Wichita economic development and capacity

An expansion fueled by incentives is welcome, but illustrates a larger problem with Wichita-area economic development.

Last week a Wichita company received economic development incentives in conjunction with an expansion. This is the third incentive the company has received in four years. The incentives are forgiven property taxes and sales taxes. 1 Simply, the company is allowed to skip paying many of the same taxes that everyone else must pay, including low-income households paying sales tax on groceries.

While the expansion of this company is welcome news, the hoopla surrounding it shows how we can’t rely on government intervention to pull Wichita out of its slump. Here are some figures.

According to the Bureau of Labor Statistics, Wichita metropolitan area employment is 14,500 less than its peak in 2008. Manufacturing jobs are down by 23,600 from the peak in 1998, or down by 15,400 from 2008. 2

In 2012 when this company requested an incentive, its employment was given as 110. 3 Current employment is given as 130, and by 2021, the company is required to employee 188 people. 4

So if everything goes as planned, 5 three economic development incentives programs will boost a company’s employment from 110 to 188. That’s an increase of 78 jobs over nine years, or about nine jobs per year.

If we look at these jobs in the larger context, we see that these jobs represent 0.5 percent of the jobs lost in the Wichita area since 2008. If we are relying on these jobs to spur a renaissance of manufacturing in Wichita, they represent 0.3 percent of manufacturing jobs lost since its peak.

This company and these three economic development incentives are not the only efforts the city has made. Other incentives to other companies have created jobs. But this company is considered a significant and major success. The awarding of this inventive was evidently such an uncommon event that it merited a large article in the Wichita Eagle. In his remarks, according to meeting minutes, Wichita Mayor Jeff Longwell said “this is how we move Wichita forward” and “this is how we grow our businesses here in Wichita and help them be successful.”

The jobs are welcome. But this incident and many others like it reveal a capacity problem, which is this: We need to be creating nine jobs every day in order to make any significant progress in economic growth. If it takes this much effort to create 78 jobs over nine years, how much effort will it take to create the many thousands of jobs we need to create every year?

A related problem is that we don’t know how many jobs are created by the city’s economic development efforts. As part of a campaign for a city sales tax in 2014, the city promised a web site to track the progress of jobs created. The sales tax didn’t pass, but the city still engages in economic development, and still does not track results. At least not publicly, and when I’ve asked, the results provided have been sketchy and incomplete.

On top of this, we don’t know if the incentives were necessary to enable the company to expand. Usually city documents state that incentives are necessary to make economic activity “viable.” No such claim was made in the documents supporting this incentive.

The large amount of bureaucratic effort and cost spent to obtain a relatively small number of jobs lets us know that we need to do something else in order to grow our local economy. We need to create a dynamic economy, focusing our efforts on creating an environment where growth can occur organically without management by government. Dr. Art Hall’s paper
Embracing Dynamism: The Next Phase in Kansas Economic Development Policy provides much more information on the need for this.

Another thing we can do to help organically grow our economy and jobs is to reform our local regulatory regime. Recently Kansas Policy Institute released a study of regulation and its impact at the state and local level. This is different from most investigations of regulation, as they usually focus on regulation at the federal level.

Business Perceptions of the Economic Impact of State and Local Government Regulation coverThe study is titled “Business Perceptions of the Economic Impact of State and Local Government Regulation.” It was conducted by the Hugo Wall School of Public Affairs at Wichita State University. Click here to view the entire document.

Our civic leaders say that our economic development efforts must be reformed. Will the path forward be a dynamic economy and reformed regulation? Or will it be more bureaucracy, handfuls of jobs at a time?


Notes

  1. Wichita City Council meeting agenda, April 5, 2016, p. 12.
  2. According to the Bureau of Labor Statistics, the peak of nonfarm employment in the Wichita metropolitan area was in 2008, where employment averaged 310,500. For 2015, employment averaged 296,000. That’s a loss of 14,500 jobs. For manufacturing jobs, the peak was 1998, when employment in this field was 75,900. In 2008 the figure was 67,700 jobs, and in 2015, 52,300 jobs. This is a loss of 23,600 jobs from manufacturing’s peak, or of 15,400 jobs from Wichita peak employment in 2008.
  3. Wichita City Council meeting agenda, September 11, 2012, p. 45
  4. Wichita City Council meeting agenda, April 5, 2016, p. 12.
  5. So far, employment is not progressing as planned. In the 2012 agenda item, it was said that employment would rise by 50 jobs over the next five years, which you by 2017. Current employment, according to the current city council agenda, is 130, which is 30 jobs short. The deadline for this projection has not yet arrived.

At Pachyderm: Kansas Legislature education chairs to speak

This week (April 15, 2016) the Wichita Pachyderm Club features Kansas Representative Ron Highland (Chair, House Education Committee) and Kansas Senator Steve Abrams (Chair, Senate Education Committee). Their topic is “A report from the House and Senate Education Chairmen on the 2016 Legislative Session.”

A new school finance bill has been introduced. Undoubtedly it will be a major topic. Background on this bill is here:

Kansas Legislature: HB 2741, Creating the school district finance and student success act. Contains the text of the bill.

Wichita Eagle: New proposal for Kansas school finance formula sparks worries

Kansas Policy Institute: Kansas Legislature Introduces Transformative New School Funding System.

Kansas Association of School Boards: Summary of HB 2741.

The Wichita Pachyderm Club is a friendly club. Everyone is welcome to attend meetings. The meeting cost, which includes a delicious buffet lunch plus coffee and/or iced tea, is $15 ($12 for Pachyderm Club members). This event is held in the Wichita Petroleum Club, located on the top floor of the Ruffin Building at 100 N. Broadway. You may park in the garage on Broadway, and if you do, bring your parking ticket to have it stamped for $1.00 parking.

Opinion: GOP economics devastated Kansas

An op-ed on the Kansas economy needs context and correction.

An op-ed about the Kansas economy needs a few corrections before the people of Illinois get a wrong impression of Kansas. The article is Opinion: GOP economics devastated Kansas, published in the Alton (Illinois) Telegraph. The author is John J. Dunphy.

First, Dunphy refers to Sam Brownback as the “Tea Party” governor of Kansas. As far as I know, the tea party favors reducing not only taxation, but spending too. Given the choice, Brownback preferred raising taxes rather than cutting spending. Not very tea party-like.

