” in some way other than a cash incentive. The city will also say the $1 million from the WPBC is not from the city, which is true. But the city will have to rationalize allowing the commission to violate the clear language of its statutes.

There are some good aspects of this agreement with the developer, such as a timeline and performance bond requirement. But the cash incentives are against stated city policy and its laws.


Notes

  1. Wichita City Council agenda packet for April 11, 2017.
  2. ibid. “The City proposes to invest up to $2,000,000 to be used to modernize the building. The investment would only be paid upon completion of the entire building renovation project.”
  3. ibid. “On April 5, 2017, the WPBC approved the Development Agreement/Purchase and Sale Agreement and agreed to commit up to $1,000,000 for building improvements as well.”
  4. Wichita Municipal Code. Sec. 2.12.640 (i). Under no circumstances shall any income of the public building commission inure to the benefit of any private person. https://www.municode.com/library/ks/wichita/codes/code_of_ordinances?nodeId=TIT2ADPE_CH2.12BOAGCO_S2.12.640SAUNCO.

Wichita business property taxes still high

An ongoing study reveals that generally, property taxes on commercial and industrial property in Wichita are high. In particular, taxes on commercial property in Wichita are among the highest in the nation.

Property taxes in Wichita. Click for larger.
The study is produced by Lincoln Institute of Land Policy and Minnesota Center for Fiscal Excellence. It’s titled “50 State Property Tax Comparison Study, June 2016” and may be read here. It uses a variety of residential, apartment, commercial, and industrial property scenarios to analyze the nature of property taxation across the country. I’ve gathered data from selected tables for Wichita.

In Kansas, residential property is assessed at 11.5 percent of its appraised value. (Appraised value is the market value as determined by the assessor. Assessed value is multiplied by the mill levy rates of taxing jurisdictions in order to compute tax.) Commercial property is assessed at 25 percent of appraised value, and public utility property at 33 percent.

This means that commercial property faces 2.180 times the property tax rate as residential property. The U.S. average is 1.683. Whether higher assessment ratios on commercial property as compared to residential property is desirable public policy is a subject for debate. But because Wichita’s ratio is high, it leads to high property taxes on commercial property.

For residential property taxes, Wichita ranks below the national average. For a property valued at $150,000, the effective property tax rate in Wichita is 1.29 percent, while the national average is 1.43 percent. The results for a $300,000 property were similar. Of note, however, is the property taxes on a median-valued home. In this case Wichita is a bargain, due to our lower housing prices. A home at the median value in Wichita pays $1,552 in taxes, while the nationwide average is $3,097.

Looking at commercial property, Wichita taxes are high. For example, for a $100,000 valued property, the study found that the national average for property tax is $2,351 or 1.96 percent of the property value. For Wichita the corresponding values are $3,398 or 2.83 percent, ranking sixth from the top. Wichita property taxes for this scenario are 45 percent higher than the national average.

For industrial property taxes, the situation in Wichita is better, with Wichita ranking near the middle. For an industrial property worth $1,000,000, taxes in Wichita are $30,980. The national average is $32,445.

Wichita property tax rate: Level

The City of Wichita says it hasn’t raised its property tax mill levy in many years. For this year, the city is correct.

Wichita mill levy rates. This table holds only the taxes levied by the City of Wichita and not any overlapping jurisdictions.
In 1994 the City of Wichita mill levy rate — the rate at which property is taxed — was 31.290. In 2016 it was 32.685, based on the city’s Comprehensive Annual Financial Report and the Sedgwick County Clerk. That’s an increase of 1.395 mills, or 4.46 percent, since 1994. (These are for taxes levied by the City of Wichita only, and do not include any overlapping jurisdictions.)

In 2015 the mill levy was 32.686, so the mill levy dropped by .001 for 2016. That’s a refreshing change. While the city says the mill levy hasn’t increased, the nearby table and summary above indicate otherwise.

It is true that the Wichita City Council did not take explicit action to raise this rate. Instead, the rate is set by the county based on the city’s budgeted spending and the assessed value of taxable property subject to Wichita taxation.

Wichita mill levy rates. Click for larger version.
While the city doesn’t have control over the assessed value of property, it does have control over the amount it decides to spend. As can be seen in the chart of changes in the mill levy, the council decides to spend more than the previous year’s mill levy generates in taxes. Therefore, tax rates rise.

Change in Wichita mill levy rates, year-to-year and cumulative. Click for larger version.
Also, while some may argue that an increase of 4.46 percent over two decades is not very much, this is an increase in a rate of taxation, not actual tax revenue. As property values rise, and as the mill levy rises, property tax bills rise rapidly.

The total amount of property tax levied is the mill levy rate multiplied by the assessed value of taxable property. This amount has risen, due to these factors:

  • Appreciation in the value of property
  • An increase in the amount of property
  • Spending decisions made by the Wichita City Council

Application of tax revenue has shifted

Wichita mill levy, percent dedicated to debt service. Click for larger version.
The allocation of city property tax revenue has shifted over the years. According to the 2010 City Manager’s Policy Message, page CM-2, “One mill of property tax revenue will be shifted from the Debt Service Fund to the General Fund. In 2011 and 2012, one mill of property tax will be shifted to the General Fund to provide supplemental financing. The shift will last two years, and in 2013, one mill will be shifted back to the Debt Service Fund. The additional millage will provide a combined $5 million for economic development opportunities.”

In 2005 the mill levy dedicated to debt service was 10.022. In 2016 it was 8.508. That’s a reduction of 1.514 mills (15.1 percent) of property tax revenue dedicated for paying off debt. Another interpretation of this is that in 2005, 31.4 percent of Wichita property tax revenue was dedicated to debt service. In 2016 it was 26.0 percent.

This shift has not caused the city to delay paying off debt. This city is making its scheduled payments. But we should recognize that property tax revenue that could have been used to retire debt has instead been shifted to support current spending. Instead of spending this money on current consumption — including economic development spending that has produced little result — we could have, for example, used that money to purchase some of our outstanding bonds.

What the city council says

Despite the data that is readily available in the city’s comprehensive annual financial reports, some choose to remain misinformed or uninformed. The following video from 2012 provides insight into the level of knowledge of some former elected officials and city staff. Based on recent discussions with city officials, things have not improved regarding present staff.

Wichita economy and job growth

A research project by The Brookings Institution illustrates the poor performance of the Wichita-area economy.

Metro Monitor from The Brookings Institution rates metropolitan areas on several indicators.

For this year’s report, the news is not good. For the period 2010 to 2015, Wichita ranks 88th in growth, 69th in prosperity, and 44th in inclusion. (The 100 largest metro areas were ranked.)

Looking at just the most recent year, 2014 to 2015, Wichita ranks 73rd in growth, 42nd in prosperity, and 9th in inclusion.

