Tag Archives: Community Improvement Districts

WichitaLiberty.TV: Lack of information sharing by government, community improvement districts, and the last episode of “Love Gov”

In this episode of WichitaLiberty.TV: Do our governmental agencies really want to share data and documents with us? Community Improvement Districts and homeowners compared. And, the last episode of “Love Gov” from the Independent Institute. View below, or click here to view in high definition at YouTube. Episode 95, broadcast September 20, 2015.

Wichita’s demolition policy

Wichita homeowners must pay for demolition of their deteriorating homes, but the owners of a long-festering and highly visible commercial property get to use tax funds for their demolition expense.

Tomorrow the Wichita City Council will consider condemnation of two houses in Wichita. In both cases the Board of Building Code Standards and Appeals recommends demolition of the buildings, at the owner’s expense.

Location of one of the houses recommended for demolition. The city's primary wastewater treatment plant is in the background.
Location of one of the houses recommended for demolition. The city’s primary wastewater treatment plant is in the background.
Action like this is common for residential property in Wichita. But we don’t often see commercial property demolished by city council action. Tomorrow’s proposed — and likely — action is in contrast with action taken a few weeks ago by the council. Then, the council allowed the owner of blighted commercial property located near the airport to collect additional sales tax from future customers in order to pay for demolition of a hotel and restaurant.

From Google Earth, a view of the restaurant and hotel on the subject property. If a house this blighted had been owned by a poor inner-city resident, the city would have long ago condemned and demolished the buildings, at the homeowner's expense.
From Google Earth, a view of the blighted restaurant and hotel on the property near the airport. If a house this blighted had been owned by a poor inner-city resident, the city would have long ago condemned and demolished the buildings, at the homeowner’s expense.
As reported in the Wichita Eagle, the restaurant had been vacant for about a decade. Supporters, say the newspaper, refer to the property as “blighted.” The council member that represents the area says it is “dilapidated” and “vacant for a long time.” It was described as contributing to an unsightly first impression of the city.

So why is the city likely to demolish two obscure houses while it let a long-time blighted commercial property languish in a highly visible location?

And why does the city charge homeowners for demolition, but allows a commercial property owner to pay for its demolition with tax money?

Another week in Wichita, more CID sprawl

Shoppers in west Wichita should prepare to pay higher taxes, if the city approves a Community Improvement District at Kellogg and West Streets.

Next week the Wichita City Council will consider the formation of a Community Improvement District (CID) surrounding the intersection of Kellogg and West Streets.

CIDs are a relatively recent creation of the Kansas Legislature. In a CID, merchants may charge additional sales tax, up to an extra two cents per dollar. For more about their mechanism, see Community improvement districts in Kansas. In the present case, the developer proposes to charge an extra one cent per dollar in tax. This extra sales tax, minus a handling fee, will be periodically remitted to the developer. It’s important to note that CID proceeds do not flow to the merchants who collect them.

This CID is “pay-as-you-go,” meaning the city is not issuing bonds or loaning money.

This CID, should the council approve, will contribute to CID sprawl. This is a condition in which more and more of the city is overtaken by CIDs and their higher taxes. In effect, a sales tax increase is taking effect. Because of the city’s weak protection of shoppers from these CID taxes, many Wichitans and visitors will pay higher taxes than they expected. This harms the reputation of Wichita.

(Of note, Kansas raised the statewide sales tax this year. Because Kansas is one of the few states that tax groceries at the full rate, low-income families are harmed most by the higher sales and CID taxes. See Kansas sales tax has disproportionate harmful effects for analysis.)

This CID is likely to be sold to citizens as contributing to public infrastructure. It’s true that a traffic signal on West Street and widening of that street are listed as uses of CID funds. But the amount budgeted is $350,000, which means that the improvements will not be substantial. This inclusion of public infrastructure is likely part of a strategy of sweetening the deal. It’s not all about greedy developers, the city will say. Some of the funds are going to public infrastructure. This strategy was used to justify the Cabela’s CID, in which part of the CID funds are paying for improvements to the intersection of K-96 and Greenwich Road.

This CID proposal contains two new provisions that may help blunt some of the criticism of CIDs as harmful to other business firms in the city. First is this condition: “Allow the City to review and approve or deny the relocation of any business within three miles of the district, for the first three years, on any property in which the developer requests reimbursement for the land acquisition.” This seems designed to restrict “poaching” of merchants from other nearby landlords who are not being subsidized by a CID. Whether this condition has any real meaning is unknown. In practice, the city has been reluctant to enforce restrictions similar to this.

Some of the first buildings to be demolished on West Street, according to a city schedule of milestones. Click for larger.
Some of the first buildings to be demolished on West Street, according to a city schedule of milestones. Click for larger.
Also there is this condition: “Demolition or rehabilitation of three identified structures and additional investment within the district within the timeframe below.” Following this is a schedule of milestones. This may be in response to instances where the city has authorized a subsidy program, but nothing happened, or happened slowly. The Exchange Place project at Douglas and Market is one example. Another is the CID at Central and Oliver. Principals of the Kellogg and West CID are also involved in the Central and Oliver CID, and little has happened there since its formation.

Another important public policy issue regarding CIDs is this: If merchants feel they need to collect additional revenue from their customers, why don’t they simply raise their prices? We can easily see their rationalization: It’s better for us that unwitting customers pay higher sales taxes rather than higher prices. We can blame government for the taxes, but we get the money. 1

Customers of merchants in CIDS ought to know in advance that an extra tax is charged. Some have recommended warning signage that protects customers from unknowingly shopping in stores, restaurants, and hotels that will be adding extra sales tax to purchases. Developers who want to benefit from CID money say that merchants object to signage, fearing it will drive away customers.

State law is silent on this. The City of Wichita requires a sign indicating that CID financing made the project possible, with no hint that customers will pay additional tax. The city also maintains a website showing CIDs. This form of notification is so weak as to be meaningless, but this was the decision the city council made. 2

CIDs allow property owners to establish their own private taxing district for their exclusive benefit. This goes against the grain of the way taxes are usually thought of. Generally, we use taxation as a way to pay for services that everyone benefits from, and from which we can’t exclude people. An example would be police protection. Everyone benefits from being safe, and we can’t exclude people from participating in — benefiting from — police protection.

But CIDs allow taxes to be collected for the benefit of one specific entity. This goes against the principle of broad-based taxation to pay for an array of services for everyone. But in this case, the people who benefit from the CID are quite easy to identify: the property owners in the district. We shouldn’t let private parties use a government function for their exclusive benefit.