Dunphy: “Moderate Republicans who voiced objections to such extremist politics were targeted by the Tea Party and voted out of office in 2012. With the legislature now dominated by True Believers, Brownback was able to pass the largest tax cut in Kansas history.” I’ll leave it to others to judge whether the legislators voted into office in 2012 classify as “True Believers.” (My opinion is that True Believers are scarce in the Kansas Legislature.) But I do know this: The tax cuts were passed during the 2012 legislative session, which ended months before the 2012 primary elections. There seems to be a timing issue here.

Dunphy: “With such drastically-reduced revenue, Kansas had to cut social services.” Except Kansas spending has continued to climb, although there have been a few cuts here and there.

Dunphy: “Rather than admit that slashing taxes created a disaster …” Tax cuts allow people to keep more of what is rightfully theirs. That is not a disaster. That is good.

Dunphy: “Trickle-down economics doesn’t work. Although most Republicans choose to ignore it, George H.W. Bush said as much while campaigning for the GOP presidential nomination in 1980.” Contrary to this assertion (made during a political campaign, and we know how much those are worth), the administration and policies of Ronald Reagan ushered in the The Great Moderation, a period of sustained economic growth.

Tax collections by the states

An interactive visualization of tax collections by state governments.

Each year the United States Census Bureau collects data from the states regarding tax collections in various categories. I present this data starting in 1993, in an interactive visualization.

The values are for tax collections by the state only, not local governmental entities like cities, counties, townships, improvement districts, cemetery districts, library districts, drainage districts, watershed districts, and school districts.

Of particular interest is the “State Total” tab. Here you can select a number of states and compare their tax burdens. (Probably three or four states at a time is the practical limit.)

Data is as collected from the United States Census Bureau, Annual Survey of State Government Tax Collections, and not adjusted for inflation. Visualization created using Tableau Public. Click here to access the visualization.

Using the visualization. Click for larger.
Using the visualization. Click for larger.

Northwest High prank, some underlying facts

Instead of pranking, Wichita public school students and their leaders might consider a few facts.

KSN News reported on an April Fools’ Day prank at Northwest High School in Kansas. The message is that the school is short of funds.

The KSN news story reported: “Wendy Johnson, the Director of Marketing and Communications for Wichita Public Schools also said, ‘This appears to be someone’s effort at a humorous April Fool’s commentary on the funding crisis that public education is facing in Kansas.'”

Also: “USD 259 Board of Education member Lynn Rogers called the prank, ‘very ingenious.’ Rogers says there was no harm done, but, the education funding issue is at its core, ‘no laughing matter. There’s some dark days for public education right now, and people have been very discouraged,’ Rogers said.”

When looking at this story, I wonder how the pranksters — likely students at the school — developed an opinion of issues like school funding. Who told them there was a “funding crisis?” Is that an opinion high school students developed on their own, or is it an opinion spoon-fed to them? The quotes from school district leaders provide the answer to that question.

It’s unfortunate that students are fed this opinion. Because when we look at actual numbers, the idea of a crisis doesn’t hold water. There is a lot of controversy over school funding in Kansas. Should teacher retirement fund contributions be included, or not? What counts as classroom funding? Should dollar amounts be adjusted for inflation, and at what rate? (Schools argue that their costs rise faster than the general price level.)

Schools tell us that their largest expenditure is on personnel costs. Across the country, the portion of current expenditures going to salaries and benefits hovers around 80 percent. 1

Enrollment and Employment at Wichita Northwest High School.
Enrollment and Employment at Wichita Northwest High School. Click for larger.
Looking at the number of school employees strips away most of the confounding factors and concentrates on the largest, and most important, cost schools face: Teachers and other employees.

Enrollment and Employment at Wichita Northwest High School. Click for larger.
Enrollment and Employment at Wichita Northwest High School. Click for larger.
As it turns out, Wichita Northwest High School shouldn’t be complaining about a funding crisis. For one thing, enrollment at this school is falling, from 1,580 in 2009 to 1,399 in 2015, a decline of 11 percent. While the number of teachers and certified employees has varied, the ratios of students to these employees has been level or declining.

Employment ratios in the Wichita school district. Click for larger.
Employment ratios in the Wichita school district. Click for larger.
For that matter, the ratios of students to teachers and certified employees for the entire Wichita public school district is on a long downward trend, with small interruptions.

  1. National Center for Education Statistics: The Condition of Education, Elementary and Secondary Education, Finance, Public School Expenditures. Available at: http://nces.ed.gov/programs/coe/indicator_cmb.asp.

Wichita on verge of new regulatory regime

The Wichita City Council is likely to create a new regulatory regime for massage businesses in response to a problem that is already addressed by strict laws.

During a presentation to the Wichita City Council on February 23, 2016, police officials reported on a number of investigations and arrests. In 2015, there were 22 arrests for human trafficking and other violations. The presentation did not include what comprised “other violations,” nor did it contain any information about the disposition of these cases.

If the city is concerned about prostitution and child trafficking, the latter being a serious crime, we already have strong laws concerning this. As far as the two crimes being related: Prostitutes and pimps are already criminals, according to the law. Committing more crimes like child trafficking is just another step down the path they’ve already chosen.

A solution is to bring prostitution out of the shadows. Stop making consensual behavior between adults a crime. Then police can focus on actual and serious crime, like child trafficking.

But the zeal of the Wichita City Council for creating new regulatory regime is likely to overwhelm any rational thought about the problem. Now Wichita massage business owners and therapists are likely to be saddled with onerous licensing requirements. To become a newly-licensed therapist, you must possess one of several educational credentials, one of which is 500 hours of training. Existing therapists must meet similar requirements.

City officials note that the existing local massage industry requested this regulation. That’s not surprising. The purpose of nearly all occupational licensure laws is to restrict entry to the industry so that existing practitioners can charge higher rates. That is a scam, especially against low-income people that need a masseuse or a plumber. It is also a burden to people who want to become plumbers, barbers, massage therapists, or one of the many other licensed occupations.