Wichita employment since 1990. Click for larger.
Wichita employment since 2010. Click for larger.
Changes in Wichita employment. Click for larger.
So perhaps there is hope for progress, in that the rankings for the most recent year are better than the rankings for the past five years.

Brookings computed a measure called “Metro area competitive shift.” It’s described as “The difference between the actual job growth and the expected job growth. It indicates whether the metro area overperformed or underperformed given its industrial structure.”

For the period 2010 to 2015, Wichita scored -4.2 percent. For 2014 to 2015, the measure is -0.5 percent. Again, perhaps a good sign.

Looking at more recent data gathered from the Bureau of Labor Statistics through December 2016, we see that while total nonfarm employment rises, manufacturing employment has remained steady since 2010. But, after a sharp drop during the last recession, aerospace manufacturing employment has been on a downward trend since 2010. This is relevant because Wichita’s economic development practice provides much subsidy to companies in the aircraft manufacturing industry. These subsidies increase the cost of government for other business firms, including — especially — the young firms that are the fuel for a dynamic economy.

When comparing total nonfarm employment in Wichita to that of the nation, we see that while Wichita is growing, it is growing at a slower rate than the nation.

Downtown Wichita tax base is not growing

There’s been much investment in downtown Wichita, we’re told, but the assessed value of property isn’t rising.

Wichita city leaders have promoted public investment in downtown Wichita as wise because it will increase the tax base. Over the past ten years, we’re told that there has been one billion dollars in investment in downtown Wichita, including projects in progress.1

To evaluate the success of the city’s efforts, we might look at the change in assessed property valuation in downtown Wichita over past years. A way to do that is to look at the valuations for property in the Wichita downtown self-supporting municipal improvement district (SSMID). This is a region of the city that pays an additional property tax to fund the activities of the Wichita Downtown Development Corporation. Its boundaries are roughly the Arkansas River east to Washington, and Kellogg north to Central.

Assessed valuation is the basis for levying property tax. The process starts with an appraised value, which is targeted to be fair market value for the property, or for commercial property sometimes an income-based method is used. Then, that is multiplied by 25 percent for commercial property, or by 11.5 percent for residential property. This produces the assessed value. Multiply that by the sum of the several mill levy rates that apply to the property, and you have the total property tax for that property.

Click for larger.
With all the new projects coming online in downtown Wichita, we should expect that the assessed valuation is rising. As someone converts an old, dilapidated property into something more valuable, appraised and assessed values should rise. As new buildings are built, new appraised and assessed value is created where before there was none (or very little).

So what has happened to the assessed valuation of property in downtown Wichita, using the SSMID as a surrogate?

The answer is that after a period of increasing values, the assessed value of property in downtown has been declining. The peak was in 2008. The nearby table holds the figures.

This is the opposite of what we’ve been promised. We’ve been told that public investment in downtown Wichita builds up the tax base.

Some might excuse this performance by noting there’s been a recession. That’s true. But according to presentations, there has been much activity in downtown Wichita. Hundreds of millions of dollars over the last ten years, we are told.

Click for larger.
A few years ago the city said that the decline was due to the legislature exempting business equipment and machinery from the property tax rolls. Undoubtedly this was true when the law took effect, which was in 2006. It could also explain the some of the drop for a few years after that.

But for the last several years this factor is gone. At any rate, I believe its effect was small compared to the value of real property.

Also: How how does the assessed valuation in the SSMID compare to the city as a whole? Nearby is a chart of the percent change in assessed valuation for each year, comparing the SSMID with the city as a whole less the SSMID. In other words, Wichita minus downtown. The SSMID is underperforming the city.

So why isn’t the assessed valuation rising? Why is it falling during the time of huge successes?

I don’t have enough data to answer this question. But we need to know.


Notes

  1. Fluhr, Jeff. Downtown Wichita being transformed. Wichita Eagle, September 4, 2016. http://www.kansas.com/opinion/opn-columns-blogs/article99291922.html.

Greater Wichita Partnership

Greater Wichita Partnership features untruthful information on its website, which casts doubt on the reliability of the organization and the City of Wichita.

Greater Wichita Partnership uses the url of its predecessor, the Greater Wichita Economic Development Coalition, or GWEDC. GWP is in charge of efforts to develop the economy in the greater Wichita area. It describes itself as “a driving force in building a remarkable city and region.”1

Greater Wichita Partnership website, featuring unreliable information. Click for larger.
But there is a problem. Based on the information GWP makes available on the front page of its website, I don’t have much confidence in the organization’s efforts. And that’s too bad.

In the past I’ve observed how GWEDC — that’s the predecessor to GWP — was derelict in keeping its information current. In 2014, I noticed that GWEDC credited itself with recruiting a company named InfoNXX to Wichita.2 But GWEDC did not update its website to reflect current conditions. When I looked at GWEDC’s website in October 2013, I found this on a page titled Office Operations:

Wichita hosts over a dozen customer service and processing centers — including a USPS Remote Encoding Center (985 employees), InfoNXX (950), T-Mobile (900), Royal Caribbean (700), Convergys (600), Protection One (540), Bank of America (315) and Cox Communications (230.)

The problem was this: At the time I looked at the GWEDC website in October 2013, InfoNXX had closed its Wichita operations in 2012.3 Still, the official Wichita-area economic development agency touted the existence of a company that no longer existed in Wichita, and claimed a job count that the company never achieved. (Also, at that time the USPS facility was in the process of closing and eliminating all Wichita jobs.)

Now, the Greater Wichita Partnership website trumpets — on its front page — the expansion of a company that has actually contracted its operations in Wichita.

The company is NetApp, a maker of computer server storage systems. It’s the type of high tech company all cities are recruiting, and for which cities and states will open the economic development incentives pocketbook. Locally, Wichita and the State of Kansas announced expansion plans for NetApp operations in Wichita in 2012. But by the end of 2015, NetApp was not meeting its job goals in Wichita, according to information from Sedgwick County. Since then, NetApp announced two rounds of job cuts, with the cuts in Wichita unspecified.4 5

NetApp has not met the lofty expectations Wichita and Kansas officials promoted. That’s unfortunate, and perhaps the situation will improve and NetApp will grow.

Relevant to public policy is that NetApp was slated to receive a lot of incentives from many levels of government, up to $35 million.6 It is likely impossible to determine how much of these incentives were actually paid to NetApp. We do know that both the City of Wichita and Sedgwick County stopped paying incentives to NetApp, as these incentives were predicated on achieving certain levels of job counts, and NetApp has not met them.

But the lesson to learn today is that the Greater Wichita Partnership, the agency in charge of economic development in the area, still advertises NetApp as a success.

The problem is not only the blatant lie that GWP promotes prominently: “NetApp doubles its Wichita footprint.” It’s a serious problem that GWP has not updated its website to reflect reality. What if a company considering Wichita for expansion or location checks the NetApp story? How would such a company reconcile reality with what GWP promotes? What does this say about the reputation and reliability of GWP?

