News that the Wichita Metro Chamber of Commerce has decided to support the “Vote Yes” campaign in the February 28th Wichita city election should disappoint those who believe in economic freedom, free markets, and limited government as the engine of job creation and prosperity.

The subject of the election is a Wichita city charter ordinance that rebates 75 percent of the Ambassador Hotel’s guest tax collection back to the hotel. In January I made a presentation to a Chamber committee in an effort to persuade it to support the “Vote No” campaign, or to stay neutral.

There was some hope that the Chamber would support free markets and limited government — instead of crony capitalism and corporate welfare — as sound policies for economic development. Many in Wichita thought that the Chamber had turned in this direction of economic freedom about two years ago.

Now the Chamber’s decision lets us know it believes that eight government subsidy programs supporting the Ambassador Hotel are not enough: The Chamber says there must be a ninth.

This decision reminds me of a piece in the Wall Street Journal by Stephen Moore that shows how very often, local chambers of commerce support principles of crony capitalism instead of pro-growth policies that support free enterprise and genuine capitalism.

Most people probably think that local chambers of commerce, since their membership is mostly business firms, support pro-growth policies that embrace limited government and free markets. But that’s not always the case, as we can see in Wichita. Here, in an excerpt from his article “Tax Chambers” Moore explains:

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

…

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

…

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

From Stephen Moore in the article “Tax Chambers” published in The Wall Street Journal, February 10, 2007. The full article can be found at Liberalism’s Echo Chambers.

Tax Fairness for All Wichitans has an information sheet available to help Wichitans learn more about the February 28th election regarding the Ambassador Hotel guest tax rebate.

You can download a printable pdf version of the information sheet by clicking on Tax Fairness for All Wichitans Information Sheet. Or, view the document below. (Hint: Click on “Fullscreen” at the bottom of the document for a larger view.)

Tax Fairness for All Wichitans Information Sheet

Last night Wichita Mayor Carl Brewer delivered his annual State of the City Address. The text of the address may be read at State of the City Address.

In his speech, Brewer several times criticized those who act on “partisan agendas.” This is quite a remarkable statement for the mayor to make. Partisan usually refers to following a party line or platform. The mayor didn’t mention who he was criticizing, but it’s likely he was referring to myself and others like John Todd, Susan Estes, and Clinton Coen, as we appear regularly before the city council, usually in disagreement with the mayor and his policies.

What’s remarkable is that the council, even though it has four Republican members, almost always votes uniformly with Democrat Brewer and the other two politically liberal members of the council. The only exception is Michael O’Donnell (district 4, south and southwest Wichita), who is often in a minority of one voting in opposition to the other six. The other Republican members — Pete Meitzner (district 2, east Wichita), James Clendenin (district 3, southeast and south Wichita), and Jeff Longwell (district 5, west and northwest Wichita) — routinely vote in concert with the Democrats and liberals on the council.

Remarkable also are the many members of the business community who appeal to the council for subsidies, increased government intervention, and more central planning from city hall: many of these are Republicans. Conservative Republicans, many have personally told me.

This describes a lack of partisanship. Most of the mayor’s critics, such as myself, are more accurately characterized not as acting along party lines, but as acting on their belief in economic freedom, free markets, and limited government.

Economic development

The mayor said that the city’s efforts in economic development had created “almost 1000 jobs.” While that sounds like a lot of jobs, that number deserves context.

According to estimates from the Kansas Department of Labor, the civilian labor force in the City of Wichita for December 2011 was 192,876, with 178,156 people at work. This means that the 1,000 jobs created accounted for from 0.52 percent to 0.56 percent of our city’s workforce, depending on the denominator used. This miniscule number is dwarfed by the normal ebb and flow of other economic activity.

The mayor did not mention 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.

The mayor’s plan going forward, in his words, is “We will incentivize new jobs.” But under the mayor’s leadership, this “active investor” policy has produced a very small number of jobs, year after year. Doubling down on the present course is not likely to do much better.

But there are those who disagree, despite all evidence to the contrary. Sedgwick County Commissioner Dave Unruh — a conservative Republican, for those keeping track of partisanship — recently called for a “deal-closing” fund of $100 million. A funding source of this magnitude would undoubtedly require a new tax. There are many who feel there should be a new sales tax devoted to economic development and downtown Wichita development. We should not be surprised to see such a proposal emerge, and not be surprised that civic and business institutions will support it.