It is both shocking and disappointing to realize that Wichita city bureaucrats and council members do not realize these economic realities. Another economic reality is that when licensing requirements are strict, the quality of service that many people receive declines. When investigating the demand for licensed plumbers, researchers found this:1

This proxy assumes that the more stringent are the barriers the higher will be the cost of licensed service and the smaller will be its quantity. These two effects increase the motivation of consumers to substitute their own services for those of trained professionals. This substitution process should show up in rising retail sales of plumbing supplies in more tightly restrictive states since licensed plumbers will generally purchase supplies wholesale. The implicit assumption is this causal chain is that self-service is on the average of lower quality than could be obtained from even a marginally trained journeyman plumber.

When presented with a convincing but fake credential, how diligently with Wichita officials investigate?
When presented with a convincing but fake credential, how diligently with Wichita officials investigate?
In other words, when strict licensure requirements make plumbers expensive, more people do their plumbing work themselves, and this work is likely to be of lower quality. It’s quite a stretch (literally and figuratively) to apply this reasoning to do-it-yourself massage, but here’s another economic reality: The more difficult it is to achieve a credential, the greater is the incentive to cheat. You don’t have to search very far before you find vendors advertising their services like this:

We are one of the oldest and most trusted seller of fake diplomas on the web. We use real diploma paper, the same paper that most major universities and high schools use. We also use professional security paper for our fake transcripts. We have more than 12 years experience in printing fake diplomas. You can rest assured that your fake diploma or fake transcript will look very authentic. We offer many different types of fake diplomas and fake certificates such as, FAKE GEDs, fake college diploma, fake university degree, fake high school diploma, fake college degree, or fake high school transcripts and fake skill certificate.

How diligently will Wichita’s bureaucratic machinery investigate when presented with a fake diploma certificate and transcript? The city’s record is not good. After the city passed new taxicab regulations, somehow the regulation that prohibited convicted sex offenders from receiving licenses was not implemented effectively. The city granted a taxi driver license to a man who was on the state sex offender registry. He raped a passenger.

The city council should reject these regulations and devote the city’s resources to protecting people from actual crime.

Limiting economic opportunity

Kansas occupational license requirements, with proposed Wichita massage therapists. Click for larger.
Kansas occupational license requirements, with proposed Wichita massage therapists. Click for larger.
The Wichita City Council is concerned about human trafficking for the purposes of prostitution. That’s good. But the response the council is considering — which is licensing massage therapists — is not needed. We have strict laws already on the books that make human trafficking a serious criminal offense, which it is. The proposed Wichita regulations will simply make it more difficult for honest people to become massage therapists. Criminals will operate illegally. They are criminals, after all. Or, they will easily obtain false credentials.

Kansas already has many burdensome occupational licensure requirements that limit economic opportunity and protect entrenched interests. Nearby is a chart of the number of days training or experience required to obtain a license to work in various fields, according to Institute for Justice in 2012. 2 I’ve added the proposed Wichita massage therapist requirements. As you can see, it will require more than twice as much education to become a massage therapist as is required to become an emergency medical technician. How does that make sense?

Comparing the proposed Wichita requirements to the nation, we find that the Wichita standard is quite lax. 39 states license massage therapists, with the average education or training requirement being 139 days, with the range being from 117 days to 327 days3. Wichita is proposing 83 days, which might inspire one to ask this question: If the Wichita City Council is truly concerned about protecting Wichitans from getting a bad massage, why is it proposing such minimal requirements, compared to other states?

In reality, the high barriers to becoming a massage therapist in many states is testimony to the massage industry’s success in erecting barriers to entry. By making it difficult to become a massage therapist, the supply is lower than it could be, and prices are higher. Consumers lose. Upward economic opportunity is lost.

The purpose of nearly all occupational licensure laws is to restrict entry to the industry so that existing practitioners can charge higher rates. That is a scam, especially against low-income people that need a masseuse or a plumber. It is also a burden to people who want to become plumbers, barbers, massage therapists, or one of the many other licensed occupations.


Notes

  1. Carroll, Sidney L., and Robert J. Gaston. “Occupational Restrictions and the Quality of Service Received: Some Evidence.” Southern Economic Journal 47.4 (1981): 959–976.
  2. Institute for Justice, (2012). License to Work. Available at: ij.org/report/license-to-work/ Accessed 29 Feb. 2016.
  3. ibid

WichitaLiberty.TV: Markets or government, legislative malpractice, and education reform

In this episode of WichitaLiberty.TV: Do corporations prefer markets or big government? Legislative malpractice in Kansas. Education reform, or lack thereof. View below, or click here to view at YouTube. Episode 115, broadcast April 3, 2016.

Governor Brownback, please veto this harmful bill

Kansas Governor Sam Brownback should veto a bill that is harmful to property rights, writes John Todd. For more about this issue, see Power of Kansas cities to take property may be expanded.

Senate Bill 338 has been passed by the Legislature and is now on its way for Governor Sam Brownback to consider. The Governor should veto this bill. This bill gives cities, in conjunction with their preferred nonprofit organizations, the ability to take possession of unoccupied residential houses that the property taxes are currently paid in full. This bill will clearly place vulnerable senior citizens and less affluent property owners in the position of being victimized.

Cities in Kansas have all the powers they need to deal with property issues through current law. Over the past few years, the City of Wichita has bulldozed hundreds of houses for housing code violations. Enhancing the power of cities and their appointed nonprofit redevelopment organizations to take privately owned properties they do not own without compensation is wrong.

I urge Governor Brownback to veto this bill!

John Todd
Wichita

WichitaLiberty.TV: Bob’s shaking his head, Wichita water woes, and the harm of teachers unions

In this episode of WichitaLiberty.TV: There are a few things that make Bob wonder. Then, a troubling episode for Wichita government and news media. Finally, the harm of teachers unions. View below, or click here to view at YouTube. Episode 114, broadcast March 27, 2016.

Kansas teachers union objects. Strenuously.

Here are a few items from today’s missive from Kansas National Education Association, the teachers union, along with commentary.

KNEA says: “Jeff Melcher, the man who has fought to completely eliminate collective bargaining and other rights for teachers continued his war today with his bill intended to end teacher representation.”
The bill simply mandates elections every three years on whether teachers are satisfied with their current representation, which is almost always KNEA or an affiliate. It’s not surprising the union is opposed to this. Accountability, after all.