I don’t expect GWP to highlight its failures. But we ought to expect GWP to care enough about the truth to remove false information from such a prominent presentation.

Wichita’s history

Presentation by James Chung. Click for larger.
Presentation by James Chung. Click for larger.
Presentation by James Chung. Click for larger. See text for problems with this presentation.
In September 2015 James Chung delivered several lectures on the Wichita-area economy and its outlook.7 In the event I attended, Chung showed examples of web pages from the Des Moines and Omaha chambers, and contrasted them to a similar page from the Wichita chamber. Chung got it wrong, as the page he showed to illustrate the Wichita chamber was a print version of the page, which — intentionally — is a simplified version of the page designed for viewing in a web browser.8 The print version of the page, however, is what appears in Google, and most people will not investigate beyond that.

Still, the Wichita chamber page was stale compared to the others. And Chung’s point was, and is, relevant: First impressions matter.

The Wichita chamber’s site is better now. But someone at the Greater Wichita Partnership didn’t get the message. Content — reliable content — counts.

__
Notes

  1. Greater Wichita Partnership. About us. http://www.gwedc.org/about_us/about_us.
  2. Weeks, Bob. Wichita economic development not being managed. https://wichitaliberty.org/wichita-government/wichita-economic-development-managed/.
  3. Siebenmark, Jerry. KGB to close Wichita call center by end of January. Wichita Eagle. Decenber 7, 2011. http://www.kansas.com/news/business/article1081923.html.
  4. Horwath, Bryan. NetApp cuts employees in Wichita. Wichita Eagle. March 2, 2016. http://www.kansas.com/news/business/article63559417.html.
  5. Rengers, Carrie. NetApp restructures, announces layoffs. Wichita Eagle. November 3, 2016. http://www.kansas.com/news/business/biz-columns-blogs/carrie-rengers/article112339362.html.
  6. Weeks, Bob. NetApp economic development incentives: all of them. https://wichitaliberty.org/wichita-government/netapp-economic-development-incentives-all-of-them/.
  7. Wenzl, Roy. Analyst presents sobering view of Wichita economy, community. Wichita Eagle, September 22, 2015. http://www.kansas.com/news/business/article36236142.html.
  8. For a view of the page as it looked on April 5, 2015, see http://web.archive.org/web/20150405131957/http://wichitachamber.org/news_room-wichita_accolades.php.

Activate Wichita, an embarrassment

A communications initiative of the City of Wichita brings embarrassment to our city.

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

It’s described on its companion Facebook page as: “Activate Wichita is an innovative new way to be heard on the issues you’re 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.

At one time Activate Wichita had some activity. Then it changed. There was a different design. All the old content was gone. There was very little new content.

In December 2015 I inquired to the city and was told that My Sidewalk, the company that provides the software that runs Activate Wichita, made changes to improve the system. I was also told: “While the City has not used Activate Wichita as extensively in 2015 as in previous years, our staff has been working with the My Sidewalk support team to learn how to best make effective use of the new design as part of City engagement initiatives. The Library has a series of engagement conversations in planning for 2016. We expect increased use from several other departments as well.”

Whatever plans the city had for Activate Wichita in 2016, it doesn’t look like they materialized. As of today, there is only one active item on Activate Wichita, from March 2016. Or it could be March 2015; it doesn’t say. The companion Facebook page for Activate Wichita has only three posts since the middle of 2016, with the most recent from August.

The harm of Activate Wichita

This lack of attention to these communication initiatives might not be very important except that the city prominently features Activate Wichita. An inviting graphic appears prominently on nearly every page at wichita.gov, the city’s website.

The banner on almost all City of Wichita web pages, showing activate Wichita link.
If someone using the wichita.gov city website happens to click on the Activate Wichita logo, they would see something that can be described — charitably — as pathetic. Think of someone considering moving to Wichita, or a company planning to locate or expand in Wichita. Think of people already in Wichita. Is Activate Wichita the impression the city wants to make?

Remember, Activate Wichita is prominent on the city’s website. The city devotes precious web space to promoting it. I can understand that reviving Activate Wichita into something useful is time-consuming.

But minimizing the damage should be a snap. Just remove the Activate Wichita link from the city’s website. When Activate Wichita is revived, restore the link.

By the way, did you know the city increased the size of its communication staff by hiring a Strategic Communications Director? He’s been at work almost two years.

Wichita check register

A records request to the City of Wichita results in data as well as insight into the city’s attitude towards empowering citizens with data.

As part of an ongoing transparency project, I asked the City of Wichita for check register data. I’ve made the data available in a visualization using Tableau Public. Click here to access the visualization.

Analyzing this data requires a bit of local knowledge. For example, there is a vendor named “Visit Wichita” that started to receive monthly payments in March 2015. What about payments for January and February? Those were made to a vendor named “Go Wichita,” which changed its name to “Visit Wichita.”

Similarly, there are payments made to both “Westar Energy” and “Westar Energy — EDI.” These are the same entities, just as “Visit Wichita” and “Go Wichita” are the same entity. To the city’s credit, the matching pairs have the same vendor number, which is good. But resolving this requires a different level of analysis.

There are interesting entries. For example, the city had been spending a few hundred dollars per month to the Kansas Turnpike Authority. Then in July 2015, the city paid $3.7 million to KTA. A quick search of city council agenda packets didn’t reveal any reason for this.

Of note, it looks like there were 1,475 checks issued in amounts $20 or less over a period of nearly two years. Bank of America has estimated that the total cost of sending a business check ranges from $4 to $20.

The records request

Wichita spending data from 2013.
Wichita spending data from 2013.
The city supplied this data in an Excel spreadsheet, in an arrangement that can easily be analyzed in Excel or loaded into other programs. This is a step forward. Three years ago, Wichita could supply data of limited utility. What was supplied to me was data in pdf form, and as images, not text. It would be difficult to translate the image data into machine-readable text, and even more difficult to reorganize it to a useful arrangement or format for analysis.

Denver open checkbook.
Denver open checkbook.
In 2015 had to pay $24.00 to the city for this data. That’s a problem. It is by now routine for governmental agencies to post spending data like this, but not at the City of Wichita. Upon inquiry, city officials told me that the present financial management system “does not include many modern system features such as an ‘open checkbook.’” An “open checkbook” refers to a modern web interface where citizens can query for specific data and perhaps perform other analysis. An example is Denver’s open checkbook.

While the next-generation Wichita financial system will probably have such a feature, there’s no reason why citizens can’t experience some of the benefits now. The spreadsheet of spending data like that I paid for could easily be posted on the city’s website on a monthly basis. People like myself will take that data and make it more useful, as I did. There is no reason why this should not be happening.