The mayor repeatedly said that the city has been “courageous.” In reality, Wichita does about the same as everyone else. But there is a way Wichita could distinguish itself among cities.

Professor Art Hall of the Center for Applied Economics at the Kansas University School of Business has made a convincing case that Kansas needs to move away from the “active investor” approach to economic development. This is where government decides which companies will receive special treatment, be it in the form of tax abatements, tax credits, grants, tax increment financing, community improvement district special taxes, and other forms of subsidy. Being an “active investor” has been the approach of the City of Wichita, and according to the mayor’s vision, this plan is to be stepped up in the future.

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.”

Later, Hall writes this regarding “benchmarking” — the bidding wars for large employers that Wichita and Kansas rely on for economic development: “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.”

We need business and political leaders in Wichita and Kansas who can see beyond the simplistic imagery of a groundbreaking ceremony and can assess the effect of our failing economic development policies on the entire community. Unfortunately, we don’t have many of these — and Mayor Brewer leads in the opposite direction.

Critical of misinformation campaigns

In his speech, Brewer was critical of those who “spread misinformation.” He was not specific as to who he’s criticizing, and I wouldn’t expect him to name specific people in a speech like this.

But when the mayor criticizes people for being uninformed or misinformed, he needs to look first at himself. He and city staff also need to engage their critics and be responsive to requests for information.

As an example of misinformation, the mayor cited this evidence that city policies are working: “The proposed Ambassador Hotel with a 3-to-1 private to public investment ratio.”

The city arrived at this ratio by employing a very narrow definition of public investment. When tax credits from the State of Kansas and federal government as well as other sources of public subsidy are accounted for, the ratio drops to less than two to one.

It’s true that considering only the city’s artificially narrow definition of public funding, the ratio does reach three to one. But Wichitans also have to pay part of the costs of the tax credits and other subsidies.

The city has also been less than honest in its promotion of the cost-benefit ratio for the Ambassador Hotel project. The city officially cites a cost-benefit study produced by Wichita State University Center for Economic Development and Business Research. Part of that study produced a cost-benefit ratio of 2.63 to one, and that’s what the city uses as justification for its participation in the project.

But the full story of the costs and benefits of this project are contained in these numbers from the WSU analysis:

                                    ROI   Cost-benefit ratio
City Fiscal Impacts General Fund  163.2%        2.63
City Fiscal Impacts Debt Service  -17.2%        0.83
City Fiscal Impacts                -9.8%        0.90

WSU evaluated the impact of the Ambassador Hotel on the City of Wichita’s finances in two areas: The impact on the city’s General Fund, and separately on the city’s Debt Service Fund. The two were combined to produce the total fiscal impact, which is the bottom line in this table.

The City of Wichita cites only the positive impact to the General Fund figure. But the impact on the Debt Service fund is negative, and the impact in total is negative.

It’s true that the ROI and cost-benefit ratio for the General Fund indicate a positive investment return. But the cost of the Ambassador Hotel subsidy program to the General Fund is $290,895, while the cost to the Debt Service Fund is $7,077,831 — a cost factor 23 times as large.

Citizens ought to ask: Who is spreading misinformation?

It is difficult to get a response from city hall regarding questions like these. So far city economic development director Allen Bell has not agreed to meet with representatives of Tax Fairness for All Wichitans, a group opposed to the subsidies for the Ambassador Hotel. (I am part of that group.) The city and its allied economic development groups will not send representatives to participate in a public forum on this matter.

Simplistic answers

The mayor criticized those who “provide simplistic answers to very complicated challenges.” He may be — we don’t really know — referring to those like myself who advocate for free market solutions to problems rather than reliance on government. Certainly the mayor believes that government must act — “courageously” he said — to confront our problems.

A problem with the mayor’s plan for increased economic interventionism by government is the very nature of knowledge. In a recent issue of Cato Policy Report, Arnold King wrote:

As Hayek pointed out, knowledge that is important in the economy is dispersed. Consumers understand their own wants and business managers understand their technological opportunities and constraints to a greater degree than they can articulate and to a far greater degree than experts can understand and absorb.