KNEA says: “Make no mistake, the intent of this bill is to end professional representation for teachers and leave them as at-will indentured labor.”
Indentured labor! Government employees as indentured labor! By whom are teachers indentured? Other government employees (principals and superintendents)? What, do principals and superintendents get masters and doctors degrees in learning how to indenture the teachers that work for them? Why do professionals like these need a labor union to manage their relationship? Who would want to enter a profession where a labor union is needed to protect them from their bosses (or oppressors, as the teachers union would lead us to believe)?

KNEA says: “In a very fundamental way, this war on teachers and schools is about selling off public schools to the highest corporate bidder and making a quality education a privilege not a right.”
Here we see bashing of capitalism. You see, the teachers union believes that education can’t be run by the private sector. Never mind that charter schools and for-profit schools are successful in many areas of the country — but their teachers are not often union members. Second, with school choice programs the state still pays for students to attend private and charter schools. All that changes is parents have the privilege of choice for the children.

KNEA says: “Would force the teachers to pay for state mandated elections.”
No, the union pays for the elections.

Wichita Eagle, where are you?

The state’s largest newspaper has no good reason to avoid reporting and editorializing on an important issue. But that’s what the Wichita Eagle has done.

In November 2014 Wichita voters rejected a proposed Wichita city sales tax. The largest portion of that tax, $250 million, would have gone towards expanding the capacity of the Aquifer Storage and Recharge, or ASR, project.

The Wichita Eagle editorial board urged voters to approve the tax. It told readers that spending $250 million on ASR would “assure a future for Wichita with enough water.” “The needs are clear,” the editors wrote, adding “Investing in the aquifer project seems the best thing to do to anticipate and meet Wichita’s water needs.” The Eagle warned of “much higher water rates” if the sales tax is not passed.

Since voters rejected the tax to support that spending, the cost of providing adequate water has dropped, and dropped a lot. But you wouldn’t know that by reading the Wichita Eagle or by relying on our city’s other mainstream news media.

If you viewed a Wichita City Council workshop on December 1, however, you’d have learned that the city can provide adequate water for much less than $250 million. The rise in water bills will also be much less than what the Eagle and the city used to frighten voters into approving the sales tax.

So why hasn’t the Wichita Eagle reported on the December 1, 2015 workshop, in which Director of Public Works and Utilities Alan King presented the new plans — plans which will cost much less? Why have there been no editorials celebrating that we can provide adequate water at much less expense?

I can understand the editorial writers not wanting to admit they had been duped. That’s human nature. But for the news division of the Eagle: Why no reporting on this?

As it happens, the newsroom of the Eagle was also a cheerleader for the sales tax and ASR project. As an example, the Eagle printed a fact check article that disputed claims made by opponents of the tax. When asked why there was not a similar fact check article on the proponents, the reporter said there were no errors to be found. Nothing. That was incredulous — unbelievable — at the time. There were many questionable claims made by sales tax proponents. In hindsight, we are even more certain of that.

Tubs of ink the Wichita Eagle could be using to tell us what we need to know.
Tubs of ink the Wichita Eagle could be using to tell us what we need to know.
The Eagle has plenty of reporting capacity, barrels of ink, and lots of online bandwith to report and editorialize on issues like who gets free parking at the Wichita airport. That’s important, perhaps, but trivial in terms of financial impact. But on this issue involving over $100 million in savings, there is silence.

The state’s largest newspaper has no good reason to avoid reporting and editorializing on an important issue. But that’s what the Wichita Eagle has done. We wonder why.

In Wichita, the phased approach to water supply can save a bundle

In 2014 the City of Wichita recommended voters spend $250 million on a new water supply. But since voters rejected the tax to support that spending, the cost of providing adequate water has dropped, and dropped a lot.

The events surrounding the need for a new water supply is a troubling episode in the history of Wichita government. During the prelude to the November 2014 election, citizens were presented with a gloomy scenario that could be fixed only with a sales tax and the spending of $250 million. After voters said no to that, new plans emerged that are much less expensive. Lily Tomlin once said “No matter how cynical you become, it’s never enough to keep up.” This episode shows Wichita city leaders — both in and out of government — reinforcing the truth of Tomlin’s observation.

On December 1, 2015, the Wichita City Council held a workshop on the topic “Phased Approach for New Water Supply.”1 Alan King, Director of Public Works and Utilities, was the presenter. King emphasized that the impetus for a new water supply was for drought protection: “We presently have enough water with our current water resources to last us through our planning period of 2060, without drought.”

He continued: “When we come and talk to you about additional water resources, it is really only for one purpose, and that is drought protection. If there was no drought, we have no need. The water resources that we come in and are talking to you about, the only value they have for us is in drought protection.”

But a city document leading up to the sales tax election presented a different scenario. It threatened a lack of water for even residential use: “Building a new supply, along with conservation efforts, is the lowest cost option for providing sufficient water through 2060. Significant conservation will be needed if the current supplies are the sole sources of water for the coming decades; sever [sic] conservation requirements could be harmful to local businesses and quality of life. Adding a new water supply would provide enough water for future growth for the community’s residential, commercial, and industrial base.”2

This is an important point. We have sufficient water except for a period of extended drought. Even in that case, there is sufficient water for residential, commercial, and industrial use. The purpose of a new water supply is to avoid restrictions on outdoor watering, and in the most extreme drought, a savings of 15 percent of indoor water usage.

In his December presentation to the council, King presented several phases that the city can take. The first three have no cost, and King said these are underway.

After that, the city can spend $23 million for new wells and rehabilitation of existing wells at the ASR site.

After that, there is the possibility of “operational credits,” which involve a change to state regulations. If the state approves, the city can receive credits for sending ASR water directly to Wichita instead of recharging it in the Equus Beds. If not approved, the city could spend $47.2 million for new recharge wells in 2022. If these wells are built, the cost rises to $70.2 million. (On January 22 King made a presentation to the Equus-Walnut Regional Advisory Committee on this topic.3)

Phased Approach for New Water Supply. Click for larger.
Phased Approach for New Water Supply. Click for larger.
There is also the matter of the parallel pipeline. The existing pipeline from the Equus Beds and ASR to the city’s downtown water plant is old and won’t support higher rates of water transmission. The proposed parallel pipeline provides not only redundancy of a major part of our water infrastructure, but also increased capacity. The cost of this, estimated in 2014 at $86 million, was included in the $250 million price tag for ASR expansion. If the parallel pipeline cost is added to the previous phase costs, the cost rises to either $109 million or $156.2 million, depending on the fate of the operational credits regulation reform.