  1. The premise of this question is not accurate, as it is not the merchants who receive CID funds. Landlords do. The more accurate question is why don’t landlords raise their rents?
  2. Weeks, B. (2014). Wichita City Council fails to support informing the taxed. Online. Voice For Liberty in Wichita. Available at: http://wichitaliberty.org/wichita-government/wichita-city-council-fails-support-informing-taxed/ Accessed 31 Aug. 2015.

Wichita CID illustrates pitfalls of government intervention

A proposed special tax district in Wichita holds the potential to harm consumers, the city’s reputation, and the business prospects of competitors. Besides, we shouldn’t let private parties use a government function for their exclusive benefit.

This week the Wichita City Council will consider the formation of a Community Improvement Districts to benefit a proposed hotel in west Wichita.

CIDs are a relatively recent creation of the Kansas Legislature. In a CID, merchants may charge additional sales tax, up to an extra two cents per dollar. For more about their mechanism, see Community improvement districts in Kansas. In the present case, the developer proposes to charge hotel guests an extra two cents per dollar in tax. If retail stores are developed, their customers will pay the CID tax too. This extra sales tax, minus a handling fee, will be periodically remitted to the developer.

From Google Earth, a view of the restaurant and hotel on the subject property. If a house this blighted had been owned by a poor inner-city resident, the city would have long ago condemned and demolished the building, at the homeowner's expense.
From Google Earth, a view of the restaurant and hotel on the subject property. If a house this blighted had been owned by a poor inner-city resident, the city would have long ago condemned and demolished the building, at the homeowner’s expense.
One reason to oppose the formation of this CID is it contributes to Wichita’s reputation as a city of high taxes. The nearby table gives an example of what a hotel bill will look like. There’s the existing guest tax of 6 percent. The city started collecting the 2.75 percent “tourism fee” this year. 1 (How many cities charge visitors a fee for visiting?) There’s the combined state and county sales tax of 7.5 percent, and then the CID tax of 2 percent. The total of these taxes is 18.25 percent.

A sample hotel bill in Wichita.
A sample hotel bill in Wichita.
The mayor and city council members note that these taxes are paid by people from out of town. They think it’s a smart strategy. But some significant fraction of these taxes are paid by Wichitans, particularly the many companies that have their scattered employees travel to Wichita. And, has anyone ever paid a hotel bill for visiting friends and relatives?

Welcome to Wichita Tourism Fee billboardBesides this, do we really want to punish our guests with these taxes? A city tourism fee? Welcome to Wichita, indeed.

Another important public policy issue regarding CIDs is this: If merchants feel they need to collect additional revenue from their customers, why don’t they simply raise their prices? We can easily see their rationalization: It’s better for us that unwitting customers pay higher sales taxes rather than higher prices. We can blame government for the taxes, but we get the money. 2

There is the competitive effect on other hotels in the area to consider. Some hotel owners feel the ability of one hotel to collect the CID tax for its own benefit gives an unfair competitive advantage.

Customers of merchants in CIDS ought to know in advance that an extra tax is charged. Some have recommended warning signage that protects customers from unknowingly shopping in stores, restaurants, and hotels that will be adding extra sales tax to purchases. Developers who want to benefit from CID money say that merchants object to signage, fearing it will drive away customers.

State law is silent on this. The City of Wichita requires a sign indicating that CID financing made the project possible, with no hint that customers will pay additional tax. The city also maintains a website showing CIDs. This form of notification is so weak as to be meaningless, but this was the decision the city council made. 3

CIDs allow property owners to establish their own private taxing district for their exclusive benefit. This goes against the grain of the way taxes are usually thought of. Generally, we use taxation as a way to pay for services that everyone benefits from, and from which we can’t exclude people. An example would be police protection. Everyone benefits from being safe, and we can’t exclude people from participating in — benefiting from — police protection.

But CIDs allow taxes to be collected for the benefit of one specific entity. This goes against the principle of broad-based taxation to pay for an array of services for everyone. But in this case, the people who benefit from the CID are quite easy to identify: the property owners in the district. We shouldn’t let private parties use a government function for their exclusive benefit.

  1. Weeks, B. (2014). Wichita seeks to add more tax to hotel bills. Online. Voice For Liberty in Wichita. Available at: http://wichitaliberty.org/wichita-government/wichita-seeks-add-tax-hotel-bills/ Accessed 31 Aug. 2015.
  2. The premise of this question is not accurate, as it is not the merchants who receive CID funds. Landlords do. The more accurate question is why don’t landlords raise their rents?
  3. Weeks, B. (2014). Wichita City Council fails to support informing the taxed. Online. Voice For Liberty in Wichita. Available at: http://wichitaliberty.org/wichita-government/wichita-city-council-fails-support-informing-taxed/ Accessed 31 Aug. 2015.

Community improvement districts in Kansas

Community Improvement Districts are a relatively recent creation of the Kansas Legislature. In a CID, merchants charge additional sales tax, up to an extra two cents per dollar.

Community improvement district using bonds. Click for larger version.
Community improvement district using bonds. Click for larger version.
There are two forms of CID. Both start with the drawing of the boundaries of a geographical district. In the original form, a city borrows money by selling bonds. The bond proceeds are given to the owners of the district. The bonds are repaid by the extra sales tax collected, known as the CID tax.

In the second form of CID, the extra sales tax is simply given to the owners of property in district as it is collected, after deduction of a small amount to reimburse government for its expenses. This is known as a “pay-as-you-go” CID.

The “pay-as-you-go” CID holds less risk for cities, as the extra sales tax — the CID tax — is remitted to the property owner as it is collected. If sales run below projections, or of the project never materializes, the property owners receive less funds, or no funds. With CID bonds, the city must pay back the bonds even if the CID tax does not raise enough funds to make the bond payments.

Community improvement district using pay-as-you-go. Click for larger version.
Community improvement district using pay-as-you-go. Click for larger version.
Of note is that CID proceeds benefit the owners of the property, not the merchants. Kansas law requires that 55 percent of the property owners in the proposed CID agree to its formation. The City of Wichita uses a more restrictive policy, requiring all owners to consent.

Issues regarding CID

Perhaps the most important public policy issue regarding CIDs is this: If merchants feel they need to collect additional revenue from their customers, why don’t they simply raise their prices? But the premise of this question is not accurate, as it is not the merchants who receive CID funds. The more accurate question is why don’t landlords raise their rents? That puts them at a competitive disadvantage with property owners that are not within CIDs. Better for us, they rationalize, that unwitting customers pay higher sales taxes for our benefit.