When knowledge is dispersed but power is concentrated, I call this the knowledge-power discrepancy. Such discrepancies can arise in large firms, where CEOs can fail to appreciate the significance of what is known by some of their subordinates. … With government experts, the knowledge-power discrepancy is particularly acute.

Relying on free market solutions for economic growth and prosperity means trusting in the concept of spontaneous order. That takes courage. It requires faith in the values of human freedom and ingenuity rather than government control. It requires that government officials let go rather than grabbing tighter the reins of power.

Mayor Brewer, five of six city council members, and the city hall bureaucracy do not believe in these values. Wichita’s mayor is openly dismissive of economic freedom, free markets, and limited government, calling these principles of freedom and liberty “simplistic.” Instead, his government prefers crony capitalism and corporate welfare. This is the troubling message that emerges from Brewer’s State of the City address.

“Richard Nixon maintained an ‘enemies list’ that singled out private citizens for investigation and abuse by agencies of government, including the Internal Revenue Service. When that was revealed, the press and public were outraged. That conduct will forever remain one of the indelible stains on Nixon’s presidency and legacy.”

Now President Barack Obama is running the same type of campaign against Charles G. Koch and David H. Koch, who are principals of Wichita-based Koch Industries.

This is the conclusion of Theodore B. Olson, former solicitor general of the United States. He presently represents Koch Industries. His op-ed in today’s Wall Street Journal (Obama’s Enemies List) lays out the harmful effects of the president’s campaign against the Koch brothers.

Olson calls for all Americans to respond and oppose the president’s actions, writing “Whoever may be the victim of such abuse of governmental authority, the press and public almost invariably unify with indignation against it. If a journalist, labor-union leader or community organizer on the left can be targeted today, an academic or business person on the right can be the target tomorrow. If we fail to stand up against oppression from one direction, we abdicate the moral authority to challenge it when it comes from another.”

Why is Obama so opposed to Charles and David Koch? For one thing, they run a successful business that provides over 50,000 private-sector jobs. For some reason, that goes against the president’s grain. He’d rather have 50,000 government jobs, or at least jobs in corporations that cower in response to his bullying tactics. The Koch brothers, thankfully, don’t.

Another reason must be the unwavering support for the causes of economic freedom, free markets, and limited government that Charles and David Koch have advocated for over four decades. See Charles G. Koch: Why Koch Industries is speaking out.

Obama’s Enemies List

David and Charles Koch have been the targets of a campaign of vituperation and assault, choreographed from the very top.
By Theodore B. Olson

How would you feel if aides to the president of the United States singled you out by name for attack, and if you were featured prominently in the president’s re-election campaign as an enemy of the people?

What would you do if the White House engaged in derogatory speculative innuendo about the integrity of your tax returns? Suppose also that the president’s surrogates and allies in the media regularly attacked you, sullied your reputation and questioned your integrity. On top of all of that, what if a leading member of the president’s party in Congress demanded your appearance before a congressional committee this week so that you could be interrogated about the Keystone XL oil pipeline project in which you have repeatedly — and accurately — stated that you have no involvement?

Consider that all this is happening because you have been selected as an attractive political punching bag by the president’s re-election team. This is precisely what has happened to Charles and David Koch, even though they are private citizens, and neither is a candidate for the president’s or anyone else’s office.

Continue reading at The Wall Street Journal (subscription not required).

This Friday (February 3, 2012) the Wichita Pachyderm Club, as part of its regular Friday luncheon series of educational meetings, will conduct a public forum on the February 28th Wichita city election. The subject of the election is a Wichita city charter ordinance that rebates 75 percent of the Ambassador Hotel’s guest tax collection back to the hotel.

John Todd, Vice-President of the Pachyderm Club and in charge of programs, issued invitations to representatives of both sides of the issue. The group Tax Fairness for All Wichitans, of which Todd is part of the leadership team, accepted and is sending Bob Weeks to represent the group.

Todd contacted Paul Coury, one of the developers of the Ambassador Hotel, but he would not appear. David Burk, who is also part of the development group and who has represented the project before the Wichita City Council, also declined.