Either way, the cost is much less than the $250 million the city asked voters to consider in November 2014. And I think I’m being charitable of motives when I say “consider.” The clear and revealed preference of the city council and the city’s political class was passage of the sales tax, meaning the city would spend $250 million to achieve something the city now says can be provided for $109 million or $156.2 million. (Well, everyone except then-city council member and now-mayor Jeff Longwell, but his vote against placing the sales tax on the ballot was a naked political calculation.)

In information the city presented to voters in the run up to the November 2014 election, the city promised large water bill increases if the sales tax vote failed, writing: “If a new water supply is funded only through water rate increases, the capital cost portion of the rate will increase an estimated 24%. This is in addition to anticipated annual rate increases.”4

Possible water bill increases. Click for larger.
Possible water bill increases. Click for larger.
King’s 2015 presentation to the council showed increases of nine percent for residential, commercial, and industrial customers.5

Citizens ought to wonder what lessons may be learned from this. Furthermore, I don’t believe there has been any coverage of this in the city’s mainstream news media. That is a problem, too. For more on this problem, see Wichita Eagle, where are you?


Notes

  1. City of Wichita workshop. Phased Approach for New Water Supply. Video available at https://youtu.be/mNQ26-VZBSA.
  2. Building A Better Future: A Proposed Sales Tax for Basic Services, City of Wichita, June 13, 2014. Available at http://www.wichita.gov/Government/Departments/Finance/FinancialDocuments/Sales%20Tax%20Proposal%20for%20Basic%20Services.pdf.
  3. Equus-Walnut Regional Advisory Committee Meeting Notes. Available at http://www.kwo.org/RACs/2016_RAC%20Notes/doc_EQW_Min_January_012216_mu.pdf.
  4. Plans & Background on Proposed 1¢ Sales Tax, City of Wichita, 2014. Available at https://drive.google.com/file/d/0B97azj3TSm9MS0lCQncxQkp4ODg/.
  5. Phased Approach for New Water Supply, Presentation to Wichita City Council, December 1, 2015, page 30. Available at http://wichita.gov/Government/Council/Agendas/2015-12-01%20Phased%20Approach%20for%20New%20Water%20Supply.pdf.

Sales tax revenue and the Kansas highway fund

The effect of a proposed bill to end transfer of Kansas sales tax revenue to the highway fund is distorted by promoters of taxation and spending.

The bill is SB 463. The bill’s fiscal note tells how this bill, if passed, would affect the highway fund: “Beginning in FY 2018, the percentage of state sales tax and compensating use tax distributed to the [State Highway Fund] would be eliminated.” The fiscal note goes on to estimate that the highway fund would receive $553.4 million less sales tax revenue than it would otherwise in fiscal year 2018. (This bill proposed changes to other funds, but here I consider only highways.)

In an email to supporters, Economic Lifelines wrote: “SB 463 would redirect 35% of T-WORKS funding beginning in July of 2017. Passage of this legislation would be a devastating blow to the future of the T-WORKS program.” (Economics Lifelines is a group that lobbies for more spending on highways. Its members are primarily local chambers of commerce, labor unions, construction equipment dealers, and construction material suppliers. In other words, those who benefit from more highway spending, without regard to whether it is needed and wise.)

Former Kansas budget director Duane Goossen was more emphatic, writing: “Watch out! A very dangerous financial bill just surfaced in the Senate Ways and Means Committee, but it was promoted with language that hid the ultimate purpose and effect. Senate Bill 463 permanently transfers more than $500 million annually from the highway fund to the general fund.”1

Goossen has it backwards, however. The proposed bill would transfer nothing from the highway fund to the general fund. It would, however, stop transfers from the general fund to the highway fund.

There’s a difference, and it’s important. The highway fund has no claim on sales tax revenue other than what the legislature decides to send it. That amount has changed over the years. Kansas law specifies how much sales tax revenue is transferred to the highway fund. Here are some recent rates of transfer and dates they became effective:2

July 1, 2010: 11.427%
July 1, 2011: 11.26%
July 1, 2012: 11.233%
July 1, 2013: 17.073%
July 1, 2015: 16.226%
July 1, 2016 and thereafter: 16.154%

(If SB 463 passes as it stands now, on July 1, 2017 the rate would become 0 percent.)

Transfers from Sales Tax to KDOT. Click for larger.
Transfers from Sales Tax to KDOT. Click for larger.
Nearby is a chart showing how many sales tax dollars were transferred to the highway fund. In 2006 the transfer was $98,914 million, and by 2015 it had grown to $511,586 million, an increase of 417 percent. Inflation rose by 18 percent over the same period.3

(It’s important to note that in some years money has been transferred from the highway fund back to the general fund. Worse, in some years KDOT has borrowed money for the highway fund, but it was transferred to the general fund.4)

You’d think that Goossen, a former state budget director, would understand the difference between stopping a flow of funds versus reversing the flow. He claims the latter, and it isn’t surprising to see this mistake. A few sentences in the article let us know Goossen’s ideology, which is that Kansans should be taxed more so that government can continue to spend: “This maneuver does not fix the problem caused by unaffordable income tax cuts, it just makes highways and children pay for it.” First, tax cuts are never unaffordable. It is government that is unaffordable. Tax cuts let people keep more of what is rightly theirs. That is, unless you believe that government has a legitimate claim to your income and assets, as Goossen does. Second, he complains that “recurring revenue does not begin to cover expenses.” That is true. But the proper remedy is to reform and cut spending. Goossen prefers raising taxes.

Economic Lifelines makes the same mistake. We can understand — but not condone — this organization’s motive. It exists for the sole purpose of drumming up support for spending that benefits its members. If its director, who wrote the email cited above, said that Kansas is spending enough or too much on highways, he undoubtedly would be fired.

But what is Duane Goossen’s motivation for twisting the meaning of a bill? That’s a mystery.