Consumer protection
Customers of merchants in CIDS ought to know in advance that an extra CID tax is charged. Some have recommended warning signage that protects customers from unknowingly shopping in stores, restaurants, and hotels that will be adding extra sales tax to purchases. Developers who want to benefit from CID money say that merchants object to signage, fearing it will drive away customers.

State law is silent on this. The City of Wichita requires a sign indicating that CID financing made the project possible, with no hint that customers will pay additional tax. The city also maintains a website showing CIDs. This form of notification is so weak as to be meaningless.

Eligible costs
One of the follies in government economic development policy is the categorization of costs into eligible and non-eligible costs. The proceeds from programs like CIDs and tax increment financing may be used only for costs in the “eligible” category. I suggest that we stop arbitrarily distinguishing between “eligible costs” and other costs. When city bureaucrats and politicians use a term like “eligible costs” it makes this process seem benign. It makes it seem as though we’re not really supplying corporate welfare and subsidy.

As long as the developer has to spend money on what we call “eligible costs,” the fact that the city subsidy is restricted to these costs has no economic meaning. Suppose I gave you $10 with the stipulation that you could spend it only on next Monday. Would you deny that I had enriched you by $10? Of course not. As long as you were planning to spend $10 next Monday, or could shift your spending from some other day to Monday, this restriction has no economic meaning.

Notification and withdrawal
If a merchant moves into an existing CID, how might they know beforehand that they will have to charge the extra sales tax? It’s a simple matter to learn the property taxes a piece of property must pay. But if a retail store moves into a vacant storefront in a CID, how would this store know that it will have to charge the extra CID sales tax? This is an important matter, as the extra tax could place the store at a competitive disadvantage, and the prospective retailer needs to know of the district’s existence and its terms.

Then, if a business tires of being in a CID — perhaps because it realizes it has put itself at a competitive disadvantage — how can the district be dissolved?

The nature of taxation
CIDs allow property owners to establish their own private taxing district for their exclusive benefit. This goes against the grain of the way taxes are usually thought of. Generally, we use taxation as a way to pay for services that everyone benefits from, and from which we can’t exclude people. An example would be police protection. Everyone benefits from being safe, and we can’t exclude people from participating in — benefiting from — police protection.

But CIDs allow taxes to be collected for the benefit of one specific entity. This goes against the principle of broad-based taxation to pay for an array of services for everyone. But in this case, the people who benefit from the CID are quite easy to identify: the property owners in the district.

City of Wichita State Legislative Agenda: Economic Development

The City of Wichita wishes to preserve the many economic development incentives it has at its disposal.

The proposed legislative agenda for the City of Wichita holds this regarding economic development incentives:

ISSUE: The State of Kansas provides economic development incentives through a variety of programs.

RECOMMEND: The Wichita City Council supports the continuation of state economic incentive programs that assist local governments in their efforts to improve their local economies.

Wichita Legislative Agenda, November 2014, page 16, Economic DevelopmentThat’s all the agenda holds. In the presentation for the previous year, the request was more complete, naming specific programs. It’s useful to revisit that list, as Wichita leaders often complain that Wichita doesn’t have enough “tools in the toolbox” to compete effectively in economic development.

In a way, I don’t blame the city for omitting the list this year. Part of the campaign for the proposed sales tax was that Wichita doesn’t have enough incentives to compete for jobs. In making that argument, city leaders use a narrow definition of incentive that doesn’t count the programs listed below. Given the poor results of the city’s economic development machinery, you can see why city leaders minimize the number of incentive programs and the amounts of money that are available.

Here are the programs listed in the previous legislative agenda that the city wants the legislature to protect. Some of these are so valuable that Kansas business leaders told the governor that they value these incentives more than they would value elimination of the state corporate income tax.

  • GWEDC/GO WICHITA: Support existing statutory records exemptions
  • Industrial Revenue Bond tax abatements (IRBX)
  • Economic Development Exemptions (EDX)
  • Tax Increment Financing (TIF)
  • Sales Tax Revenue (STAR) Bonds
  • Community Improvement Districts (CID)
  • Neighborhood Revitalization Area (NRA) tax rebates
  • Special Assessment financing for neighborhood infrastructure projects, facade improvements and abatement of asbestos and lead-based paint.
  • State Historic Preservation Tax Credits (HPTC)
  • State administration of federal Low Income Housing Tax Credits (LIHTC)
  • High Performance Incentive Program (HPIP) tax credits
  • Investments in Major Projects and Comprehensive Training (IMPACT) grants
  • Promoting Employment Across Kansas (PEAK) program
  • Economic Revitalization and Reinvestment Act bonding for major aviation and wind energy projects
  • Kansas Industrial Training (KIT) and Kansas Industrial Retraining (KIR) grants
  • Network Kansas tax credit funding
  • State support for Innovation Commercialization Centers in Commerce Department budget

Wichita City Council fails to support informing the taxed

Example of a Community Improvement District sign on the door of a merchant.
Example of a Community Improvement District sign on the door of a merchant.
It’s enlightening to look back at some examples of discussion at the Wichita City Council so that we remember the attitudes of council members and city bureaucrats towards citizens. In the following example, the council was considering whether Wichitans and visitors should be notified of the amount of extra sales tax — or even the existence of extra tax — they will pay when shopping at merchants located within Community Improvement Districts (CIDs). Did the council side with special interests or citizens?

At its December 7, 2010 meeting, the Wichita City Council considered whether stores in CIDs should be required to post signs warning shoppers of the amount of extra tax being charged. Some, including myself, felt that shoppers should have this information before deciding to shop in such a store.

In discussion from the bench, Jeff Longwell, who was Vice Mayor at the time, said it is important that we disclose these “types of collections” as they are taxing the public. But in a convoluted stretch of reasoning, he argued that posting a sign with a specific tax rate would be confusing to citizens: (View video below, or click here to view at YouTube.

“I was leaning to putting a percentage on there, but again if we have a website that spells out the percentage, I think that’s important. And number two, I guess I would be a little bit concerned how we would work through it — if you put a percentage on a development over here in downtown that’s only collecting one percent and someone walks in and sees a CID tax collected of one percent and just assumes every CID tax is one percent it would be confusing when they go to the next one, and it may scare them off if they see one that’s two percent, they’ll never go to one that’s maybe only one percent. So I think that proves an additional concern for some confusion. So having something on the front door that says we are financing this with a CID tax, where they’re made well aware that it’s collected there, I think to try and include a percentage might even add some confusion as we collect different CID taxes around the city.”