The Wichita Downtown Development Corporation and the Wichita Chamber of Commerce, while supporting the “Vote Yes” side of the issue, also declined to send someone to speak for the “Vote Yes” campaign. Sheila Tigert, who appears to be managing the “Vote Yes” campaign, also declined to attend or send a representative.

Separate appeals have been made to city council members, Mayor Brewer, and the city manager to send someone to represent the “Vote Yes” side of the issue.

Todd says that democracy is best served when representatives from both sides of an issue participate. He says the invitation to the “Vote Yes” side of the issue is still open. He may be contacted at john@johntodd.net or at 316-312-7335.

The Pachyderm Club is a Republican club. The Wichita branch is notable for the diversity of speakers and educational programs it presents.

The Wichita Pachyderm Club meets at noon Fridays in the Wichita Petroleum Club, on the ninth floor of the Bank of America Center at Douglas and Broadway. The public and news media are invited and encouraged to attend. Video and audio recording are permitted. The program costs $10, which includes lunch and beverage.

Recently Economics Professor Jack Chambless of Valencia College in Orlando asked his college students to write an essay “explaining their definition of the American Dream and what they expected the federal government to do to help them achieve their version of this dream.”

The results are shocking, to say the least. Here’s what Chambless explained during an appearance on Fox New Channel (video here or below).

“About 10% of the students said they wanted the government to leave them alone and not tax them too much and let them regulate their own lives. But over 80% of the students said that the American dream to them meant a house, and a job, and plenty of money for retirement and vacations and things like this. When it came to the part about the federal government, eight out of ten students said they wanted free health care, they wanted the government to pay for their tuition, they wanted the government to pay for the down payment on their house, they expected the government to ‘give them a job.’ Many of them said they wanted the government to tax wealthier individuals so that they would have an opportunity to have a better life.”

On his website, Chambless wrote: “One student who thought her American Dream could be best achieved with more government regulations went so far as to say, ‘We all know that there are many bad side effects when regulations take place, but as human beings, we are not really responsible for our own acts, and so we need government to control those who don’t care about others. It makes sense that our freedom is reduced every day with the new regulations.’”

Chambless blames the public schools, in large part, for failing to teach principles of the right to “life, liberty, and property,” but also that the government doesn’t have the responsibility for providing that.

Chambless also said that 44 percent of Americans are receiving some form of government benefit, as compared to 29 percent in the early 1980s.

Kansas school forum. Tomorrow (January 31st) Dave Trabert of Kansas Policy Institute and Mark Tallman of Kansas Association of School Boards will participate in a town hall meeting with the subject being Kansas schools. The meeting is at 7:00 pm at the Central Branch Wichita Public Library at 223 S. Main.

Ambassador Hotel to be subject of discussion. This Friday (February 3rd) the Wichita Pachyderm Club will host a forum or discussion on the February 28th election, which lets voters decide whether the Ambassador Hotel gets to keep 75 percent of its guest tax collections. I (Bob Weeks) will present for the “Vote No” side. Many invitations have been extended, but so far no one is willing to represent the “Vote Yes” side. If you know of anyone who would participate for the “Vote Yes” side, please contact John Todd at john@johntodd.net. The public is welcome and encouraged to attend Wichita Pachyderm meetings. For more information click on Wichita Pachyderm Club. Upcoming speakers: On February 10th: Debra Ary, P.E., Superintendent Production and Pumping, Wichita Water Utilities, speaking on “An overview of Wichita’s water plan for the future.” Then from 2:30 pm to 3:30 pm interested Pachyderm Club members and guests are invited to take a guided tour of the City of Wichita ASR (Aquifer Storage and Recovery) site. The address of the ASR plant is 11511 N. 119th St. W., Sedgwick, KS. Click here for a Google map. … On February 17th: Richard Ranzau, Sedgwick County Commissioner, 4th District, speaking on “The $1.5 million Regional Economic Area Partnership (REAP) HUD Sustainable Development Planning Grant. Economic Development or Economic Destruction?” … On February 24th: A Face-to-Face Forum with Kansas Congressional delegation staff members: Melvin “Mel” Thompson, State Agriculture Representative, Senator Pat Roberts; Mike Zamrzla, Deputy State Director, Senator Jerry Moran; Lea Stueve, District Director, Congressman Mike Pompeo. Topic: “Learn what is happening and likely to happen in the nation’s capitol.”