Fees

When I learned of the fee for these records in 2015, I asked for a waiver, sending this to the city’s records official:

I’d like to ask for a waiver of the requested fee. I ask this because check register data is an example of records that many governmental agencies make freely available on their websites. The Wichita Public School District and Sedgwick County are two local examples.

I’d like to also call attention to the U.S. Freedom of Information Act, which allows for fee waivers in some circumstances: “…fee waivers are limited to situations in which a requester can show that the disclosure of the requested information is in the public interest because it is likely to contribute significantly to public understanding of the operations and activities of the government and is not primarily in the commercial interest of the requester.”

I suggest that the records I am requesting will indeed “contribute significantly to public understanding of the operations and activities of the government,” and that it is in the public interest of the people of Wichita that these records be freely available.

I received an answer:

Mr. Weeks,

Your request for waiver of fees is denied. KORA allows fees to be collected prior to finding and producing the document you seek. KSA 45-218(f). The extensive statute setting out how fees are to be determined, KSA 45-219, does not contain any provision for waiver in the manner you suggest.

The City will provide the document to you upon payment as invoiced.

Sincerely,
Jay C. Hinkel,
Deputy City Attorney

Mr. Hinkel is absolutely correct. Governmental agencies in Kansas have the right to charge for records, and the Kansas statutes do not mention the waiving of fees as do the federal statutes. But the Kansas Open Records Act does not require cities to charge for providing records, especially for records that the city should already be providing. Especially when citizens are willing to take that data and make it better, at no charge to the city.

(For the most recent records request, the city waived its intended fee of $24.00, noting this waiver is for the current request only. The city acknowledges that it temporarily misplaced my request, and as a result, was late in responding. I believe that is the reason for the fee waiver.)

Wichita’s attitutude, from top down

Hinkel provided a lawyer’s answer. Here, however, is the public policy the city promotes, from a Wichita city news release from 2013:

“The City Council has stressed the importance of transparency for this organization,” City Manager Robert Layton said. “We’re honored to receive a Sunny Award and we will continue to empower and engage citizens by providing information necessary to keep them informed on the actions their government is taking on their behalf.”

The importance of transparency. The city wants to empower and engage citizens by providing information. Well. I offered to “contribute significantly to public understanding of the operations and activities of the government,” but had to pay to do so.

When I asked city officials for clarification of why I had to pay to receive these records, communications staff told me: “I should note that the City has won multiple awards for openness and citizen participation, but City leaders recognize this work is never done. They strive each and every day to become more open and transparent and will continue to do so.”

I must disagree. This is not “open and transparent.” This is not how to “empower and engage” the people of Wichita. Not even close.

The city lags far behind comparable agencies in providing access to data. It’s been almost two years since the city expanded its staff by adding a Strategic Communications Director. It doesn’t seem that this has helped to provide information to citizens.

Won’t anyone develop in downtown Wichita without incentives?

Action the Wichita City Council will consider next week makes one wonder: If downtown Wichita is so great, why does the city have to give away so much?

Next week the Wichita City Council will consider a package of incentives for the developer of a large downtown building, the Finney State Office Center.

The building has an appraised value of $7,902,570, per the Sedgwick County Treasurer. The city will sell it for $100,000. That’s a mere 1.3 cents per dollar, if the county’s valuation is reasonable.

(But, the $100,000 is non-refundable, should the purchaser decide not to close on the building.)

Finney State Office Building environs. Click for larger.
The project is also asking for the city to issue Industrial Revenue Bonds. Despite the use of the term “bond,” the city is not lending money to anyone. Someone else will purchase the bonds. Instead, the IRBs are a vehicle for conveying property tax abatements and sales tax exemptions.

In this case, the developer requests a sales tax exemption for purchases during the renovation. City documents don’t give a value for the sales tax that might be exempted. But the developer has requested IRBs for an amount up to $35,000,000. So a sales tax exemption might be worth up to $2,625,000, depending on how much taxable products and services are purchased.

IRBs also carry the possibility of a property tax abatement. Granting of the abatement is routine in most areas of the city. But, this property is located within a tax increment financing (TIF) district. That means, according to Kansas law, that a property tax abatement may not be awarded. That is, unless the property is removed from the TIF district, which is what the city proposes.

What is the value of the tax abatement? City documents don’t say. But if the developer spends $35 million on the project, it ought to carry something near that appraised value when complete. So its annual property tax bill would be ($35,000,000 * 25 percent assessment rate for commercial property = $8,750,000 assessed value * 124.341 mill rate) $1,087,984.

There’s another exception the city will probably make for this project. According to the city’s economic development incentives policy, the city must receive a payoff of at least 1.3 times its investment. That benchmark isn’t met in this case, with Wichita State University’s Center for Economic Development and Business Research reporting a benefit-cost ratio of 1.04 to the city. Nonetheless, city staff recommends the city approve the incentives, citing several loopholes to the policy.

There’s also a parking agreement to consider. Given the city’s past practice, the city will lease parking stalls at rates below market rate or the city’s cost to provide.

No cash incentives

The city, in particular Wichita Mayor Jeff Longwell, have prominently and proudly touted the end of cash incentives. But, this project is receiving benefits better than cash: An $8 million building for a song, no sales tax, and no property tax for ten years. Let’s ask the city to be honest and give us dollar values for these incentives.

Why?

A second question is this: Why is it necessary to provide all these incentives in order to induce someone to develop in downtown Wichita? The cost of these incentives increases the cost of government for everyone else — that is, everyone else except all the other incentive-receivers.

In Wichita, we’ll not know how this tax money is spent

Despite claims to the contrary, the attitude of the City of Wichita towards citizens’ right to know is poor, and its attitude will likely be reaffirmed this week.

This week the Wichita City Council will consider approval of a contract with Visit Wichita, the city’s convention and visitor bureau. Once again, citizens will be left out of knowing how the city’s tax money is spent.

In the past, I’ve asked that Visit Wichita (formerly Go Wichita Convention and Visitors Bureau) make its spending records available. It’s the same type of information that the city will send you about its own spending. But for Go Wichita, spending must — apparently — be kept secret.

It’s not a small amount of money that will be spent in secret. This year the city will send Go Wichita almost $2.5 million.1

But that’s not all. Since the implementation of the “City Tourism Fee” Visit Wichita collects 2.75 percent of hotel bills. (Welcome to Wichita! Here’s the bill for your tourism fee!) That’s estimated to generate $3 million in 2017.2

That is a lot of tax money, and also a high proportion of the agency’s total funding. We don’t have IRS filings from Visit Wichita since the city tourism fee started, so it’s difficult to say what portion of its funding is tax money. But it’s a lot, at least 90 percent.

Despite being nearly totally funded by taxes, Visit 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 undoubtedly would be supplied.

I’ve appeared before the council several times to ask that Visit 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.