Longwell is content to tell people as they enter a store that they’re being taxed, but not how much tax they’re required to pay. We can summarize his attitude as this: Giving citizens too much information will confuse them.

Wichita City Council Member Sue Schlapp
Wichita City Council Member Sue Schlapp
Council Member Sue Schlapp (who left office in 2011 after reaching the city’s limit on length of service) said she supported transparency in government:

“Every tool we can have is necessary … This is very simple: If you vote to have the tool, and then you vote to put something in it that makes the tool useless, it’s not even any point in having the vote, in my opinion. Either we do it, and we do it in a way that it’s going to be useful and accomplish its purpose. … I understand totally the discussion of letting the public know. I think transparency is absolutely vital to everything we do in government. So I think we’re doing that very thing.”

Wichita City Council Member Lavonta Williams
Wichita City Council Member Lavonta Williams
Schlapp understood and said what everyone knows: That if you arm citizens with knowledge of high taxes, they’re likely to go somewhere else to shop. Well, maybe except for women, as Council Member Lavonta Williams (district 1, northeast Wichita), noted that women would still want to shop at a store in a CID if it is “very unique.”

Mayor Carl Brewer said he agreed with Schlapp and the other council members.

In the end, the council unanimously voted for requiring signage that reads, according to minutes from the meeting: “This project made possible by Community Improvement District Financing and includes the website.”

This sign doesn’t mention anything about the rate of extra sales tax that customers of CID merchants will pay. In fact, reading the sign, shoppers are not likely to sense that they’ll be paying any additional tax. The sign almost makes the Community Improvement District seem benevolent, not predatory.

Contrary to Schlapp’s assertions, this is not anything like government transparency.

Here’s what is really troubling: What does it say about Wichita’s economic development strategy that if you fully inform citizens and visitors on what they’re asked to pay, it renders the tool “useless,”as Schlapp contended?

It’s just another example of the council and staff being totally captured by special interests, preferring advancing the interests of their cronies rather than protecting citizens.

Wichita seeks to add more tax to hotel bills

Wichita City Hall.
Wichita City Hall.

The city of Wichita wants hotel guests to make a “marketing investment” in Wichita by paying a “City Tourism Fee.”

This Tuesday the Wichita City Council will hold a public hearing regarding the formation of a Tourism Business Improvement District (TBID).

Go Wichita Convention and Visitors Bureau

The main characteristic of the proposed TBID is that it will add 2.75 percent tax to most hotel rooms sold in the City of Wichita. The funds would go to Go Wichita Convention and Visitors Bureau to be used to enhance that agency’s marketing efforts. The tax is estimated to raise $2.5 million per year.

What is the motivation of the city’s hotel operators to assent to this added tax on their product? City documents state: “Go Wichita estimates that the new marketing investment could result in a 6% rise in hotel occupancy and a growth of $12 million in hotel revenue.”

What the city calls a “marketing investment” will appear on hotel bills as the “City Tourism Fee,” according to city documents.

How to succeed in business by having others pay for your advertising

When most business firms want to increase their business through advertising, they pay for it themselves. They don’t tack on an additional “advertising fee” to customer’s bills.

But not so with Wichita hotels. Unlike most businesses, Wichita hotels propose to have someone else pay for their advertising.

On top of that, the city and the hotels don’t have the integrity to label the added tax to let customers know its true purpose. Instead, the tax will appear on customer bills as a “City Tourism Fee.” If hotel customers are angry at the fee, well, who is to blame? The hotel, which is merely collecting what city code says it must? Visitors to Wichita likely won’t know the real reason for the tax, which is to shift expenses to someone else through the mechanism of government.

Clever. I wonder if other industries will try something like this? Also: Will the Wichita hotels that currently engage in advertising reduce their spending on advertising, now that a government agency is in charge and taxpayers are footing the bill?

Who pays this tax

City leaders argue that taxes like hotel taxes are largely paid for by people from out of town. Whether that is a wise strategy is debatable. People and business firms notice these taxes. Wichita hotel owner Jim Korroch is an advocate of the new Wichita tax. But he told the Wichita Eagle recently “You know, I used to like to take my girls shopping at the Legends in Kansas City. I thought that was a great deal with the outlet malls, but for the first time I’ve looked at my receipts, and it isn’t. They charge almost 20 percent at the Legends with that district.” So he noticed — eventually — the high taxes charged.

Coming to Wichita for business. (Click for a larger version.)
Coming to Wichita for business. (Click for a larger version.)

If the tourism fee is implemented, some hotels in Wichita that are located in community improvement districts (including one Korroch owns) will have taxes totaling 17.9 percent added to customer bills.

Here’s something else regarding the myth of shifting hotel taxes to people from out of town. Are there are any Wichita business firms that have employees who live in other cities, and those employees travel to Wichita on business and stay in hotels? Often these hotel bills are paid by the employee and then reimbursed by the Wichita company they work for. So as far as a hotel knows, and as far as any marketing analysis might show, someone from Fresno spends a few days in a Wichita hotel. This person might work for Cargill Beef’s Fresno facility and have traveled to Wichita to visit the headquarters of Cargill Meat Solutions. In the end, the hotel bill and taxes are paid by Cargill Meat Solutions, a Wichita company.

Do any Wichita business firms employ consultants who travel to Wichita and stay in hotels, and those hotels bills are part of the consultants’ billable expense? In the end, who pays those taxes? A Wichita business firm does.

So at the public hearing, I hope someone asks the question: How often are these taxes actually paid by Wichita companies? Does the city know the answer to this?

Further: Isn’t it a sham to call this tax a “City Tourism Fee” when hometown companies are paying hotel bills for their employees and consultants to come to Wichita for business?

More secret spending

It is the position of Go Wichita that the agency doesn’t have to conform to the Kansas Open Records Act. The City of Wichita backs this interpretation of the law. Thus, we will have more taxpayer funds spent in secret.

The bureaucrats profit

Writing in Public Choice — A Primer Eamonn Butler explains the motivations of bureaucrats:

In terms of what bureaucrats actually do pursue, Niskanen suggested that budget maximisation provided a fair measure. It is an approximation to the objective of profit in the market context. And it provides a simple proxy for all the other things that go with a large and growing budget — such as job security, promotion prospects, salary increases and so on.