Capital gains tax rate. e21 has written an excellent explanation as to why the 15 percent tax on capital gains does not tell the entire story. Considering that capital gains are taxed twice, the true rate of taxation is 44.75 percent, which is much higher than the top income tax rate, and higher than the corporate tax rate. The full explanation is at Capital Gains Tax Rates Are Higher Than You Think, and Getting Higher.

Kan-ed audit. Kan-ed is a state-run network designed “to provide broadband Internet access and distance learning capabilities for schools, hospitals, and libraries.” Kansas Legislative Division of Post Audit has just released an audit of this program. Among the audit’s findings: “Although the Kan-ed network is connected to the Internet, it is a very slow and expensive way of providing Internet access. … Most connected members need commercial Internet access or no Internet connection at all. … Kan-ed could save up to $2 million a year by switching slightly more than half of members to commercial Internet and disconnecting others.” And finally, a conclusion that reminds us of why government spending is almost always wasteful: “Kan-ed has done a poor job of monitoring network connections to ensure members actually need them and has rarely disconnected unneeded connections.” The audit highlights are at Kansas Board of Regents: Evaluating the Effects of Eliminating the Kan-ed Program, and the full audit report is here.

Huelskamp and Sharpton. Last week U.S. Representative Tim Huelskamp, who is in his first term representing the Kansas first district, appeared on the MSNBC television program PoliticsNation. Huelskamp’s office writes: “Congressman Huelskamp engaged the Rev. Al Sharpton over the issue of current tax rates and whether or not it’s ‘fair’ that millionaires and billionaires are allegedly taxed at a lower rate than others. The Congressman argued that the top 1% pay the plurality of all taxes in America, and that the real issue is promoting opportunity and not class envy, citing that his constituents tend to care more about having the ability to find a job and make it on their own rather than what their neighbors’ incomes may or may not be.” I would say that Sharpton has a peculiar — and harmful — idea of what constitutes fairness. Video is at Promoting Opportunity, Not Class Envy.

Education reform blog started. The Friedman Foundation for Educational Choice has started a blog focusing on education reform, a subject the foundation has great experience in. A pres release announces: “As efforts to reform education and improve learning spring up across the nation, the Friedman Foundation for Educational Choice announced a new on-line information hub for advocates, parents and concerned citizens: the Friedman Flyer. The Friedman Flyer, FriedmanFlyer.com, will advance Milton and Rose Friedman’s vision of school choice for all with daily updates on news and lively discussion centering on education reform and school choice.”

Super PACs. Are the new Super PACs a problem? No, write Nick Gillespie and Meredith Bragg of Reason. Here’s why: “Billionaires don’t need them to influence elections, Super PACS go negative — and that’s a good thing!, and Super PACS take power away from the parties.” More at 3 Reasons Not To Get Worked Up Over Super PACs.

Those who oppose tax reform in Kansas say we can’t compare Kansas to states like Texas and Florida, two states which have no state income tax. They point to special advantages these states purportedly have, such as oil or tourism revenue. Kansas has nothing like this, they say.

But Kansas Policy Institute has released analysis indicating that there’s another reason why these states have zero income tax: they simply spend less.

According to the KPI analysis (a one-page document available at Controlling Spending is the Secret to Low Taxes), “The secret to having a low tax burden is to control spending, and that’s exactly what [no income tax] states do.”

Continuing, the study finds: “According to the National Association of State Budget Officers, the states with no income tax spent an average of $2,444 per resident (total state funds) in 2010; the rest of the country spent $3,572 per resident, or 46% more. Kansas spent $3,216 per resident, or 32% more than the states with no income tax.” In this context, “total state funds” excludes federal funds and expenditures from the sale of bonds.

These findings parallel my research, which examined state spending using a different measure — total state spending, including federal funds. I concluded “… states with low or no income tax generally spend much less than Kansas. Using figures I compiled for 2010, Kansas state spending per person is $4,923, which ranks it 35th among the states. Only 15 states spend more than Kansas, on a per person basis. Texas, with no income tax, spends $3,703 per person. Florida, another state with no income tax, spends $3,300 per person.” (See Kansas spending is the problem.)

