Business records file folders

In Wichita, promises of accountability and transparency

Boosters of the proposed Wichita sales tax promise transparency. But Wichita has not delivered on that in the past, and still rebuffs the public’s right to know.

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


Wichita City Council Member Pete Meitzner does not support the public’s right to know how taxpayer funds are spent.

Why is this important? Supporters of the proposed Wichita sales tax promise transparency in operations and spending, especially regarding the jobs fund. But requests for spending records by the city’s quasi-governmental agencies are routinely rebuffed. Simple requests for contracts without outside entities are rejected. The city supports this refusal to comply with the Kansas Open Records Act.

Here are some things voters may want to consider as they evaluate promises of future transparency and accountability:

  • Many of the people presently in charge at city hall and at agencies like Greater Wichita Economic Development Coalition will still be in charge if the proposed sales tax passes.
  • The city council seems pleased with city manager Robert Layton. He has not advocated for citizens’ right to know how taxpayer money is spent despite being presented with compelling reasons why the city should act to increase transparency.
  • The Kansas Open Records Act does not prohibit the city and these agencies from releasing spending records. The city and agencies have made this decision, and have spent taxpayer resources fighting against the release of spending records.
  • If the city and its quasi-governmental agencies are serious about accountability and transparency, they could release the requested records today.
  • The city is unable to provide spending records in computer-readable form except for images. This data is not readily usable.
  • One of the co-chairs of the “Yes Wichita” group, Harvey Sorensen, has been a vigorous defender of government’s ability to spend taxpayer funds in secret, telling the city council that advocates for transparency simply want to embarrass the city, and there is no public purpose for their requests.

Given this background, on what basis do we believe that the city and its agencies will change their attitude towards citizens’ right to know how taxpayer funds are spent?

If the city wants to convince citizens that it has changed its attitude towards government transparency and citizens’ right to know how tax money is spent, it could positively respond to the records requests made by myself and Kansas Policy Institute.

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

Wichita, again, fails at open government

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Wichita City Budget Cover, 1990

Wichita voters’ opinion of city spending

As Wichita voters prepare to decide on the proposed one cent per dollar sales tax, a recent survey found that few voters believe the city spends efficiently.

Wichita City Budget Cover, 1990In April Kansas Policy Institute commissioned SurveyUSA to conduct a scientific poll concerning current topics in Wichita. The press release from KPI, along with a link to the complete survey results, is available at Poll: Wichitans don’t want sales tax increase.

The first question the survey asked was “In the past few years, have Wichita city officials used taxpayer money efficiently? Or inefficiently?” Following are the results for everyone, and then divided by political party and political ideology.

Overall, 58 percent believe city spending was inefficient, compared to 28 percent believing spending was efficient.

The results are surprisingly consistent. An exception is that political independents strongly believed that city spending was inefficient. Those identifying as liberal were more likely to say that city spending was inefficient.

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While Wichita asks for new taxes, it continues to spend and borrow

The City of Wichita says it doesn’t have enough revenue for things like street maintenance and transit, but continues to borrow for spending on new projects.

The City of Wichita is asking voters to approve a sales tax of one cent per dollar. Part will be used to bolster areas of spending where the city admits not spending enough: Street maintenance and transit. (These shortfalls are based on the city’s goals.)

The city says it does not have enough revenue to pay for these items. But voters need to know that the city continues to spend on new things. In fact, it borrows quite a bit to finance new things.

As an example, last month the city issued $368 million in bonded debt. Part — about half — was to refinance short-term bonds. The other half was new debt.

Here’s something listed as what the city paid for with part of the bond proceeds: “Douglas and Hillside Redevelopment, $3,685,000.00.” The new intersection is nice, although the previous version wasn’t bad.

To relate this to the proposed sales tax Of the funds the sales tax is projected to raise over five years, $27.8 million is allocated for street maintenance and repairs. That’s $5.6 million per year to be spent in addition to what the city has already planned to spend.

So to reconstruct just one intersection, the city spent two-thirds of the dedicated portion of the sales tax for streets.

WaterWalk Place in downtown Wichita, September 30, 2014
WaterWalk Place in downtown Wichita, September 30, 2014
Here’s what voters need to keep in mind. The city claims it doesn’t have enough revenue to pay for the upkeep of streets — the streets that taxpayers have already paid for. But the city borrows money for new projects like this and many others. Then, the city tells us it doesn’t have enough money to maintain what we already have, and voters need to pass a sales tax.