In their pursuit of these benefits, bureaucrats are just as much players in the political process as any other interest group — and they have no free-rider problem because their group is so well defined that they can easily keep the benefits of their lobbying to themselves. …

Bureaucrats can also rely on the political support of the interest groups that depend on the grants and programmes that they administer, and which would almost certainly like to see those budgets increased; and they can rely on the support of the commercial businesses that supply goods and services to the programmes that the agencies administer.

We see these characteristics revealing themselves: A government agency seeking to expand its budget and power, at the expense of taxpayers.

Wichita’s legislative agenda favors government, not citizens

city-council-chambers-sign-smallThis week the Wichita City Council will consider its legislative agenda. This document contains many items that are contrary to economic freedom, capitalism, limited government, and individual liberty. Yet, Wichitans pay taxes to have someone in Topeka promote this agenda. I’ve excerpted the document here, and following are some of the most problematic items.

Agenda: Existing economic development tools are essential for the continued growth and prosperity of our community.

First. The premise of this item is incorrect. We don’t have growth and prosperity in Wichita. Compared to a broad group of peer metropolitan areas, Wichita performs very poorly. See For Wichita’s economic development machinery, failure for details.

Second: In general, these incentives don’t work to increase prosperity. Click here for a summary of the 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.

Third: Wichita leaders often complain that Wichita doesn’t have enough “tools in the toolbox” to compete effectively in economic development. The city’s document lists the tools the city wants the legislature to protect:

  • GWEDC/GO WICHITA: Support existing statutory records exemptions
  • Industrial Revenue Bond tax abatements (IRBX)
  • Economic Development Exemptions (EDX)
  • Tax Increment Financing (TIF)
  • Sales Tax Revenue (STAR) Bonds
  • Community Improvement Districts (CID)
  • Neighborhood Revitalization Area (NRA) tax rebates
  • Special Assessment financing for neighborhood infrastructure projects, facade improvements and abatement of asbestos and lead-based paint.
  • State Historic Preservation Tax Credits (HPTC)
  • State administration of federal Low Income Housing Tax Credits (LIHTC)
  • High Performance Incentive Program (HPIP) tax credits
  • Investments in Major Projects and Comprehensive Training (IMPACT) grants
  • Promoting Employment Across Kansas (PEAK) program
  • Economic Revitalization and Reinvestment Act bonding for major aviation and wind energy projects
  • Kansas Industrial Training (KIT) and Kansas Industrial Retraining (KIR) grants
  • Network Kansas tax credit funding
  • State support for Innovation Commercialization Centers in Commerce Department budget

That’s quite a list of incentive programs. Some of these are so valuable that Kansas business leaders told the governor that they value these incentives more than they would value elimination of the state corporate income tax.

Agenda: GWEDC/GO WICHITA: Support existing statutory records exemptions

This may refer to the city wanting to prevent these agencies from having to fulfill records requests under the Kansas Open Records Act. (If so, I wonder why the Wichita Downtown Development Corporation was left off.) City leaders say Wichita has an open and transparent government. But Kansas has a weak records law, and Wichita doesn’t want to follow the law, as weak as it is. This is an insult to citizens who are not able to access how their taxes are spent. For more on this issue, see Open Records in Kansas.

Agenda: The Wichita City Council opposes any legislative attempts to restrict the taxing and spending authority of local governments.

As Wichita city leaders prepare to ask for a higher sales tax rate in Wichita, we can hope that the legislature will save us from ourselves. At best, we can hope that the legislature requires that all tax rate increases be put to popular vote.

Agenda: The Wichita City Council opposes any restrictions on the use of state and/or local public monies to provide information to our citizens and to advocate on their behalf.

This is the taxpayer-funded lobbying issue. As you can see in this document, many of the things that Wichita city leaders believe people want, or believe that will be good for their constituents, are actually harmful. Additionally, many of the methods the city uses to engage citizens to determine their needs are faulty. See In Wichita, there’s no option for dissent for an example. Also, see Wichita survey questions based on false premises.

Agenda: The Wichita City Council supports the current framework for local elections, continuing the current February/April schedule of local primary and general elections, as well as the local option allowing non-partisan elections.

The present system of non-partisan elections held in the spring results in low voter turnout that lets special interest groups exercise greater influence than would be likely in fall elections. See my legislative testimony in Kansas spring elections should be moved.

Agenda: The Wichita City Council supports the development of appropriate state and local incentives to nurture and preserve arts activity throughout the City of Wichita and the State of Kansas.

Translation: The city knows better than you how to provide for your entertainment and cultural edification, and will continue to tax you for your own benefit.

Agenda: Public support and awareness of the possibility of passenger rail service connecting Oklahoma City and Wichita/Newton has grown over the past two years.

I’m not sure where the claim of public support and awareness growing comes from, but people are definitely not informed about the economics of passenger rail. In 2010, when the state rolled out several plans for this passenger rail service link, I reported as follows:

Expansion of rail service in Kansas is controversial, at least to some people, in that any form of rail service requires taxpayer involvement to pay for the service. First, taxpayer funding is required to pay for the start-up costs for the service. There are four alternatives being presented for rail service expansion in Kansas, and the start-up costs range from $156 million up to $479 million.

After this, taxpayer subsidies will be required every year to pay for the ongoing operational costs of providing passenger rail service. The four alternatives would require an annual operating subsidy ranging from $2.1 million up to $6.1 million. Taking the operating subsidy and dividing by the estimated number of passengers for each alternative, the per-passenger subsidy ranges from $35 up to $97 for every passenger who uses the service.

It would be one thing if tickets sales and other revenue sources such as sale of food and beverage paid for most of the cost of providing passenger rail service, and taxpayers were being asked to provide a little boost to get the service started and keep it running until it can sustain itself. But that’s not the case. Taxpayers are being asked to fully fund the start-up costs. Then, they’re expected to pay the majority of ongoing expenses, apparently forever.

Also, in Amtrak, taxpayer burden, should not be expanded in Kansas I reported on the Heartland Flyer route specifically. This is from 2010, but I doubt much has changed since then.

For the Heartland Flyer route, which runs from Fort Worth to Oklahoma, and is proposed by taxpayer-funded rail supporters to extend into Kansas through Wichita and Kansas City, we find these statistics about the finances of this operation:

Amtrak reports a profit/loss per passenger mile on this route of $-.02, meaning that each passenger, per mile traveled, resulted in a loss of two cents. Taxpayers pay for that.