Generally states that spend less tax less, and vice versa. Low state spending and taxing means that a state leaves more resources in the hands of the productive private sector, instead of burdening its citizens with an expensive and inefficient state government.

For this year, Kansas Governor Sam Brownback has proposed only a slight reduction in general fund spending. Last year the Kansas Legislature lost three opportunities to reduce the cost of state government. Three bills, each with this goal, were passed by the House of Representatives, but each failed to make through the Senate, or had its contents stripped and replaced with different legislation. See In Kansas Legislature this year, opportunities for saving were lost.

This week many Wichitans received a mail piece from “Vote Yes for Wichita,” a group urging Wichitans to “Vote Yes” for a measure that would rebate 75 percent of the guest tax collected by the Ambassador Hotel back to the hotel. The election will be on February 28th.

Following are some of the questions and answers that appear in the mailer, along with what Wichitans should really know about the issue.

Will the Ambassador (Douglas Place) redevelopment create new jobs?
Vote Yes for Wichita answer: YES, according to a study by Wichita State University, 1,102 direct and indirect jobs will be created, 978 for construction and 124 for ongoing operations. These jobs will generate over $39 million dollars in payroll earnings.

Jobs are a good thing. We can all agree on that. What Wichitans need to know is that no matter what the outcome of the February 28th election, these jobs will be created. Ambassador Hotel developers have said they will proceed and open the hotel regardless of the outcome of the February 28th election.

Aside from this, the WSU study that Ambassador Hotel backers rely on contains some important qualifications and additional information than provided in the “Vote Yes” group’s answer to this question. These additional facts are important for Wichitans to know.

The study was produced by Wichita State University Center for Economic Development and Business Research. One of the facts contained in the study is that there is a substitution factor of 50 percent. This means that half of the projected business of the Ambassador Hotel is business taken from other Wichita area hotels. According to Jeremy Hill, who is director of CEDBR, the institute that produced the study: “This particular industry has a 50 percent substitution rate, indicating that 50 percent of the business is new and the remaining 50 percent already existed in the Wichita MSA. Substitution may be applied to both jobs and revenues.”

So when counting jobs and other economic statistics regarding the Ambassador Hotel, we have to discount them by half, according to the study that the hotel relies on.

Furthermore, the 978 new construction jobs are not new jobs. According to CEDBR’s Hill: “It is likely that these expenditures merely support existing construction jobs.”

Finally, there is a question as to how many local workers are being hired for the construction jobs. The Kansas Democratic party, in support of its “Hire Kansas First Act,” says: “Instead of sending millions of dollars of work to out-of-state firms as happened in the Ambassador Hotel and Fairfield Inn projects, contractors or subcontractors working on state contracts of a certain size will have to ensure that at least 70 percent of the employees working on the contract are Kansas residents.”

These facts are inconvenient to the “Vote Yes” supporters. But Wichitans need to know them.

Will there be any new taxes for this project?
Vote Yes for Wichita answer: No, there are no new taxes as part of this project.

On an elementary level this statement is true. But any reasonable analysis will conclude that this hotel is benefiting greatly from taxpayers in Wichita, across the state of Kansas, and even across the country. These taxpayer-provided benefits have a cost.

First, the hotel developers benefit from $3,325,000 in tax increment financing. This diverts money from services like police, fire, and schools to provide benefits to the developers, in this case parking for the hotel. Since the hotel will consume these government services — but is not contributing property taxes to pay for them beyond what the presently vacant building pays — other taxpayers have to step up and pay.

The hotel developers will receive $3,800,000 in tax credits from the State of Kansas. Taxpayers across Kansas have to make up this missing revenue. In fact, Kansas Governor Sam Brownback has recognized the cost to the state of this program, and has proposed elimination of this tax credit program.

The hotel developers will receive $3,500,000 in tax credits from the U.S. government. Taxpayers across the country have to make up this missing revenue.

The hotel developers will receive $537,075 in sales tax exemptions on purchases during the construction and furnishing of the hotel. That’s missing revenue that other Kansas taxpayers have to make up.