By the way, how do you feel about the progress of the WaterWalk development in downtown? There’s not much going on there. Here’s how much the city borrowed to spend on that project, according to the bond documents: “WaterWalk – Eastbank Development, $7,145,000.00″

Moving Wichitans in the Future: Paving and Transit Via Sales Tax?

From Kansas Policy Institute, the third and final free conference examining issues related to the proposed one cent per dollar Wichita sales tax. Voters will decide on this in November.

Moving Wichitans in the Future: Paving and Transit Via Sales Tax?

A free event on Thursday October 23, 2014 from 7:30 am to 11:00 am

A review of the paving and transit portions of the proposed 1% sales tax in the City of Wichita.

Full Agenda and Speaker Line-Up

8:00 a.m. — Summary of Urban Transportation: Wendell Cox, author and international transportation consultant

9:00 a.m. — Details of Wichita Plan: Alan King, director of Wichita Public Works, and Steve Spade, director of Wichita Transit

10:00 a.m. — Reform Ideas From Around The Country: Len Gilroy, Director of Government Reform at the Reason Foundation

KPI is not taking a position on the larger sales proposal or its component pieces. KPI is hosting these events featuring multiple expert opinions on the underlying policy pieces in an effort to present Wichitans with a variety of views. A July event covered the water proposal and the “jobs fund” was reviewed in September.

The event will be held at the WSU MetroPlex, Room 185
5015 E. 29th Street North

Wichita City Hall 2014-08-05 11

Water options for Wichita

There are solutions to the Wichita water shortage (to the extent it exists) that originate outside city hall. Dr. Art Hall of KU explains in this excerpt from WichitaLiberty.TV. View below, or click here to view at YouTube. Originally broadcast September 28, 2014. For more on this topic see:

Water, economic development discussed in Wichita and For Wichita leaders, novel alternatives on water not welcome.

Where is Duane Goossen, former Kansas budget director?

From Kansas Policy Institute.

Duane Goossen hides from honest scrutiny … again

By Dave Trabert

Former state budget director Duane Goossen published a scathing review of the KPI 5-Year State Budget Plan a few days ago on his blog, so I wrote and asked if he would join Steve Anderson and me for a public discussion of the facts and issues. He ignored our invitation for civil discussion, just as he did when we explained how he distorted the truth about education finance.

Duane Goossen
Goossen claims we made an $802 million math error and tries to fool unsuspecting readers by saying we didn’t account for all of what is purported to be a $1.3 billion shortfall.  We didn’t account for it because there is no $1.3 billion shortfall!

As we explained in How Budget Deficits are Fabricated in Kansas, Kansas Legislative Research Department (KLRD) counts budget changes multiple times in arriving at what they call a $1.3 billion shortfall.  Once money is cut from the base budget … it’s gone. It doesn’t have to be cut again every year into the future.

According to KLRD, the spending adjustments needed to maintain a zero ending balance total $482.3 million over five years.

In order to get to $1.3 billion, one must count the FY 2016 change FOUR times … the FY 2017 change is counted THREE times … the FY 2018 change is counted TWICE … and only the FY 2019 change is counted once.

Goossen also mischaracterizes several proposed uses of excess cash reserves as “cuts” to transportation and education. As clearly explained in our Budget Plan, we are proposing that a KDOT surplus of $150 million be returned to the General Fund and that sales tax transfers to KDOT be reduced so that future surpluses are not created. We suggest that school districts and universities be required to use a portion of excess cash reserves, allowing education funding to reduced one time while excess funds are spent down.

He also falsely claims we are recommending a $100 million cut to the Kansas Bioscience Authority, when our plan merely suggests funding KBA at the same amount it received in 2014. The budget savings comes about by removing a statutory set-aside of $25 million per year that isn’t planned to be spent.

These are just some of the outlandish claims made by Goossen, which probably explains why he ignores invitations to have a civil public discussion of the facts.  He has nothing to gain and everything to lose.

Our budget plan shows multiple options to balance the budget without service reductions or tax increases…healthy ending balances…increased funding for education and Medicaid…and record-setting spending overall.  But media won’t even look at the plan and others are spreading false claims about it.

Kansans are being inundated with the false choice of tax increases or service reductions … all for political gain.