But this number, as bad as it is, is totally misleading. Subsidyscope calculated a different number. This number, unlike the numbers Amrak publishes, includes depreciation, ancillary businesses and overhead costs — the types of costs that private sector businesses bear and report. When these costs are included, the Heartland Flyer route results in a loss of 13 cents per passenger mile, or a loss of $26.76 per passenger for the trip from Fort Worth to Oklahoma City.

Asking the taxpayers of Wichita to pay subsidies each time someone boards an Amtrak train: This doesn’t sound like economic development, much less a program that people living in a free society should be forced to fund.

Wichita’s legislative agenda favors government, not citizens

city-council-chambers-sign-smallThis week the Wichita City Council will consider its legislative agenda. This document contains many items that are contrary to economic freedom, capitalism, limited government, and individual liberty. Yet, Wichitans pay taxes to have someone in Topeka promote this agenda. I’ve excerpted the document here, and following are some of the most problematic items.

Agenda: Existing economic development tools are essential for the continued growth and prosperity of our community.

First. The premise of this item is incorrect. We don’t have growth and prosperity in Wichita. Compared to a broad group of peer metropolitan areas, Wichita performs very poorly. See For Wichita’s economic development machinery, failure for details.

Second: In general, these incentives don’t work to increase prosperity. Click here for a summary of the 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.

Third: Wichita leaders often complain that Wichita doesn’t have enough “tools in the toolbox” to compete effectively in economic development. The city’s document lists the tools the city wants the legislature to protect:

  • GWEDC/GO WICHITA: Support existing statutory records exemptions
  • Industrial Revenue Bond tax abatements (IRBX)
  • Economic Development Exemptions (EDX)
  • Tax Increment Financing (TIF)
  • Sales Tax Revenue (STAR) Bonds
  • Community Improvement Districts (CID)
  • Neighborhood Revitalization Area (NRA) tax rebates
  • Special Assessment financing for neighborhood infrastructure projects, facade improvements and abatement of asbestos and lead-based paint.
  • State Historic Preservation Tax Credits (HPTC)
  • State administration of federal Low Income Housing Tax Credits (LIHTC)
  • High Performance Incentive Program (HPIP) tax credits
  • Investments in Major Projects and Comprehensive Training (IMPACT) grants
  • Promoting Employment Across Kansas (PEAK) program
  • Economic Revitalization and Reinvestment Act bonding for major aviation and wind energy projects
  • Kansas Industrial Training (KIT) and Kansas Industrial Retraining (KIR) grants
  • Network Kansas tax credit funding
  • State support for Innovation Commercialization Centers in Commerce Department budget

That’s quite a list of incentive programs. Some of these are so valuable that Kansas business leaders told the governor that they value these incentives more than they would value elimination of the state corporate income tax.

Agenda: GWEDC/GO WICHITA: Support existing statutory records exemptions

This may refer to the city wanting to prevent these agencies from having to fulfill records requests under the Kansas Open Records Act. (If so, I wonder why the Wichita Downtown Development Corporation was left off.) City leaders say Wichita has an open and transparent government. But Kansas has a weak records law, and Wichita doesn’t want to follow the law, as weak as it is. This is an insult to citizens who are not able to access how their taxes are spent. For more on this issue, see Open Records in Kansas.

Agenda: The Wichita City Council opposes any legislative attempts to restrict the taxing and spending authority of local governments.

As Wichita city leaders prepare to ask for a higher sales tax rate in Wichita, we can hope that the legislature will save us from ourselves. At best, we can hope that the legislature requires that all tax rate increases be put to popular vote.

Agenda: The Wichita City Council opposes any restrictions on the use of state and/or local public monies to provide information to our citizens and to advocate on their behalf.

This is the taxpayer-funded lobbying issue. As you can see in this document, many of the things that Wichita city leaders believe people want, or believe that will be good for their constituents, are actually harmful. Additionally, many of the methods the city uses to engage citizens to determine their needs are faulty. See In Wichita, there’s no option for dissent for an example. Also, see Wichita survey questions based on false premises.

Agenda: The Wichita City Council supports the current framework for local elections, continuing the current February/April schedule of local primary and general elections, as well as the local option allowing non-partisan elections.

The present system of non-partisan elections held in the spring results in low voter turnout that lets special interest groups exercise greater influence than would be likely in fall elections. See my legislative testimony in Kansas spring elections should be moved.

Agenda: The Wichita City Council supports the development of appropriate state and local incentives to nurture and preserve arts activity throughout the City of Wichita and the State of Kansas.

Translation: The city knows better than you how to provide for your entertainment and cultural edification, and will continue to tax you for your own benefit.

Agenda: Public support and awareness of the possibility of passenger rail service connecting Oklahoma City and Wichita/Newton has grown over the past two years.

I’m not sure where the claim of public support and awareness growing comes from, but people are definitely not informed about the economics of passenger rail. In 2010, when the state rolled out several plans for this passenger rail service link, I reported as follows:

Expansion of rail service in Kansas is controversial, at least to some people, in that any form of rail service requires taxpayer involvement to pay for the service. First, taxpayer funding is required to pay for the start-up costs for the service. There are four alternatives being presented for rail service expansion in Kansas, and the start-up costs range from $156 million up to $479 million.

After this, taxpayer subsidies will be required every year to pay for the ongoing operational costs of providing passenger rail service. The four alternatives would require an annual operating subsidy ranging from $2.1 million up to $6.1 million. Taking the operating subsidy and dividing by the estimated number of passengers for each alternative, the per-passenger subsidy ranges from $35 up to $97 for every passenger who uses the service.

It would be one thing if tickets sales and other revenue sources such as sale of food and beverage paid for most of the cost of providing passenger rail service, and taxpayers were being asked to provide a little boost to get the service started and keep it running until it can sustain itself. But that’s not the case. Taxpayers are being asked to fully fund the start-up costs. Then, they’re expected to pay the majority of ongoing expenses, apparently forever.

Also, in Amtrak, taxpayer burden, should not be expanded in Kansas I reported on the Heartland Flyer route specifically. This is from 2010, but I doubt much has changed since then.

For the Heartland Flyer route, which runs from Fort Worth to Oklahoma, and is proposed by taxpayer-funded rail supporters to extend into Kansas through Wichita and Kansas City, we find these statistics about the finances of this operation:

Amtrak reports a profit/loss per passenger mile on this route of $-.02, meaning that each passenger, per mile traveled, resulted in a loss of two cents. Taxpayers pay for that.