KDOT spending on major road programs. Click for larger version.
KDOT spending on major road programs. Click for larger version.
To top it off, spending on highways has increased — notwithstanding the transfers from the highway fund — when we look at actual spending on roads. KDOT’s Comprehensive Annual Financial Report shows spending in the categories “Preservation” and “Expansion and Enhancement” has grown rapidly over the past five years. Spending in the category “Maintenance” has been level, while spending on “Modernization” has declined. For these four categories — which represent the major share of KDOT spending on roads — spending in fiscal 2015 totaled $932,666 million, up from a low of $698,770 in fiscal 2010.

  1. Goossen: High Danger Alert: SB 463. Kansas Center for Economic Growth. Available at: http://realprosperityks.com/goossen-high-danger-alert-sb-463/.
  2. Kansas Statutes Annotated 79-3620.
  3. Bureau of Labor Statistics CPI Inflation Calculator. Available at http://www.bls.gov/data/inflation_calculator.htm.
  4. Voice for Liberty, Kansas transportation bonds economics worse than told. Available at http://wichitaliberty.org/kansas-government/kansas-transportation-bonds-economics-worse-than-told/.

Kansas and Colorado, compared

News that a Wichita-based company is moving to Colorado sparked a round of Kansas-bashing, most not based on facts.

When a Kansas company announced moving its headquarters to Denver, comments left to a newspaper article made several statements that deserve closer examination.1

One reader wrote “Yup another example that the tax relief for businesses is working in Kansas.” Another wrote “The biggest takeaway here is that then didn’t bother to mention the benefits of lower taxes meaning the tax policy Kansas touts really has no bearing on company decisions.” Another wrote “Just low taxes is not a magnet for business or people wanting to move here.” Let’s look at a few statistics regarding Kansas and Colorado business taxation.

In the 2016 State Business Tax Climate Index from the Tax Foundation, Colorado ranked 18 overall, while Kansas ranked 22.2 According to this measure, Colorado has a better tax environment for business, even after Kansas tax reform.

Data from the U.S. Census Bureau for 2014 shows that Colorado collects $2,195 in taxes from each of its citizens. Kansas collects $2,526.3 That’s after the Kansas tax cuts took effect. Kansas would have to cut taxes much more before it reaches the low level of taxation in Colorado.

The takeaway: Even after Kansas tax reform, Colorado has lower taxes.

Another commenter stated “People want to live and businesses want to be located … where education is important and supported.” The writer didn’t elaborate, but generally when people say “support” education, they mean “spend” a lot on public schools. Another commenter wrote “Public schools are treated as an afterthought by our Governor and Legislature.” So let’s look at spending.

Colorado and Kansas schools, according to NEA. Click for larger.
Colorado and Kansas schools, according to NEA. Click for larger.
Regarding school spending, the National Education Association collects statistics from a variety of sources and uses some of its own transformations.4 A collection of statistics from that source is nearby. Note that Colorado teacher salaries are higher, while revenue per pupil is lower. Colorado spends more per student when considering current expenditures. Colorado has a higher student-teacher ratio than Kansas.

Colorado and Kansas NAEP scores by ethnicity. Click for larger.
Colorado and Kansas NAEP scores by ethnicity. Click for larger.
The U.S. Census Bureau has different figures on spending. In a table titled “Per Pupil Amounts for Current Spending of Public Elementary-Secondary School Systems by State: Fiscal Year 2013” we see Colorado spending $8,647, and Kansas $9,828.5 This tabulation has Kansas spending 13.7 percent more than Colorado.

Looking at scores on the National Assessment of Educational Progress (NAEP) — a test that is the same in all states — we see that when considering all students, Kansas and Colorado scores are very close, when measuring the percent of students scoring proficient or better. White students in Colorado, however, generally score higher than in Kansas.

Colorado and Kansas NAEP scores by free/reduced lunch eligibility. Click for larger.
Colorado and Kansas NAEP scores by free/reduced lunch eligibility. Click for larger.
For NAEP scores by eligibility for free or reduced lunches, we see that Kansas and Colorado are similar, except that Colorado has made progress with eligible students in math, catching up with Kansas. (Eligible students are students from low-income households.)

For what it’s worth, in Colorado 10.4 percent of students who attend public schools attend public charter schools. In Kansas the figure is 0.6 percent, due to Kansas law being specifically designed to limit charter school formation and survival.6

A writer expressed this in his comment: “Colorado also presents a more stable political environment as well.” While this is something that probably can’t be quantified, a recent New York Times article disagrees, quoting a former governor:7

“Colorado is subjected to extremes,” said Roy Romer, a former governor. “It’s not just blue and red. It’s also urban and rural. We have a history to this.”

Of note, Colorado has initiative and referendum. Citizens may, by petition, propose new laws and veto laws the legislature passed.8 Kansas does not have initiative and referendum at the state level. This is one way that Kansas has a more stable political environment than Colorado: Citizens have less political power in Kansas. For example, the law that made marijuana legal in Colorado was passed through citizen initiative. I think it’s safe to say that it will be a long time — if ever — before Kansas has medical marijuana, much less full legalization.

Further, Colorado has TABOR, or Taxpayer Bill of Rights. This is a measure designed to limit the growth of taxation and spending. Whether one likes the idea or not, it has had a tumultuous history in Colorado, according to a Colorado progressive public policy institute.9 And if you thought Kansas was the only state that — purportedly — underfunds education, welcome to Colorado. The same report holds: “As 2016 approached, the [Colorado] General Fund remained nearly $900 million short of what it needed to fully fund K-12 education and well below what it needed to restore postsecondary education and other programs to historic levels.” This is in line with the amount Kansas school spending advocates say Kansas needs to spend, adjusted for population.

Colorado also has term limits on its state legislature and elected members of the state executive department (governor, lieutenant governor, secretary of state, attorney general, and treasurer.)10 Kansas has term limits on its governor, but on no other offices. This argues in favor of Colorado having a more dynamic and less stable government.