Legal publications in the Wichita Eagle, occupying nearly the entire page.

A simple step towards government transparency in Wichita

Kansas law requires publication of certain notices in newspapers, but cities like Wichita could also make them available in other ways that are easier to use.

Legal publications in the Wichita Eagle, occupying nearly the entire page.
Legal publications in the Wichita Eagle, occupying nearly the entire page.
Do you read the legal publications in your local newspaper? Often they are lengthy. Many pertain to just one person or company. All are supplied using ink expressed as fine print on the chemically processed flesh of dead trees.

But some legal publications are important and of interest to the general public.

Kansas law requires that many legal notices must be printed on a newspaper. That law needs to be changed. As you might imagine, newspapers resist this reform, as it might mean a loss of revenue for them. (That’s right. Newspapers don’t print these notices as a public service.)

Although the law requires publishing notices in a newspaper, it doesn’t prohibit publishing them in electronic form. If governmental agencies would make their legal publications available in ways other than the newspaper, citizens would be better served.

This would be easy to do. It would be quite inexpensive. The material is already in electronic form. The notices would become searchable through Google and other methods. Government transparency would increase. Interested parties could capture and store notices this material for their own use. Once people get used to this method of publication, it will make it easier to get state law changed.

So why doesn’t the City of Wichita (and Sedgwick County and the District Court) post their legal notices on their websites?

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Kansas school fund balances

Kansas school fund balances declined this year, but fund balances are still large.

As Kansas voters consider school funding, as the Kansas Supreme Court considers ordering more school spending, and as school spending boosters insisting that school spending has been slashed, an inconvenient fact remains constant: Kansas schools don’t spend all the money they’ve been given. Fund balances have been growing until leveling off and dipping slightly this year.

I’ve gathered data about unspent Kansas school funds and presented it as an interactive visualization. You may explore the data yourself by using the visualization. Click here to open the visualization in a new window. Data is from Kansas State Department of Education. Visualization created using Tableau Public.

Unspent Kansas school fund balances. All funds on top; all funds less bond and capital below.
Unspent Kansas school fund balances. All funds on top; all funds less bond and capital below.
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Questions ‘Yes Wichita’ doesn’t want asked or answered

“Yes Wichita” is a group that wants you to vote “Yes” on the proposed Wichita sales tax. But this group will not answer questions. Instead they delete the inconvenient questions.

I’ve asked the “Yes Wichita” group several questions about the proposed one cent per dollar Wichita sales tax. They’re reasonable questions that many Wichita voters might like answered. But instead of answering the questions, “Yes Wichita” has deleted them from its Facebook page. Upon my inquiry as to why, there has been no answer.

I realize these questions are inconvenient for the “Yes Wichita” group, and for the City of Wichita too. So I understand why these people did not answer my questions. Wichita voters may want to consider this indifferent attitude as they make their decision on this issue. Voter might also consider that there are questions the sales tax supporters don’t want asked, much less answered.

Here are questions that I’ve asked that were never answered, and finally deleted. Perhaps you might want to submit them to “Yes Wichita” to see if you can get answers.

October 7, 6:07am
I have a question. The city’s documents regarding the sales tax state: “The State of Kansas estimates that 13% of sales taxes paid in the Wichita area are paid by non-residents based on a report at www.ksrevenue.org/pullfactor.html. This means that the City would collect an estimated $51.7 million in sales taxes (of the total $397.6 million)from non-residents.”

But at the “Yes Wichita” website, there is a different claim: “If we fund a new water source through a sales tax instead of water bills or property taxes, visitors and tourists will pay the sales tax, reducing the burden of this cost to Wichitans by about one-third.”

So which is it? 13 percent, or 33.3 percent? Why does “Yes Wichita” use a figure 2.5 times the city’s?

October 3, 7:48pm
I have a question regarding the proposed sales tax. Earlier this year the steering committee for the Wichita/Sedgwick County Community Investments Plan delivered a report to the Wichita City Council. The report says the city is delinquent in maintaining infrastructure. The report said the “cost to bring existing deficient infrastructure up to standards” is an additional $45 to $55 million per year. Does the proposed sales tax do anything to address this maintenance gap other than the portion earmarked for street repairs? Do you think the city will be asking for additional tax revenue to address the maintenance shortfall? If not, what is the city’s plan for catching up on infrastructure maintenance?