The lack of transparency at Visit Wichita is more problematic than this. Visit Wichita refused to provide to me its contract with a California firm retained to help with the re-branding of Wichita. When the Wichita Eagle later asked for the contract, it too was refused. If the city had entered into such a contract, it would be a public record. Contracts like this are published each week in the agenda packet for city council meetings. But Visit Wichita feels it does not have to comply with simple transparency principles.

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 does not do this. This is not transparency.

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

So let’s talk about good public policy. Let’s recognize that even it is the case that the Kansas Open Records Act does not require Visit Wichita, WDDC, and GWEDC to disclose records, the law does not prohibit or prevent them from fulfilling requests for the types of records I’ve asked for. Even if the Sedgwick County District Attorney says that Visit Wichita is not required to release documents, the law does not prevent the release of these records.

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

Why does Visit Wichita want to keep secret how it spends taxpayer money, as much as $5.5 million next year?

Why is this city council satisfied with this lack of disclosure of how taxpayer funds are spent? Many council members have spoken of how transparency is important. One said: “We must continue to be responsive to you. Building on our belief that government at all levels belongs to the people. We must continue our efforts that expand citizen engagement. … And we must provide transparency in all that we do.” That was Mayor Brewer speaking in his 2011 State of the City address.

The city’s official page for the current mayor holds this: “Mayor Longwell has championed many issues related to improving the community including government accountability, accessibility and transparency …”

During the recent mayoral campaign, Longwell told the Wichita Eagle that he wants taxpayers to know where their money goes: “The city needs to continue to improve providing information online and use other sources that will enable the taxpayers to understand where their money is going.”

In a column in the Wichita Business Journal, Wichita Mayor Jeff Longwell wrote: “First off, we want City Hall to be open and transparent to everyone in the community.”

Now is the chance to fulfill these promises. All the city needs to do is add to its contract with Visit Wichita that the agency agree that it is a public agency spending public dollars, and that it will comply with the Kansas Open Records Act.

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. It costs the city and its agencies nothing, because the open records law lets government charge for filling records requests. I would ask, however, that in the spirit of open transparent government, in respect for citizens’ right to know how tax funds are spent, and as a way to atone for past misdeeds, that Visit Wichita fulfill records requests at no charge.


Notes

  1. “The 2017 Adopted Budget includes funding for Visit Wichita’s annual allocation in the amount of $2,476,166, which is to be paid from the Convention & Tourism Fund.” City of Wichita. Agenda for December 20, 2016.
  2. “For 2017 the tax is budgeted to generate $3 million.” City of Wichita. Agenda for April 19, 2016.

In Wichita, converting a hotel into street repairs

In Wichita, it turns out we have to sell a hotel in order to fix our streets.

Update: The Council approved these projects.

In September the Wichita City Council decided to sell the Hyatt Regency hotel in downtown Wichita for $20 million. Now the council will consider two proposals for spending this money.

One proposal is to spend $10 million on street repair, called “one-time pavement maintenance projects” in city documents.1

A second proposal is to spend $4 million on transit over the next four years. This is pitched as sort of a “bridge to sustainability.” That is, if the Wichita transit system can make it through the next four years, it can — somehow — become sustainable. The plan contains idea like this: “Extensive public education will be used to build ridership. Transit information will be available to a wider audience. Potential users will be engaged in more one-on-one manner.”2

Whatever the merits of these spending programs, Wichita is taking a capital asset and using it to fund current spending. In particular, street maintenance needs to be performed continuously. Here, the city has not been taking care of streets that taxpayers paid for and entrusted to the city for care. It turns out we have to sell a hotel in order to fix our streets. But street maintenance is something that needs to be performed — and paid for — every year. We shouldn’t have to rely on a sale of a capital asset to fund daily needs.

Following, from October, what the city should do with the Hyatt proceeds.

Wichita, give back the Hyatt proceeds

Instead of spending the proceeds of the Hyatt hotel sale, the city should honor those who paid for the hotel — the city’s taxpayers.

The City of Wichita has sold the Hyatt Regency Hotel for $20 million. Now, what should the city do with these funds? In a workshop this week, the city manager and council recognized that these funds should not be used for operating purposes. This is important. The Hyatt Hotel was paid for with long-term debt, which the city says has been retired. The proceeds from this sale should be used in a similar way: For long-term capital investment, not day-to-day operating expenses. But the council heard two proposals that are decidedly more like operating expenses rather than capital investment.

One proposal, presented by Public Works Director Alan King, is to spend $10 million on street repair over two years. Part of that expense is to purchase a new truck, which is a capital, not operating, expense. But King later revealed that the truck could be purchased out of the existing capital budget.

Street maintenance, however, is an operating expense.

A second proposal, from the Wichita Transit System, would use about $4 million to sustain and improve current bus service. It was presented to the council as a “bridge to a long term solution.”

This, too, is an operating expense.

As these proposals were presented in a workshop, no decision was made.

These two proposed uses of the $20 million Hyatt sales proceeds are contrary to the goal of not using the funds for operating purposes. If the city decides to use the sales proceeds in this way, a capital investment will have been sold in order to pay for day-to-day expenses.

Instead of spending on these two projects, the city should simply return the money to those who paid for the Hyatt in the first place. Those people are, of course, the taxpayers of Wichita. It would be difficult to give back the funds to individual taxpayers in proportion to the amount they supplied. So what the city should do is retire $20 million of the city’s long-term debt.

If not that, then the city should use the Hyatt proceeds to pay for another long-lived asset, perhaps the new downtown library. Either of these alternatives respects the principles of sound financial practice, and also respects the taxpayers.


Notes

  1. City of Wichita. Agenda for December 20, 2016. Agenda Item No. IV-2.
  2. City of Wichita. Agenda for December 20, 2016. Agenda Item No. IV-3.

The Wichita economy, according to Milken Institute

The performance of the Wichita-area economy, compared to other large cities, is on a downward trend.

While good news for the Wichita metropolitan area economy is becoming more frequent, it’s important to compare how Wichita is doing relative to other cities. The Milken Institute produces ranking of cities based on their economic performance in its Best-Performing Cities project.

The ranking are composed of a number of factors such as short-term and long-term job growth, short-term and long-term wage and salary growth, growth of high-tech industry, and high-tech location quotient.1 Milken also notes: “Best-Performing Cities is solely an outcomes-based index. It does not incorporate input measures (business costs, cost-of-living components, and quality-of-life conditions, such as commute times or crime rates). These measures, although important, are prone to wide variations and can be highly subjective.”2

Ranking of the Wichita-area economy from 2003 to 2016, from Milken Institute.
I’ve gathered data from the Milken project for Wichita. The data starts in 2003, the first year for which data is available. The data in the table is the rank for Wichita among 200 large metropolitan areas. The best rank is 1, while the worst is 200. In the line chart for each data series, I’ve inverted the data so that the best performance is at the top.

As the charts show, for overall ranking, Wichita has been declining for some time.