Notes

  1. Carrie Rengers. Viega to move corporate headquarters and 113 jobs to Denver. Wichita Eagle, March 18, 2016. Available at: http://www.kansas.com/news/business/biz-columns-blogs/carrie-rengers/article66851717.html.
  2. 2016 State Business Tax Climate Index. (2016). Tax Foundation. Available at: http://taxfoundation.org/article/2016-state-business-tax-climate-index.
  3. State Government Tax Collections – Business & Industry. US Census Bureau. Available at: http://www.census.gov/govs/statetax/.
  4. Rankings of the States 2014 and Estimates of School Statistics 2015, National Education Association Research, March 2015. Available at http://www.nea.org/assets/docs/NEA_Rankings_And_Estimates-2015-03-11a.pdf.
  5. U.S. Census Bureau. (2016). Public Elementary–Secondary Education Finance Data. Census.gov. Available at: https://www.census.gov/govs/school/.
  6. National Center for Education Statistics. Public elementary and secondary charter schools and enrollment, by state: Selected years, 1999-2000 through 2012-13. Available at http://nces.ed.gov/programs/digest/d14/tables/dt14_216.90.asp.
  7. Healy, J. (2014). Tracing the Line in Colorado, a State Split Left and Right. Nytimes.com. Available at: http://www.nytimes.com/2014/10/24/us/politics/in-colorado-ever-in-transition-a-fight-for-power.html.
  8. Laws governing the initiative process in Colorado – Ballotpedia. (2016). Ballotpedia.org. Available at: https://ballotpedia.org/Laws_governing_the_initiative_process_in_Colorado.
  9. Bell Policy Center. The road to 2016: More than three decades of constitutional amendments, legislative acts and economic ups and downs. Available at http://www.bellpolicy.org/research/road-2016.
  10. Term Limits in Colorado, Colorado.gov. Available at https://www.colorado.gov/pacific/sites/default/files/Term%20Limits%20in%20Colorado.pdf.

Math quiz on Kansas spending

The average Kansan is misinformed regarding Kansas school spending, and Kansas news media are to blame, writes Paul Waggoner of Hutchinson.

Math Quiz on Kansas Spending

By Paul Waggoner

Math questions, one would think, are very straight-forward and easy to answer. At least easy to guess the right answer in a simple multiple choice test. Such is not the case however with the average Kansan who follows state issues relying on the headlines in the Kansas press.

The reality of how poor a job the Kansas press is doing with numbers is found in a December 2015 SurveyUSA study of 500 plus registered voters in Kansas. This scientific study of voters’ knowledge of educational spending in Kansas was virtually ignored by the Kansas media. Most likely because its implications don’t fit the media narrative on education in this Year 5 of the Age of Brownback. Even worse, the poll was commissioned by a conservative think tank, the Kansas Policy Institute.

As to voter (mis) understanding this 15 question poll hit the jackpot. All the questions were multiple choice with only 4 options given.

Question #6 asked how much state funding do you think Kansas school districts receive per pupil? The correct answer is well over $7,000 per student. 39% of Kansas voters thought it was under $4,000, another 22% thought between $4,000 and $5,000. Only 7% of voters guessed properly.

The follow-up, Question #7, was how much total (federal/state/local) funding do you think Kansas school districts receive per pupil? The correct answer in 2015 was over $13,000 per pupil. Only 5% of registered Kansas voters got that one right. 40% thought the total was under $7,000, and 21% said $7,000 to $10,000 which were the two most inaccurate options!

At this point I was even wondering how the accepted wisdom is so far removed from the truth. So I went to ksde.org, the website of the Kansas State Department of Education, to verify the precise figures. At that website every school district in the state is listed.

What our local school districts spend is very close to the state averages. The Hutchinson USD 308 budget was over $60,000,000 in 2014 with 4,836 full-time students or $12,449 spent per pupil. 5 years earlier the USD 308 budget was $57 million, 5 years before that it was about $41 million.

The comparable figures for USD 313 Buhler are $12,360 per pupil in 2014 with a $26,300,000 budget that 5 years earlier was $22,200,00 and 5 years before that was $18,000,000. For USD 313 that meant students were educated for just $9,000 per pupil as recently as 2005.

Kansas school districts total spending is $2.0 billion higher now than just 10 years ago ($6 billion versus $4 billion). That is an incontrovertible fact. Which leads to two immediate questions: How can the Supreme court keep claiming the spending is constitutionally inadequate? And what exactly do taxpayers have to show for the extra $2,000,000,000 every year?

The reality of those numbers are nowhere in the publics’ consciousness currently. For instance, SurveyUSA question #8 was “over the last 5 years how much do you think total per pupil funding has changed?” The correct answer is that it is actually up 9.92%. But fully 47% of Kansas voters confidently said it had dropped over 5%! Another 15% were sure it had dropped but thought the percentage was smaller. Only 7% of voters knew that school spending was up “over 5%’.

The budget trajectory has changed and is on a much flatter curve than ever before. Taxpayers are mostly rejoicing, tax spenders (and their allies) are howling mad.

My revised school spending narrative is frankly the story of the entire Kansas budget (as can be easily accessed at budget.ks.gov “Governors Budget Report FY 2017”).

The state general fund budget first hit $1 billion in 1980 and grew consistently under Governors Carlin/Hayden/Finney at about a 6.5% annual rate.

Under Graves and Sebelius that accelerated growth rate continued until the 2008-09 recession when the state budget dropped dramatically for 1 year under Governor Parkinson. This made a cumulative annual growth average of around 3% for those three administrations.

Under Governor Brownback the general fund budget is still going up, but at a 5 year annual growth rate of 1.8%.

On February 20th one Hutchinson News columnist’s headline blasted the “Deliberate financial starving of the state of Kansas.” I see this as more of a diet, and I say it is about time.

The numbers on the state budget spending (and taxation) are readily available online. The execution of the plan for this new governmental trajectory leave something to be desired, but that is the topic for another day.

Paul Waggoner is a Hutchinson resident and business owner. He can be reached with comments or questions at [email protected]

Lawrence school funding and employment

A Kansas school board president complains about funding, but the district has been able to grow employment faster than enrollment.

A newspaper article features the Lawrence school board president complaining about school funding. (Advocates rally for school funding amid competing claims about cuts, March 14 Lawrence Journal World)

There are competing claims. Some look at total spending. Others, as noted in the article, say analysis of spending must be nuanced by consideration of “special education, retirement fund contributions and aid for special budget funds such as bond and interest funds and capital outlay.”

The same article also notes: “But because lawmakers converted school funding to a block grant system last year, combining several different kinds of aid into a single grant, exact comparisons to previous years are difficult to make.”

All this is true to some extent. But there is a way to clear some of the fog, and that is to look at the number of employees in a school district compared to the number of students.