October 2, 8:53pm
I have a question. Can anyone tell me what the cost of the sales tax for an average family might be?

September 22, 9:48pm
I have a question. Jon Rolph disputed Jennifer Baysinger’s figures on the cost of the proposed sales tax for Wichita households. Is he or “Yes Wichita” willing to provide any figures or calculations as to what the cost might be, and the basis for Rolph’s disagreement?

Union Station development drains taxes from important needs

Testimony of John Todd to the Wichita City Council, October 7, 2014.

I want to complement the Union Station LLC group for tackling an important redevelopment project in downtown Wichita.

I am troubled however, by the developer’s request for $17.3 million in Tax Increment Finance (TIF) funding for his project because it diverts increases in future property tax revenues away from the public treasury and back to the developer for 20 years. Under current taxing levies this means that roughly one-third or $5 million plus of future Union Station property tax revenues would be diverted from the City of Wichita needed for public safety items like police and fire protection, and the building of public infrastructure. Plus, roughly one-third or $5 million plus would be diverted from the Sedgwick County treasury needed to provide for our Court System, the maintenance of property ownership records, the Sheriff’s office and detention center. The last one-third or $5 million plus would be diverted from Wichita Public Schools needed for the education of our children.

Drain, waterThe diversion of future property tax revenues away from local governmental treasuries should concern every taxpaying citizen when one considers the many needs for these funds. On the city level, $5 million over 20 years could go a long way towards funding needed street maintenance and repairs, or providing the revenue needed for a viable public bus system, and finding a long-term solution to our cities’ future water needs. Sedgwick County could use $5 million to re-open the Judge Riddel Boys Ranch that helps turn boy’s lives around and makes our community a safer place to live and play by reducing recidivism and crime. And, just think of how many teachers could be hired with $5 million to prepare our young people for productive lives and jobs.

I am of the opinion that Mr. Gary Oborny has the track record to prove that he is one of the most creative and exceptional real estate developers in the City of Wichita and that he possesses the professional talents needed to make the Union Station project work without TIF public funding.

I believe at some point downtown redevelopment needs to be market driven, stand on its own, and pay taxes into the city treasury like other city development projects do.

Today, you have the opportunity to exercise your leadership skills in achieving this transformation. I urge you to seize it.

Yes Wichita logo

How much Wichita sales tax is paid by visitors?

Part of the sales pitch for the proposed Wichita sales tax is that part is paid by visitors. But there are big differences in opinion as to how much.

The proposed 1-cent sales tax FAQIn a “frequently asked questions” document produced by the City of Wichita in September, there is a section titled “How much of the sales tax is paid by visitors to Wichita?” The city’s answer is: “The State of Kansas estimates that 13% of sales taxes paid in the Wichita area are paid by non-residents based on a report at www.ksrevenue.org/pullfactor.html. This means that the City would collect an estimated $51.7 million in sales taxes (of the total $397.6 million) from non-residents.”

But at the “Yes Wichita” website, there is a different claim: “If we fund a new water source through a sales tax instead of water bills or property taxes, visitors and tourists will pay the sales tax, reducing the burden of this cost to Wichitans by about one-third.”

So which is it? 13 percent, or 33.3 percent? Why does “Yes Wichita” use a figure 2.5 times the city’s?

I’ve asked in the past that “Yes Wichita” show its calculations and assumptions. Here’s another opportunity.

Water blue drop drip

Again, Wichita policies are fluid

Wichita city hall promises policies that are clear, predictable and transparent, except when they’re not.

On July 22, 2104, a presentation to the Wichita City Council sought to assure the council and public that a proposed jobs fund created with money collected by the proposed sales tax would have policies that govern the spending of funds: “GWEDC – Finds businesses to expand, recruit, follows established policies for retention/recruitment.”

But there’s a problem. It’s difficult for governments to establish policies that will satisfy everyone. How do we know today what we’ll need five or ten years down the road? When governments change policies to fit particular circumstances, taxpayers are rightfully concerned that the alterations are to suit the needs of special people — the cronies that feed from the city hall trough of taxpayer money. When you couple in what public choice theory tells us, which is that the cronies who want money from government have a much stronger motive to succeed than the bureaucrats are motivated to protect citizens and taxpayers, we can have trouble.