Wichita employment compared to Kansas and the nation. Click for larger.
This does not mean the Wichita-area economy is on the decline. But it means the relative performance of Wichita has not kept up with other cities. As can be seen in the chart of Wichita, Kansas, and U.S. non-farm employment, Wichita employment is rising. But it isn’t rising as fast as the nation, as can be seen in the widening gap between Wichita and the nation since 2010.

Of note, Wichita economic development agencies rely on Milken data.3 4

Data for Wichita from Milken Institute Best-Performing Cities. Click for larger.


Notes

  1. “High-tech location quotients (LQs), which measure the industry’s concentration in a particular metro relative to the national average, are included to gauge an area’s participation in the knowledge-based economy. We also measure the number of specific high-tech fields (out of a possible 19) whose concentrations in an MSA or MD are higher than the national average.” Milken Institute. 2015 Milken Institute Best-Performing Cities. http://www.best-cities.org/2015/best-performing-cities-report-2015.pdf.
  2. ibid.
  3. Greater Wichita Partnership. In Wichita, you will find the knowledge & skill base to get the job done well. http://www.gwedc.org/site_selectors/labor_data.
  4. Greater Wichita Partnership. Air Capital of the World. http://www.gwedc.org/key_industries/aerospace_aviation.

Wichita to grant property and sales tax relief

Several large employers in Wichita ask to avoid paying millions in taxes, which increases the cost of government for everyone else, including young companies struggling to break through.

This week the Wichita City Council will hold public hearings concerning the issuance of Industrial Revenue Bonds to Spirit AeroSystems, Inc and other companies.1 In the IRB program, government is not lending money, and Wichita taxpayers are not at risk if the bonds are not repaid. In fact, in the case of Spirit, the applicant company plans to purchase the bonds itself, according to city documents. Instead, the purpose of the IRB process is to allow Spirit to escape paying property taxes and, often, sales taxes.

These bonds will allow Spirit to avoid paying property taxes on taxable property purchased with bond proceeds for a period of five years. The abatement may then be extended for another five years. Usually these IRB issues also carry a sales tax exemption, but the agenda packet for this item does not mention such

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

City: $424,918
State: $19,500
County: $381,979
USD 259: $731,614

The listing of USD 259, the Wichita public school district, is likely a mistake by the city, as the Spirit properties lie in the Derby school district. This is evident below.

The forgiveness of taxes is justified by the city because it believes it will receive a return that is greater than the foregone taxes. This benefit-cost ratio is calculated by the Center for Economic Development and Business Research (CEDBR) at Wichita State University based on data supplied by the applicant company and the city. The rationale behind these calculations is a matter of debate. Even if valid, calculating the ratio with any degree of precision is folly, reminding us of the old saw “Economists use a decimal point to remind us they have a sense of humor.”

City of Wichita: 5.38 to 1
City General Fund: 2.60 to 1
City Debt Service Fund: NA to 1
Sedgwick County: 2.69 to 1
U.S.D. 260: 1.16 to 1
State of Kansas: 5.51 to 1

These figures reveal that the City of Wichita is forcing a decision on a neighboring jurisdiction that it would not accept for itself, unless it uses one of many exceptions or loopholes. This adverse decision is forced upon the Derby School District. It faces a benefit-cost ratio of 1.16 to 1, which is below the city’s standard of 1.30 to 1, unless an exception is cited. 2 The Derby School District is not involved in this action and has no ability to influence the issuance of these bonds, should it desire to.

We have to wonder why the City of Wichita imposes upon the Derby school district an economic development incentive that costs the Derby schools $731,614 per year, with a substandard payoff?
Of note, the Derby school district extends into Wichita, including parts of city council districts 2 and 3. These districts are represented by Pete Meitzner and James Clendenin, respectively.

In a second agenda item, the city will consider IRBs for a building being developed by Air Capital Flight Line. The beneficiary, however, is Spirit, as city documents state: “The requested sales tax exemption and property tax abatement will be passed on as a benefit to Spirit.”

The annual benefit in tax savings is given by the city as:

City: $294,174
State: $13,500
County: $264,447
USD 259: $506,502

These values are offset by a Payment-In-Lieu-Of-Taxes (PILOT) estimated at $13,251 annually.

For benefit-cost ratios, the city supplies these:

City of Wichita: 3.65 to 1
City of Wichita Gen Fund: 1.83 to 1
City of Wichita Debt Serv: NA to 1
Sedgwick County: 2.09 to 1
USD 260: 1.00 to 1
State of Kansas 2.48: to 1

Here we see the same mistake with the Wichita and Derby school districts. We also see the Derby school district giving up $506,502 in tax revenue, with no positive return.

Spirit is not the only company asking for tax relief through IRBs this week. Three other companies are making similar requests. In none of these cases is economic necessity cited as a reason for escaping taxes. None are threatening to leave Wichita if the relief is not granted.

The problem with these actions

Part of the cost of these companies’ investment, along with the accompanying risk, is spread to a class of business firms that can’t afford additional cost and risk. These are young startup firms, the entrepreneurial firms that we need to nurture in order to have real and sustainable economic growth and jobs. But we can’t identify which firms will be successful. So we need an economic development strategy that creates an environment where these young entrepreneurial firms have the greatest chance to survive. The action the Wichita city council is considering this week works against entrepreneurial firms. (See Kansas economic growth policy should embrace dynamism and How to grow the Kansas economy.)

A major reason why these tax abatements are harmful to the Wichita economy is its strangling effect on entrepreneurship and young companies. As these companies and others escape paying taxes, others have to pay. This increases the burden of the cost of government on everyone else — in particular on the companies we need to nurture.

There’s plenty of evidence that entrepreneurship, in particular young business firms, are the key to economic growth. But Wichita’s economic development policies, as evidenced by these actions, are definitely stacked against the entrepreneur. As Wichita props up its established industries, it makes it more difficult for young firms to thrive. Wichita relies on targeted investment in our future. Our elected officials and bureaucrats believe they have the ability to select which companies are worthy of public investment, and which are not. It’s a form of centralized planning by government that shapes the future direction of the Wichita economy.

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 lack of knowledge, however, does not stop governments from creating policies for the awarding of incentives. This “active investor” approach to economic development is what has led to companies receiving grants or 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. Young entrepreneurial companies are particularly vulnerable.

Embracing Dynamism: The Next Phase in Kansas Economic Development PolicyProfessor 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: “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.'”

(For a summary of the peer-reviewed academic research that examines the local impact of targeted tax incentives from an empirical point of view, see Research on economic development incentives. A sample finding is “General fiscal policy found to be mildly effective, while targeted incentives reduced economic performance (as measured by per capita income).”)

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 for everyone is an example of such a policy. Abating taxes for specific companies through programs like the Wichita city council is considering this week is an example of precisely the wrong policy.