These government spending programs are implemented through the tax system, and they have a cost. Indeed, these programs have a new name: Tax expenditures, in recognition that these are really spending programs in disguise, and there is a cost to the taxpayer to provide them

If you are not convinced that these programs have a cost, ask yourself this question: If these programs are without cost, why shouldn’t everyone benefit from them?

The many levels of generous subsidy provided to the Ambassador Hotel are costly. They are harmful to taxpayers, and their negative effects mean that economic activity and jobs are lost elsewhere.

Did the project receive a review?
Vote Yes for Wichita answer: The project received a thorough economic review by an independent committee made up of local residents, private sector business representatives, planners and financial experts before being considered by the City Council.

This statement is true. The review board, however, is stacked with people who benefit financially from taxpayer subsidy to downtown developers, and with bureaucrats who benefit from the expansion of government control and planning in Wichita. There is not a single person on that board who is even remotely skeptical of government intervention into the economy. The term “rubberstamp” applies.

Who pays the hotel tax?
Vote Yes for Wichita answer: Visitors — the transient occupancy tax (bed tax) is paid by visitors to the city. People from out of town will help to pay for this important downtown redevelopment.

This statement, on the surface, is true. But when we look under the surface, we see a different picture.

Recall that the WSU study says the substitution factor for this hotel is 50 percent. This means that half the business of this hotel is business taken away from other Wichita hotels. This also means that other Wichita hotels will not be collecting guest tax on behalf of the city to the extent of 50 percent of the Ambassador Hotel’s business.

The diversion of the Ambassador Hotel’s guest tax is contrary to city policy. According to the Wichita budget document, the purpose of this fund is to “support tourism and convention, infrastructure, and promotion of the City.” The document also states the priorities of the fund, which are given as “1) debt service for tourism and convention facilities, 2) operational deficit subsidies and 3) care and maintenance of Century II.”

Besides being contrary to established city policy, diversion of guest tax revenue away from the Convention and Tourism Fund means that some other group of taxpayers will have to pay. This fund is running a loss of $2 million this year, and after next year the fund’s balance will be nearly zero. As there are plans to continue — and even increase — spending on maintenance and upgrades to Century II, the Convention and Tourism Fund needs revenue. As business is shifted from other Wichita hotels to the Ambassador Hotel (which is proposed to pay the city just 25 percent of its guest tax), it is likely that Wichita taxpayers will be asked to make up the missing revenue that has flowed to the Ambassador’s developers. Wichitans, contrary to the claim of “Vote Yes” backers, will pay.

Did the Wichita City Council approve this project?
Vote Yes for Wichita answer: YES, the Wichita City Council by a vote of 6-1 approved the project.

This statement is true. It is also true that the six members who voted for the project have all received generous campaign contributions from the hotel developers.

Was a comprehensive financial feasibility study conducted?
Vote Yes for Wichita answer: YES, as required by the City of Wichita, an independent financial study was conducted. The report concluded that the revenues (benefits) of the District and Project Area exceed the expenditures (costs) and that the private to public investment ratio is nearly 3-to-l.

The feasibility study referred to is the one conducted by the WSU CEDBR and referred to earlier.

Regarding the costs and benefits of this project, the WSU study produced these numbers:

                                    ROI   Cost-benefit ratio
City Fiscal Impacts General Fund  163.2%        2.63
City Fiscal Impacts Debt Service  -17.2%        0.83
City Fiscal Impacts                -9.8%        0.90

WSU evaluated the impact of the Ambassador Hotel on the City of Wichita’s finances in two areas: The impact on the city’s General Fund, and separately on the city’s Debt Service Fund. The two were combined form the total fiscal impact, which is the bottom line in this table.

Supporters of subsidy to the hotel cite only the 2.63 cost-benefit ratio to the General Fund. The City itself also cites only this figure. But the impact on the Debt Service fund is negative, and the impact in total is negative.

It’s true that the ROI and cost-benefit ratio for the General Fund are large numbers and indicate a positive investment return. But the cost of the Ambassador Hotel subsidy program to the General Fund is $290,895, while the cost to the Debt Service Fund is $7,077,831 — a cost factor 23 times as large.

Wichitans need to ask the “Vote Yes” group why they cite only economic impact that is positive and ignore the much larger negative impact. Citizens should also be asking the City of Wichita this same question.