This has happened before in Wichita. Last year when a project didn’t meet the (supposedly) required benefit-cost ratio, the city simply said that it didn’t apply in that case. See Wichita’s policymaking on display.

Now, Wichita seeks to modify its policies again in response to the wants and desires of one person.

Here’s the background you need to know. When the city passed a downtown development incentives policy in 2011, here’s what the city said was its goal: “The business plan recommends the development of a prudent public investment policy that is clear, predictable and transparent, maximizes public investment and enhances market-driven development.” (emphasis added)

The meeting minutes contained further elucidation: “Scott Kneibel Planning Department stated the purpose of the policy is to put in place something that is clear and predictable in terms of how the public would invest in downtown projects through partnership with the private sector. Stated that sort of statement by this governing body has not been made to date. Stated that is the purpose of this policy so that developers will know what types of investments the City of Wichita is interested in making and how the City of Wichita will make those decisions.” (emphasis added)

But as in the past, we find city proposing the change the standards in the middle of the game. Here’s an excerpt from the agenda packet for Tuesday’s meeting, in which a large incentive package for the redevelopment of Union Station may be considered: “In the opinion of the evaluation team, the established criteria do not adequately address projects such as Union Station where the requested incentives do not involve City debt.”

For this project we see that city policy is being modified on the fly to meet the circumstances of a particular project. This is not necessarily bad. Entrepreneurship demands flexibility. But the city promises policies that are clear, predictable and transparent, and city officials say Wichita has a transparent, open government.

Can you imagine conscientious developers who want to invest in downtown Wichita, but after studying the city’s policies, realize their projects don’t conform to the city’s published standards? How many moved on to other cities, not realizing that our standards can be altered and waived?

As Wichita voters consider the value to give to promises from city hall, they should consider these episodes when the city promises there will be “established policies” for the spending of economic development funds generated by the proposed sales tax.

Pink Pearl eraser

Errors in Wichita Union Station development proposal

Documents the Wichita City Council will use to evaluate a development proposal contain material errors. Despite the city being aware of the errors for more than one month, they have not been corrected.

On August 19, 2014 the Wichita City Council considered an agenda item titled “Resolution Considering the Establishment of the Union Station Redevelopment District, Tax Increment Financing.” The purpose of the item was to set October 7, 2014 as the date for the public hearing on the formation of a TIF district. The council passed this resolution.

On August 27 Bob Weeks inquired this of Wichita city officials based on information contained in city documents that were prepared for the August 19 meeting:

“On the Union station TIF proposal, there is mentioned ‘$3,766,156 in monetized historic tax credits.’ Do you know whether these are federal or state tax credits, and the face value of the credits? I presume that ‘monetized’ means the value the developers expect to receive when selling the credits at a discount.”

That same day he received this response from Allen Bell, the city’s Director of Urban Development.

“The Developer has not yet provided the City with details on the tax credits. However, staff analyzed the project to ascertain a ballpark estimate of how much it could generate in both state and federal tax credits and came up with a similar amount. We assume that $3,766,156 is the amount of net proceeds to be injected into the project from the sale of tax credits and that it is discounted from the face value of the credits.”

On follow up, Weeks asked this:

“I was also wondering which incentive program allows for the sales tax exemptions included in the CEDBR analysis.”

The response from Bell was:

“The only incentive program available to Union Station that would provide a sales tax exemption is IRBs. The Developer did not request IRBs or a sales tax exemption. I would guess that CEDBR factored it into the cost-benefit analysis to be extra conservative.”

CEDBR is the Center for Economic Development and Business Research at Wichita State University.

In addition to Bell, other city officials participating in these emails were Van Williams, Public Information Officer; Mark Elder, Development Analyst; and Scott Knebel, Downtown Revitalization Manager.

On October 2, when the city released the agenda packet for the October 7 meeting, the tax credits and sales tax information was not changed.

By the city’s admission, the value of tax credits for this project is a guess, and we don’t know if the project is actually eligible for these tax credits. The sales tax exemption included in the CEDBR is an incentive this project is not eligible for and will not receive. Despite several city officials being aware of these errors, the material the city council will consider on October 7 has not been corrected.

WichitaLiberty.TV: Government waste in Wichita

In this excerpt from WichitaLiberty.TV: At the time Wichita city government asks for more tax revenue, government waste is abundant. View below, or click here to view at YouTube. Originally broadcast September 7, 2014. For more on this issue, see For downtown Wichita, some progress in controlling waste and Wichita planning results in delay, waste.