In explaining the importance of dynamism, Hall wrote: “Generally speaking, dynamism represents persistent, annual change in about one-third of Kansas jobs. Job creation may be a key goal of economic development policy but job creation is a residual economic outcome of business dynamism. The policy challenge centers on promoting dynamism by establishing a business environment that induces business birth and expansion without bias related to the size or type of business.”

We need to move away from economic development based on this active investor approach, especially the policies that prop up our established companies to the detriment of dynamism. 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.

Small business

This year American City Business Journals presented the results of a study of small business vitality in cities. 3 Wichita ranked at number 104 out of 106 cities studied. Awarding incentives to large companies places small business at a disadvantage. Not only must small business pay for the cost of government that incentivized companies avoid, small companies must also compete with subsidized companies for inputs such as capital and labor.

Pursuing large companies

Research has found that the pursuit of large companies doesn’t produce the desired growth: “The results show that large firms fail to produce significant net benefits for their host communities, calling into question the high-stakes bidding war over jobs and investment.” 4

This finding is counterintuitive. People can easily see the large companies. They are likely to know someone that works there. But it is the unseen effects that must be considered too, and that is rarely done.


Notes

  1. City of Wichita. City Council agenda packet for December 6, 2016.
  2. Sedgwick County/City of Wichita Economic Development Policy. Available at www.wichita.gov/Government/Departments/Economic/EconomicDevelopmentDocuments/City%20of%20Wichita%20Economic%20Development%20Policy.pdf.
  3. Wichita Business Journal. The State of Small Business: Wichita scores low in small biz vitality. Available at www.bizjournals.com/wichita/print-edition/2016/04/29/the-state-of-small-business-wichita-scores-low-in.html.
  4. William F. Fox and Matthew N. Murray, “Do Economic Effects Justify the Use of Fiscal Incentives?” Southern Economic Journal, Vol. 71, No. 1, 2004, p. 79.

Wichita bridges, well memorialized

Drivers — like me — on East Twenty-First Street in Wichita are happy that the work on a small bridge is complete, but may not be pleased with one aspect of the project.

The memorial plaque celebrating the accomplishment on East Twenty-First Street in Wichita. The flare from the sun is a defect of this photograph, not the marker. Click for larger.
The memorial plaque celebrating the accomplishment on East Twenty-First Street in Wichita. The flare from the sun is a defect of this photograph, not the marker. Click for larger.
It’s a small bridge, on East Twenty-First Street between Mosely and New York Streets. At 49 feet long it is designated a bridge by the Federal Highway Administration. And we’re glad it’s there.

But with city lane width guidelines for arterial streets at 11 feet, this four-lane bridge may not be not much longer than it is wide.1

The bridge on East Twenty-First Street. Click for larger.
The bridge on East Twenty-First Street. Click for larger.
Does it warrant the full commemorative treatment of a bronze plaque memorializing the elected officials and bureaucrats who happened to be in office at the time taxpayers paid for this bridge?

A city official told me that the plaque cost around $2500, and noted that the City Council approves them for each project.2

Why does the city spend so much on plaques for bridges that, in some cases, may not be much longer than wide? It’s a small matter, but these issues are symbolic of government’s attitude towards costs, and of some officials’ view of their own self-importance.

It’s presumptuous, that such a mundane accomplishment would be decorated so at the expense of taxpayers. More than this, it’s preposterous.

West Twenty-Ninth Street in Sedgwick County. Click for larger.
West Twenty-Ninth Street in Sedgwick County. Click for larger.
The City of Wichita is not alone. As I reported in The bridges of Sedgwick County are well marked, Sedgwick County does this, too. And doubly so. The bridge in Twenty-First Street in Wichita has one plaque, but even small bridges in Sedgwick County have two, one on each side.


Notes

  1. City of Wichita. *Street Design Guidelines, Approved by the City Council, December 2014. http://www.wichita.gov/Government/Departments/Planning/PlanningDocument/Street%20Design%20Guidelines-Final.pdf
  2. Email correspondence with Gary Janzen, Wichita City Engineer and Assistant Director Public Works & Utilities, November 28, 2016.

Beware of government arts spending

Art is too important to be dependent on politicians and injecting politics into anything inevitably tarnishes it, writes Lawrence W. Reed of Foundation for Economic Education.

Economist Lawrence W. Reed is president of the Foundation for Economic Education in Atlanta, Georgia. He is the author of the forthcoming book, Real Heroes: Inspiring True Stories of Courage, Character and Conviction. Follow on Twitter and Like on Facebook.

While in Wichita Reed appeared on WichitaLiberty.TV in this episode. An abridged version of the following appeared in the Wichita Eagle.

Beware of Government Arts Spending
By Lawrence W. Reed

While visiting Wichita in October, I learned that city government subsidies for the arts is a local, contentious issue. I’d like to offer a perspective: Don’t do it. Art is too important to be dependent on politicians and injecting politics into anything inevitably tarnishes it.

Proponents of art subsidies argue that because a large majority of people enjoy art and even personally engage in it, it’s therefore a government responsibility. But even larger majorities of people enjoy things like clothing, pets and good movies; this fact is actually an argument for government to butt out and stick to doing its proper duties.

Lawrence W. Reed
Lawrence W. Reed
Those “studies” that purport to show X return on Y amount of government arts spending are a laughingstock among economists. The numbers are cooked and almost never compared to alternative uses of tax money. Even less frequently do subsidy advocates consider what people might choose to do if their earnings weren’t taxed away in the first place.

Every interest group with a claim on the treasury argues that spending for its projects produces some magical “multiplier” effect. Routing other people’s money through politicians and bureaucracy is supposed to somehow magnify wealth, while leaving it in the pockets of those who earned it is somehow a drag. Assuming for a moment that such preposterous claims are correct, wouldn’t it then make sense to direct all income through the government?

What if “public investment” simply displaces a certain amount of private investment? Arts subsidy advocates never raise this issue, but I know that I personally am far less likely to make a charitable donation to something I know is on the dole than to something that depends on the good hearts of willing givers.

What if I, as a taxpayer, could keep what the government would otherwise spend on the arts and invest it in my child’s education and get twice the return than the government would ever get on the arts? The more that government takes, the less we can purchase of the things we value, including tickets to the theatre or a concert.

Money which comes voluntarily from the heart is more meaningful than money that comes at gunpoint (taxes). For that reason I don’t believe in either arts welfare or shotgun marriages. There’s an endless list of desirable, enriching things, very few of which carry a tag that says, “Must be provided by taxes and politicians.”

If we don’t rob Peter the worker to pay Paul the artist, perhaps Paul may have to become a better artist or a better marketer of his art, or perhaps find another profession entirely. Welcome, Paul, to the real world of willing customers and earning an honest living.

Wichita, give back the Hyatt proceeds

Instead of spending the proceeds of the Hyatt hotel sale, the city should honor those who paid for the hotel — the city’s taxpayers.