For the state of Kansas, the WSU study shows a large positive economic impact. But the only costs to the state that the study includes is that of the sales tax exemption, which the study gives as $695,569. Remember, however, that the state is contributing $3,800,000 in tax credits, at a cost of that same amount to the state’s treasury. The WSU study does not include these costs.

CEDBR’s Hill states “CEDBR did not receive sufficient information regarding the state and federal incentives; however, the purpose of the analysis was for the benefit and cost for the City of Wichita and Sedgwick County.”

We can’t ignore the costs to taxpayers that are not included in the economic impact study. Wichitans should ask the “Vote Yes” group and Wichita officials why their focus is so narrow and why the full facts are not included.

The release of a forensics audit of the Kansas Bioscience Authority coupled with two days of joint committee hearings revealed an independent government agency out of control, an audit that draws conclusions described as sanitized of important details, and an agency and legislative supporters who believe that now, all is well at the KBA.

Defenders and supporters of KBA rely on two facts: First, the source of many problems — former CEO Tom Thornton — is no longer at KBA. He has been criticized for overspending and his managerial style, and the audit found that he deliberately deleted and scrubbed data from his personal laptop computer. Data is also missing from a protected section of a KBA server.

Second, the audit finds no major problems with KBA’s board of directors or its business policies, procedures, and controls.

Regarding Thornton, Kansas Secretary of Agriculture Dale A. Rodman, who oversaw the audit process on behalf of the Brownback Administration, was strongly critical of the KBA board’s oversight of Thornton. He told a joint committee that the KBA board had not done its job, and that a “golden opportunity” for Kansas has been lost.

As to policies and practices, it is apparent that the KBA board violated a Kansas statute governing the KBA that covers conflicts of interest and board members receiving financial benefits on behalf of companies they have ownership interests in. The audit, many times, says that board members may resolve a conflict of interest by disclosure and not voting.

But the case of KBA board member Bill Sanford is an example to the contrary. Rodman said that a company he partly owns received KBA grants totaling $674,996. There appear to be many similar examples involving other KBA personnel and companies.

These facts stand in contrast to conclusions drawn in the audit, which was conducted by BKD, LLP Forensics and Valuation Services on behalf of the KBA, although the Brownback administration, through Rodman, had some oversight. Senate Commerce Committee Chair Susan Wagle, a Wichita Republican who has been at the forefront of the KBA issue, has repeatedly described the audit’s conclusions as “sanitized.” I agree.

Rodman, in his testimony, revealed a troubling attitude towards ethics that we often see in Kansas. He told the committee that former Governor John Carlin told him that KBA could not do business in Kansas with strict ethic rules because everyone in Kansas knows each other. And last year Carlin, as chairman of the board of KBA, appeared before a Senate committee to give a strong defense of CEO Thornton.

Now we know differently. But Carlin — defender of Thornton, who is now widely recognized as a “bad apple” — still serves on the KBA board. The fact that there has been little turnover in the composition of the KBA board reveals that the board, along with KBA’s supporters, believe that little is left to be fixed, now that Thornton has left the building.

Kansans deserve something better, however. If KBA is to continue, all board members should resign, and immediately.

The audit and committee testimony also uncovered troubling facts about the performance of KBA in creating jobs. If we take away KBA’s largest success story, which accounts for half or more of the jobs KBA claims to be responsible for creating and which cost a small amount of KBA funds, we are left with the realization that the other jobs KBA created cost over $700,000 each.

KBA defends itself by noting that it focuses on long-term nurturing of the bioscience industry in Kansas, and less on creating jobs in the near term. Long-term goals, however, are not the forte of government, and that may be why KBA was created as an independent agency with its own revenue stream not subject to annual legislative or executive branch appropriations.

But that leads to another problem: Arrogance and indomitability. That is much in evidence at KBA. Furthermore, we can’t really say that KBA “invests,” as it is not subject to the same constraints that govern when businesses or individuals invest. These private actors can’t conscript their capital from the people of Kansas, as does KBA. Neither does KBA have to accept responsibility for losses.

It would not be surprising to see legislation emerge to provide legislative or executive branch oversight and control over KBA. While that may improve KBA, we will still be left with the issue of the incompatible roles of government and private sector.