Gary Oborny Fox News 2014-08-25

Wichita man who complained of regulations now asks for your tax dollars

Gary Oborny of Wichita appeared on Fox News in August to explain problems with onerous government regulations. Next week he will ask the Wichita City Council to use laws and regulations to grant him millions of tax dollars. For more, see Union Station TIF provides lessons for Wichita voters.

WichitaLiberty.TV July 2, 2014

WichitaLiberty.TV: The proposed one cent per dollar Wichita sales tax

In this episode of WichitaLiberty.TV: Considering the proposed Wichita sales tax, looking at unmet maintenance needs, claims that we have few economic development incentives, the cost of the sales tax to families, the taxes already going to the transit system, and the bad choice the city gives us for water. View below, or click here to view at YouTube. Episode 61, broadcast October 5, 2014.

Wichita's Union Station in 2009

Union Station TIF provides lessons for Wichita voters

A proposed downtown Wichita development deserves more scrutiny than it has received, as it provides a window into the city’s economic development practice that voters should peek through as they consider voting for the Wichita sales tax.

Next week a Wichita real estate developer will ask the Wichita City Council to approve a package of incentives for the redevelopment of Union Station in downtown Wichita. The proposal contains many facets that citizens need to understand. Additionally, the city’s handling of this matter is something that voters will want to keep in mind as they make their decision on the proposed Wichita sales tax in November.

The city’s documents on this matter are available at Resolution Considering the Establishment of the Union Station Redevelopment District (Tax Increment Financing).

Tax increment financing

Union Station LLC is asking for TIF, or tax increment financing. Most commonly, TIF works like this: A city borrows money (by issuing bonds) and gives the cash to a development. After the project is built and has a higher assessed value, the city uses the increased property tax payments (the “increment” in TIF) from the development to pay off the bonds. This obviously is risky for cities, because if the development doesn’t generate sufficient increment in tax payments to cover the bond payments, the city will have to make up the difference. This has happened in Wichita.

In recent years a new type of TIF has been created by statute, the “pay-as-you-go” TIF. Here, instead of issuing bonds and paying off the bonds with the incremental taxes, the city simply refunds the incremental taxes to the development. City documents describe: “The TIF statute also allows for projects to be financed on a pay-as-you-go basis, to reimburse the developer for eligible costs as TIF funds are received.”

This has less risk for cities, because if the hoped-for incrementally higher property taxes don’t materialize, the development doesn’t receive TIF proceeds. There are no bonds that must be paid. The developer just doesn’t receive what was projected. This is why the city claims that pay-as-you-go TIF has no risk to the city.

(Under pay-as-you-go TIF, since the city is essentially refunding nearly all property tax payments back to the development, we have to wonder why the city requires the taxes be paid at all. Also, there is the charade of spending TIF money only on “eligible” project costs. But the criteria for eligibility is broad, and we can be sure that developers will do all they can to make sure costs are characterized as eligible. But the eligibility criteria allows cities to appear to be fiscally prudent. Cities say they don’t allow TIF proceeds to be spent on just anything, but only on eligible costs.)

Here’s what the agenda packet says about this TIF: “Union Station LLC proposes to combine pay-as-you-go TIF with private financing to finance the proposed redevelopment project. The developer will finance through private sources all costs of the redevelopment project, including TIF-eligible project costs. Pay-as-you-go TIF revenue will be used to reimburse the developer on an annual basis with proof of expenditure of TIF-eligible redevelopment project costs.”

Buried in this paragraph is some financial slight-of-hand. Wichitans need to understand this so that they can be fully informed on this proposed transaction.

The problem lies is the meanings of the terms “to finance” and “to pay for.” Financing is the process of securing money to pay the costs of acquiring something. If financing is in the form of a loan, the economics of the transaction is that the borrower receives cash (assets go up) but also incurs an obligation to pay back the cash (liabilities go up by the same amount).

Then, when the borrower uses this cash to buy something — like a historic train station — one form of asset is exchanged for another. Cash is exchanged for title to the property.

It’s in the future, as the loan is repaid, that needs examination. The goal of real estate development is that the developer creates a project that generates more money coming in than loan payments going out. If this happens, it is a signal that the developer has met customer needs and has used capital in a way that makes everyone better off.