But this number, as bad as it is, is totally misleading. Subsidyscope calculated a different number. This number, unlike the numbers Amrak publishes, includes depreciation, ancillary businesses and overhead costs — the types of costs that private sector businesses bear and report. When these costs are included, the Heartland Flyer route results in a loss of 13 cents per passenger mile, or a loss of $26.76 per passenger for the trip from Fort Worth to Oklahoma City.

Asking the taxpayers of Wichita to pay subsidies each time someone boards an Amtrak train: This doesn’t sound like economic development, much less a program that people living in a free society should be forced to fund.

WichitaLiberty.TV August 11, 2013

WichitaLiberty.TV logo

In this episode of WichitaLiberty.TV, host Bob Weeks asks if shoppers have ever paid extra sales tax in Wichita’s Community Improvement Districts, and describes efforts by the city to avoid disclosure of this tax. Then, are there similarities between Wichita and Detroit? Finally, a Sedgwick County Commissioner is worried about agriculture being driven out of the county, but Bob thinks he doesn’t need to worry. Episode 8, broadcast August 11, 2013. View below, or click here to view on YouTube.

Warning signs still missing

Two weeks after the City of Wichita learned that two prominent downtown hotels are not in compliance with city policy regarding signage, the hotels are still in violation.

Broadview Hotel 2013-07-09 004
Drury Plaza Hotel Broadview

The hotels are located in Community Improvement Districts and are able to collect an extra sales tax that is routed back to the two hotels. Merchants located within a CID are supposed to display a sign. These two hotels — Drury Plaza Hotel Broadview and Fairfield Inn at Waterwalk — aren’t displaying the signage.

For background and photographs, see CID signs missing at some Wichita merchants.

CID signs missing at some Wichita merchants

Not all merchants located in Wichita’s Community Improvement District program are displaying the required signage.

CIDs are a creation of the Kansas Legislature from the 2009 session. They allow merchants in a district to collect additional sales tax of up to two cents per dollar. At the time CIDs started forming, I and others suggested that the city require signage notifying shoppers that they would be paying an additional sales tax, and at what rate.

Not everyone thought that would be wise, according to discussion at a Wichita city council meeting. Informing shoppers as to the actual rate of extra tax would be, according to Council Member Jeff Longwell (district 5, west and northwest Wichita) confusing.

Council Member Sue Schlapp said that transparency is vital for government, but evidently not always, she argued: “This is very simple: If you vote to have the tool, and then you vote to put something in it that makes the tool useless, it’s not even any point in having the vote, in my opinion.”

A representative of a group wanting to establish a CID told the council that developers do not “have any interest in hiding something from the public, or keeping citizens from having full knowledge about these community improvement districts.”

But he added that the retailers they are trying to bring to Wichita would be discouraged by full disclosure of the extra sales tax that citizens would pay in their stores. “We want to make sure that anything that we do, or anything that we implement within a policy is appropriate and will not counteract the very tool we’re creating here.”

The compromise that emerged is a small sign that states “THIS PROJECT MADE POSSIBLE BY COMMUNITY IMPROVEMENT DISTRICT FINANCING” along with a reference to the city’s website to learn more, as explained in the city CID policy document.

That website, www.wichita.gov/CID/?, has information and maps of CIDs, but there’s no way to learn the names of stores in the CID, except for a few cases where the district is named after a merchant. (The city’s site also has broken links, dating from the redesign of the city’s website.)

Broadview Hotel 2013-07-09 004
Drury Plaza Hotel Broadview

Examination of merchants in Wichita’s CIDs found two examples of merchants not displaying the signs. Drury Plaza Hotel Broadview and Fairfield Inn at Waterwalk display no signs. Cabela’s displays the signs and is in compliance, but the design of these signs makes them difficult to see.

The city’s policy document regarding these signs doesn’t specify penalties for non-compliance, but that continued failure to comply would result in nonpayment. When asked about the missing signs, city staff said they will investigate and take corrective action.

Curiously, the new CVS drugstore in east Wichita displays the CID signage, but based on purchases made, the store isn’t collecting the CID tax it is entitled to collect.

Slideshow: Wichita CID signs.

Developer welfare expanded in Kansas

Money Grabber

This week the Kansas House of Representatives considered a bill that would expand the application of tax increment financing (TIF) and community improvement district taxes. The bill, HB 2086, is not a major expansion, but is still harmful.

On Monday the bill failed to pass, with 61 members voting in favor, and 60 against. (63 votes are needed to pass a bill.)

On the following day, Rep. Scott Schwab made a motion to reconsider. If agreed to, Schwab’s motion would force another vote on the passage of the bill. The motion passed, and when the vote on the bill was tallied, it had passed with 81 votes.

Democrats who changed their votes from No to Yes are Barbara Ballard, Brandon Whipple, Ed Trimmer, Jerry Henry, Julie Menghini, Nancy Lusk, Patricia Sloop, Paul Davis, Stan Frownfelter, Tom Burroughs and Valdenia Winn.

Republicans who changed their votes from No to Yes are Dennis Hedke, James Todd, Kelly Meigs, Kevin Jones, Marty Read, Ramon Gonzalez, Scott Schwab, and Vern Swanson.

One Republican, Marc Rhoades, changed his vote from Yes to No.

The original coalition of votes that defeated the bill on Monday was a mix of free-market Republicans and Democrats. The free-market members vote against this bill because it is contrary to the principals of capitalism. Many Democrats vote against bills like this because they see it as welfare for greedy developers or other business interests. An example of the latter is Rep. Ed Trimmer, who on the Kansas Economic Freedom Index for last year scored very near the bottom in terms of voting for economic freedom.

But somehow, he and the other Democrats listed above were persuaded to change their votes.

(Click here to open spreadsheet in new window.)

Economic development incentives questioned

When the New York Times is concerned about the cost of government spending programs, it’s a safe bet that things are really out of control. Its recent feature As Companies Seek Tax Deals, Governments Pay High Price reports on economic development incentive programs that are costly and produce questionable benefits.

Do we know the cost of economic development incentives? No, reports the Times: “A full accounting, The Times discovered, is not possible because the incentives are granted by thousands of government agencies and officials, and many do not know the value of all their awards. Nor do they know if the money was worth it because they rarely track how many jobs are created. Even where officials do track incentives, they acknowledge that it is impossible to know whether the jobs would have been created without the aid.”

Kansas Governor Sam Brownback appears in a video that accompanies the story.

A concern of the newspaper is that the money spent on incentives could be spent on other government programs, primarily schools. My concern is that government spending on incentives is harmful to the economy. It redirects capital from productive to unproductive uses. Charles Koch recently explained:

Today, many governments give special treatment to a favored few businesses that eagerly accept those favors. This is the essence of cronyism.