Schools tell us that their largest expenditure is on personnel costs. Across the country, the portion of current expenditures going to salaries and benefits hovers around 80 percent. 1

So looking at the number of employees tells us a lot — almost everything, in fact — about how the school district is faring.

When we look, we find that starting in 2011 the number of employees in the Lawrence school district has risen faster than the number of students. (The count is divided into certified employees and K-12 teachers, and does not include special education teachers.) Correspondingly, the ratios of these employees has fallen over the same period. The pupil-teacher ratio has fallen from 17.28 to 15.47, and the certified employee-pupil ratio has fallen from 11.70 to 10.85.

So however spending is compartmentalized, whether KPERS contributions are included or not, whether the funding comes from state or local sources, whether spending is adjusted for inflation, the Lawrence school district has been able to improve its employee-pupil ratios substantially.

Data is from Kansas State Department of Education. Visualization created using Tableau Public. You may use the visualization to view figures from all Kansas school districts here.

Lawrence school district employment and enrollment. Click for larger.
Lawrence school district employment and enrollment. Click for larger.
  1. National Center for Education Statistics: The Condition of Education, Elementary and Secondary Education, Finance, Public School Expenditures. Available at: http://nces.ed.gov/programs/coe/indicator_cmb.asp.

Wichita TIF district disbands; taxpayers on the hook

A real estate development in College Hill was not successful. What does this mean for city taxpayers?

ParkstoneSeeking to promote the redevelopment of land northeast of Douglas and Hillside, the City of Wichita entered into agreements with Loveland Properties, LLC, College Hill Urban Village LLC, and CHUV Inc. The original plans were grand: A Northeast Brownstone Complex located at the northeast corner of Victor and Rutan, a Condominium Tower and Brownstone Complex, a West Brownstone Complex, and the South Retail/Residential Complex. A city analysis in 2007 projected that by 2010 the value of these projects would be $61,817,932.

Unfortunately, this project did not proceed as planned. The Northeast Brownstone Complex was built, and nothing else. Those brownstone condominiums proved difficult to sell. The project held great promise, but for whatever reasons things did not work as planned, and the city has lost an opportunity for progress.

The questions now are: What is the impact on taxpayers? Is there anything to learn as the city moves forward with other public-private partnerships?

City documents tell the story of this project, if you know how to read between the lines. 1

City document says: “The City financed $3,685,000 in TIF bonds in 2014.”
What it means to you: Tax increment financing, or TIF, is a method of economic development financing whereby additional property taxes (the “increment”) are redirected back to a real estate development. In this case, the city sold these bonds and gave the proceeds to the developer. Then — according to plan — as property values rose, the correspondingly higher property taxes generated by the development would pay off the bonds. Except, property values did not rise. So who pays? According to the bond documents, 2 “The full faith, credit and resources of the Issuer are hereby pledged for the payment of the principal of and interest on this Bond.” The Issuer is the City of Wichita, and the resources the city has to pledge are taxes it collects from its taxpayers.

ParkstoneCity document says: “An additional amount of tax exempt expenses related to the project, totaling $1,785,000, were paid off by the Finance Department using cash from the Debt Service Fund.”
What it means to you: These costs were to be paid by the developer, but the developer did not pay. So, the city’s Debt Service Fund was used. The Debt Service Fund gets its money from taxpayers, and this money is being used to pay off a debt owed by a private person. This is necessary because the debt payment is guaranteed by the city, which in turns means it is guaranteed by the taxpayers. If not spent to satisfy the debt for this project, this money might have been used to pay off other city debt, reduce taxes, pay for more police and firemen, fix streets, and satisfy other needs.

City document says: “The City will be responsible for maintenance and property taxes for the property until the property can be sold.”
What it means to you: More expense for city taxpayers.

ParkstoneCity document says: “Any tax increment generated from existing and future development will be used to repay TIF bonds. Staff does not expect remaining TIF revenue to be sufficient to repay the outstanding debt.”
What it means to you: As explained above, taxpayers are on the hook for these bonds.

The original agreement with the developer says: “In addition to all the terms, conditions and procedures for fulfilling these obligations, the Development Agreement also provides for a Tax Increment Shortfall Guaranty in which the developer and other private entities with ownership interest in the project are required to pay the City any shortfall in TIF revenue available to pay debt service on TIF bonds.”
What it means to you: Nothing. It should mean something. The city tells us its participation in these ventures is free of risk to citizens. That’s because recipients of incentives like TIF pledge to hold the city harmless if things don’t work out as planned. In this case, if the TIF district revenue is not enough to pay the TIF district bonds, the developer has pledged to pay the difference. But it is unlikely that the city will be able to collect on the promise made by this developer.

But there may be good news: The first phase of the project, the brownstones, is now owned by Legacy Bank. Hopefully, the city will be able to collect the TIF shortfall from this new owner so that taxpayers don’t have to pay.

The project plan formulated by the city says: “Net tax increment revenue is available to pay debt service on outstanding general obligation bonds issued to finance eligible project costs.” This statement is true if everything works as planned. But real estate development is risky. Things may not work out as planned. City documents don’t tell taxpayers this. Instead, city leaders present these projects as though everything will work out as planned.

There is some undeveloped land that was to be used in future phases of the project. But even empty land is harmful to city taxpayers, as city documents state: “The developer has not paid property taxes on the parcels from 2010 to 2015, resulting in $400,080 in current and delinquent taxes owed. The City will now be responsible for the taxes.”


Notes

  1. Wichita City Council Agenda Packet, March 15, 2016. Available here.
  2. From the Additional Provisions of the series 813 bonds: General Obligations. The Bonds constitute general obligations of the Issuer payable as to both principal and interest, in part from special assessments levied upon the property benefited by the construction of the Improvements (as said term is described in the Bond Resolution), in part from incremental property tax revenues derived in certain tax increment financing districts within the Issuer and, if not so paid, from ad valorem taxes which may be levied without limitation as to rate or amount upon all the taxable tangible property, real and personal, within the territorial limits of the Issuer, the balance being payable from ad valorem taxes which may be levied without limitation as to rate or amount upon all the taxable tangible property, real and personal, within the territorial limits of the Issuer. The full faith, credit and resources of the Issuer are hereby pledged for the payment of the principal of and interest on this Bond and the issue of which it is a part as the same respectively become due

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