But there’s a confounding factor involved in the “pay for” part of the transaction that the city council will consider next week. The burden of some of the loan repayments will be born by the taxpayer. We don’t know for sure, but undoubtedly Union Station LLC will borrow money to make the project work. Proceeds from the TIF will be used to make at least some of the loan payments.

This is where the slight-of-hand comes in. The city says “The developer will finance through private sources …” That much is true. The city is not loaning any money. But some of the money used to pay back the private loans will come from TIF proceeds. So it is property tax payments being re-routed back to the developer that actually pays for part of the development: “Pay-as-you-go TIF revenue will be used to reimburse the developer on an annual basis …”

This is the heart of the transaction. It’s what citizens need to understand. Instead of Union Station LLC’s property taxes being used to pay the cost of government, nearly all of these taxes will pay off the owner’s loans.

The purchase of the property

Here’s what city documents state regarding the purchase of the property: “The $6,226,156 in equity is proposed to be in the form of $1,500,000 from the purchase of the property that will be contributed as collateral, $3,766,156 in monetized historic tax credits, and $960,000 in cash.”

It’s the “purchase of the property” that needs scrutiny. More from the city documents: “The developer would be compensated for the fair market value of the land where public access improvements would be located, not to exceed the $1,500,000 actual site acquisition cost. The Public Access Easement attachment illustrates that the portions of the site where a public access easement would be acquired is 274,059 square feet and that the average land acquisition cost of 10 comparable downtown properties is $6.71 per square foot, placing the fair market value of the land where the public access improvements would be located at $1,839,147.”

What’s happening is that part of the land area of the project is being called “public access improvements.” These are things like, according to city documents, “parking structure, pedestrian boardwalk, paving, utilities, and landscaping.” The city is proposing to pay the developer $1,500,000 for these areas.

If the council agrees to this, new avenues will have been opened for spending taxpayer funds. It places other commercial developers and landlords at a disadvantage. Consider, say, the recent Whole Foods Market that opened in Wichita. What Union Station LLC wants is like that developer asking to be reimbursed for the shrubs and grass that was planted, or the parking spaces that are provided. The public will, after all, view the sunlight reflected from the grass and breathe the oxygen generated by the shrubs. And, the public will park in the spaces. These “public access improvements” are part of what is necessary to provide an attractive and desirable development. It’s part of what businesses do to attract customers and earn profits. But the Union Station developer is asking that the city pay him for providing these things. If the council agrees to this, we can expect to see this template applied repeatedly in the future.

The missing tax credits

City documents state this regarding the sources of funds for the project: “Private to Public Investment Ratio — The proposed private capital investment is $36,578,000, and the proposed public capital investment is $17,321,000, resulting in a private to public capital investment ratio of 2.1 to 1.” But missing from this calculation is the contribution of taxpayers in the form of historic preservation tax credits. As reported above, the city reports the project will receive $3,766,156 in monetized historic tax credits.

(Tax credits are economically equivalent to a grant of cash from government. Commonly their value is used to boost the “private” equity contribution to the project. But since the tax credits come from government, we ought to call it the “peoples’ equity.”)

I inquired of city officials whether the historic preservation tax credits are federal, state, or both. The answer I received: “The Developer has not yet provided the City with details on the tax credits. However, staff analyzed the project to ascertain a ballpark estimate of how much it could generate in both state and federal tax credits and came up with a similar amount. We assume that $3,766,156 is the amount of net proceeds to be injected into the project from the sale of tax credits and that it is discounted from the face value of the credits.”

So it seems like the city is surmising things that may or may not be part of the developer’s plan.

False sales tax exemption applied

There’s another level of uncertainty in the city documents. In the analysis performed by Center for Economic Development and Business Research at Wichita State University, about $1.8 million in sales tax exemptions are included in the analysis. In my reading of the project documents, I didn’t see the project qualifying for sales tax exemptions. Upon inquiry to the city, I received this response: “The only incentive program available to Union Station that would provide a sales tax exemption is IRBs. The Developer did not request IRBs or a sales tax exemption. I would guess that CEDBR factored it into the cost-benefit analysis to be extra conservative.”

It appears there is a lack of communication between the city and CEDBR. More surmising. Exactly which incentives are available to be tapped by this project, and in what amount? Can we trust the analysis from CEDBR if it includes incentives that the project has not requested and is not eligible to receive?