The City of Wichita has sold the Hyatt Regency Hotel for $20 million. Now, what should the city do with these funds? In a workshop this week, the city manager and council recognized that these funds should not be used for operating purposes. This is important. The Hyatt Hotel was paid for with long-term debt, which the city says has been retired. The proceeds from this sale should be used in a similar way: For long-term capital investment, not day-to-day operating expenses. But the council heard two proposals that are decidedly more like operating expenses rather than capital investment.

One proposal, presented by Public Works Director Alan King, is to spend $10 million on street repair over two years. Part of that expense is to purchase a new truck, which is a capital, not operating, expense. But King later revealed that the truck could be purchased out of the existing capital budget.

Street maintenance, however, is an operating expense.

A second proposal, from the Wichita Transit System, would use about $4 million to sustain and improve current bus service. It was presented to the council as a “bridge to a long term solution.”

This, too, is an operating expense.

As these proposals were presented in a workshop, no decision was made.

These two proposed uses of the $20 million Hyatt sales proceeds are contrary to the goal of not using the funds for operating purposes. If the city decides to use the sales proceeds in this way, a capital investment will have been sold in order to pay for day-to-day expenses.

Instead of spending on these two projects, the city should simply return the money to those who paid for the Hyatt in the first place. Those people are, of course, the taxpayers of Wichita. It would be difficult to give back the funds to individual taxpayers in proportion to the amount they supplied. So what the city should do is retire $20 million of the city’s long-term debt.

If not that, then the city should use the Hyatt proceeds to pay for another long-lived asset, perhaps the new downtown library. Either of these alternatives respects the principles of sound financial practice, and also respects the taxpayers.

In Wichita, developer welfare under a cloud

A downtown Wichita project receives a small benefit from the city, with no mention of the really big money.

Today the Wichita City Council approved a subsidy for a project in downtown Wichita.

The city will lend the developer of a project at 303 S. Broadway $620,000 to improve the building’s facade. The property must repay this amount through an assessment on its property tax. The benefit to the property is that the city is able to borrow money at a lower interest rate, and this reduces the cost of borrowing for the project.

The agenda packet for this item states: “The Office of Urban Development has reviewed the economic (“gap”) analysis of the project and determined a financial need for incentives based on the current market.” This stems from the city’s policy on facade improvement projects, which is that the project would not be feasible except for this loan.1

Upon inquiry to the city, I was told that the facade improvement program would increase the developer’s return on investment from 7.06 percent to 8.35 percent. This seemed a stretch; that a small savings on interest costs on a small portion of the project cost could have such a large effect on profitability.

I asked the city for supporting documents that hold the figures used to calculate these amounts, but the city believes the Kansas Open Records Act does not allow it to release the records. In the past, however, I have received this information on request.

So, we’ll have to trust the city on this matter. I’m not comfortable with that. This is another example of the city conducting business within a cloud of secrecy.

Here’s the real money

The cost savings on borrowing $620,000 is just a small portion of subsidy this project will receive. Through tax credits, this project likely will receive over two million dollars in a form equivalent to cash.

The property was listed on the Register of Historic Kansas Places in August. This entitles the project to a tax credit of 25 percent of qualified expenses.2 With a project cost of $5,000,000, according to city documents, this tax credit could be worth $1,250,000.

From the National Park Service, a credit of 20 percent may be awarded.3 With a project cost of $5,000,000, according to city documents, this tax credit could be worth $1,000,000. It is not known at this time whether this project has qualified for this tax credit.

Together, the tax credits are worth potentially $2,250,000. Not all citizens may be aware of the mechanism of tax credits. In the case of the state of Kansas, the Department of Revenue will — figuratively — print a certificate that says the holder of this certificate may use it to pay $1,250,000 of state tax liability. It costs the state nothing to create this certificate. When the Department of Revenue receives the certificate instead of cash, the state gains nothing of economic value. The net economic effect is that the holder of the tax credit has been enriched by $1,250,000, and the state misses out on the same amount of revenue.4 Unless the state reduces its spending by the amount of the tax credit, the taxpayers have to make up the lost revenue.

This is not all. The project may apply for Industrial Revenue Bonds. This is a mechanism whereby a project may avoid paying property taxes and sales taxes.5 This property is located within a TIF district, so it is ineligible for property tax abatements. But, a sales tax exemption could be possible, if the developer applies.

That application is likely, as this developer did just that on another downtown Wichita building, also located in a TIF district, but eligible for sales tax exemption on purchases related to the redevelopment.6

Of note: This developer actively campaigned for the proposed 2014 Wichita city sales tax, offering free office space to the effort.7 Should he apply for a sales tax exemption on this property, this is another example of low-income families in Wichita paying sales tax on groceries, but well-off developers escaping paying that same tax.

The council meeting

At the council meeting, a citizen remarked how this project is good for the tax base. But, being in a TIF district, the incremental property taxes from this property will go to the TIF district, not the city, until the TIF debt is retired.

Council Member Janet Miller (district 6, north central Wichita) noted that the city is not contributing to the project, that the developer pays all the costs of the facade improvement loan. But of a direct contribution to the project, she said “Although I wouldn’t probably complain if that was a request.” I’d suggest that Miller read up on the economics of tax credits, and of a possible sales tax exemption. She might be surprised to learn how much cash this project is receiving.


Notes

  1. “Owner shall provide financial information that substantiates the need for the City’s facade loan in order to complete the redevelopment project, including the overall sources and uses of funds and pro forma cash flow analysis that shows a reasonable return on owner’s investment.” City of Wichita. Facade Improvement Program Policies and Procedures. Available at www.wichita.gov/Government/Departments/Economic/EconomicDevelopmentDocuments/Facade%20Improvement%20Program%20Policy.pdf.
  2. Kansas Historical Society. State Historic Rehabilitation Tax Credit. Available at www.kshs.org/p/tax-credit-basics/14673.
  3. National Park Service. Tax Incentives for Preserving Historic Properties. Available at www.nps.gov/tps/tax-incentives.htm.
  4. Sometime the tax credits are sold to someone else. In this case the seller usually receives less than the face value of the credit.
  5. Weeks, Bob. Industrial revenue bonds in Kansas. Available at wichitaliberty.org/kansas-government/industrial-revenue-bonds-kansas/.
  6. Weeks, Bob. The Lux in Wichita: Taxpayer funding of lifestyle choices. Available at wichitaliberty.org/wichita-government/the-lux-in-wichita-taxpayer-funding-of-lifestyle-choices/.
  7. Weeks, Bob. In Wichita, pro-sales tax campaign group uses sales tax-exempt building as headquarters. Available at wichitaliberty.org/wichita-government/wichita-pro-sales-tax-campaign-group-uses-sales-tax-exempt-building-headquarters/.