Benefit-cost ratios

Benefit-cost ratios of Union Station LLC project for City of Wichita. Click for larger version.
Benefit-cost ratios of Union Station LLC project for City of Wichita. Click for larger version.
The city has a policy that economic development projects should have a benefit-cost ratio of 1.3 to 1 or greater. For this project, CEDBR reports these ratios:

City General Fund, 1.04
City Debt Service Fund, 1.15
Total City, 1.08
Sedgwick County, 1.06
State of Kansas, 1.66
School district, 7.19

For the city and county, the ratios are far below 1.3 to 1. There are many exceptions and loopholes in the incentive policy that allows the city to participate in projects with less than the 1.3 ratio.

The (un)certainty of city policies

For this project we see that city policy is being modified on the fly to meet the circumstances of a particular project. This is not necessarily bad. Entrepreneurship demands flexibility. But the city promises certainty in its standards, and city officials say Wichita has a transparent, open government. The Public-Private Partnership Evaluation Criteria for the redevelopment of downtown Wichita states “The business plan recommends public-private partnership criteria that are clear, predictable, and transparent.”

But as in the past, we find the city’s policies are anything but predictable and transparent. City documents state: “In the opinion of the evaluation team, the established criteria do not adequately address projects such as Union Station where the requested incentives do not involve City debt.” So we see the “clear, predictable, and transparent” policies discarded and reformulated. How are future developers supposed to know which policies can be waived or rewritten? How are citizens supposed to trust that city hall is looking out for their interests when policies are so fluid?

Antique elevator in Kansas Capitol

Kansas personal income grows

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

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

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

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

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

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

Kansas economy has been underperforming

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

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

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

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

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

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

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

Wichita sales tax does little to close maintenance gap

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

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

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

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

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

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

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

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

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

It gets even worse.

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

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

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

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

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

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

water fountain gargoyles fountain-197334_640

Wichita water projections from 2008

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

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

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

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

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

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

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

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

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

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

Cheney Reservoir 2014-09-29

About Activate Wichita September 29, 2014

‘Activate Wichita’ illustrates city approach to citizen involvement

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

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

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

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

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

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

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

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

Wichita Water Task Force findings presented

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

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

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

WichitaLiberty.TV July 2, 2014

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

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

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

Open box 02

Stuck in the box in Wichita, part two

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

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

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

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

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

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

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

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

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

box-30004_1280

Stuck in the box in Wichita, part one

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

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

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

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

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

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

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

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

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

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

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

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

Art Hall, WichitaLiberty.TV, September 19, 2014

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

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

Art Hall, Wichita Pachyderm Club, September 19, 2014

Water, economic development discussed in Wichita

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

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

Wichita Chamber of Commerce 2013-07-09 004

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


References:

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

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Kansas schools shortchanged

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

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

Capture federal reimbursement of K-12 KPERS costs

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

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

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

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

Wichita Chamber presentation. Click for larger version.

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

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

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

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

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

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

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

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

Response to Boeing AnnouncementIn January 2012, when Boeing announced it was leaving Wichita, people not happy. Mayor Carl Brewer in a written statement said “The City of Wichita, Sedgwick County and the State of Kansas have invested far too many taxpayer dollars in the past development of the Boeing Company to take this announcement lightly.” Kansas Representative Jim Ward, who at the time was Chair of the South Central Kansas Legislative Delegation, issued this statement regarding Boeing and incentives: “Boeing is the poster child for corporate tax incentives. This company has benefited from property tax incentives, sales tax exemptions, infrastructure investments and other tax breaks at every level of government. These incentives were provided in an effort to retain and create thousands of Kansas jobs. We will be less trusting in the future of corporate promises.” (See Fact-checking Yes Wichita: Boeing incentives)

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

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

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

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

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

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

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

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

Wichita Transit Center, 2014.

Wichita Transit System and the proposed sales tax

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

For Kansas budget, balance is attainable

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

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

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

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

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

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

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

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

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

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

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

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

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

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Beechcraft incentives a teachable moment for Wichita

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

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

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

Kansas Payments to Hawker Beechcraft and Employment

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

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

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

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

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

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

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

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

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For Wichita city hall, an educational opportunity

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Is Kansas a rural, agriculture state?

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

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

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

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

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

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