Many businesses with unpopular products or inefficient production find it much easier to curry the favor of a few influential politicians or a government agency than to compete in the open market.

After all, the government can literally guarantee customers and profitability by mandating the use of certain products, subsidizing production or providing protection from more efficient competitors.

Cronyism enables favored companies to reap huge financial rewards, leaving the rest of us — customers and competitors alike — worse off.

In another article Koch wrote: “Instead of protecting our liberty and property, government officials are determining where to send resources based on the political influence of their cronies. In the process, government gains even more power and the ranks of bureaucrats continue to swell.”

We must distinguish between business and capitalism and hold business groups accountable when they fail to promote economic freedom and capitalism. An example is the Wichita Metro Chamber of Commerce. Its legislative platform reads “The Wichita Metro Chamber believes the State should practice fiscal discipline.”

But the Chamber recommends retaining several business welfare programs that are harmful to capitalism and economic freedom.

Next week the agenda for the meeting of the Wichita City Council contains six items that dish out business welfare and promote cronyism. Another item recommends approval of the city’s legislative agenda, which contains this:

ISSUE: Existing economic development tools are essential for the continued growth and prosperity of our community.

RECOMMEND: The Wichita City Council supports continuation of its 2012 legislative agenda item, calling for protection of existing economic development tools for local public-private partnerships. Among those are Tax Increment Financing (TIF) districts, Community Improvement Districts (CIDs), Industrial Revenue Bonds (IRBs) and Sales Tax Revenue (STAR) bonds.

The premise is false twice: These economic development tools are not “essential,” and Wichita is not growing and prospering, compared to other cities: “The inflation-adjusted gross domestic product for the Wichita metro area declined 0.4 percent in 2010, according to initial estimates from the federal Bureau of Economic Analysis. The decline slowed from the year before, when this measure of economic growth plummeted by 7.7 percent. … Wichita’s decline came even as GDP grew by 2.5 percent nationwide in 2010. GDP increased in 304 of 366 metro areas nationwide.” (Wichita Business Journal, Wichita’s real GDP declined in 2010 amid national recovery, database shows.)

Cabela’s opening a reminder of failure in Wichita

Yesterday’s opening of a Cabela’s store in Wichita was celebrated as a great success, but the circumstances of the store’s birth should remind us of the failure of Wichita’s economic development strategies and efforts.

We have to ask why Wichita is not able to attract retailers like Cabela’s without offering some sort of subsidy. In the current example, we are allowing Cabela’s to add 1.2 cents per dollar extra sales tax. Cabela’s keeps one cent, and 0.2 cents will be used to build a new highway exit ramp — one not seriously contemplated until Cabela’s wanted it.

This turnover of public taxation to private interests through the community improvement district (CID) program is contrary to good public policy. The power to tax is one of the most important — and harmful — functions of government. It ought to be used to pay for public goods, instead of being turned over to private benefit, as it has for Cabela’s.

At the opening ceremony, I spoke with Kansas Governor Sam Brownback and reminded him that just two weeks ago Wichita voters spoke out against special tax deals similar to the deal Cabela’s received. What is the future of these special tax deals? “I think the better approach is broad tax reduction,” he said.

While the governor was referring primarily to income taxes, there is strong evidence that Kansas needs to reduce all forms of business tax costs. The release of a report from the Tax Foundation ranking the states in business tax costs brought that into sharp focus two weeks ago. The news for Kansas is worse than merely bad, as our state couldn’t have performed much worse: Kansas ranks 47th among the states for tax costs for mature business firms, and 48th for new firms.

This raises the question: Was the CID tax giveaway truly necessary for Cabela’s to open, or is Cabela’s business model so flimsy that it requires corporate welfare to survive, or is Cabela’s simply an opportunistic company, willing to feed off taxpayers as another source of profit?

Community Improvement Districts

CIDs allow merchants to apply a higher sales tax rate to sales. The money from shoppers is collected under the pretense of government authority, but it is earmarked for the exclusive benefit of the owners of property in the CID. This is perhaps the worst aspect of CIDs. Landlord and merchants already have a way to generate revenue from their customers under free exchange: through the prices posted or advertised for their products, plus consumers’ awareness of the sales tax rates that prevail in a state, county, and city.

But most consumers may never be aware that they paid an extra tax for the exclusive benefit of the CID. If they happen to calculate the sales tax they paid, they may conclude that the high CID rate is charged all across Wichita — thereby staining our reputation.

The Wichita city council had a chance to provide transparency to shoppers by requiring merchants in CIDs to post signs informing shoppers of the amount of extra tax to be changed in the store. But CID advocates got the city council to back down from that requirement. CID advocates know how powerful information is, and they along with their allies on the city council realized that signage with disclosure would harm CID merchants. Council Member Sue Schlapp succinctly summarized the subterfuge that must accompany the CID tax when she said: “This is very simple: If you vote to have the tool, and then you vote to put something in it that makes the tool useless, it’s not even any point in having the vote, in my opinion.” She voted against the signage requirement.

Jeff Longwell (district 5, west and northwest Wichita), in explaining his vote against the signage requirement with the tax rate displayed, said he thought this information would be confusing to shoppers.

Are incentives necessary?

The age-old question is whether economic activity will occur without economic development incentives. Governor Brownback said it is a “legitimate question” as to whether Cabela’s would be here anyway.

In the case of Cabela’s, the store might not be in Wichita without incentives, as the company has shown itself to be especially eager and adept at gathering corporate welfare paid for by taxpayers. One writer concluded “For its part, Cabela’s is unabashed about its dependence on corporate socialism, even declaring in its annual report that grabbing public money is key to its business plan.”

We see elected officials and economic development bureaucracies eager to create jobs, so much so that they offer incentives that are not necessary. This leads to a cycle of dependency on city hall for economic development. That’s good for politicians and bureaucrats, but bad for everyone else.

It would be one thing if our economic development activities were working. But there’s evidence that they’re not. Recently we learned that the job-creating activities of Greater Wichita Economic Development Coalition last year resulted in a number of jobs barely more than one-half of one percent of the labor force.

That’s not a very good job. But keeping a website up to date ought to be easy. The GWEDC site, however, is terribly out of date. On a page titled Recent Relocations Highlights, the most recent item is from 2009. Have we not had any relocations since then, or does GWEDC simply not care to update and maintain its website?

A recent Wichita Eagle article, (Why isn’t Wichita winning projects?, January 22, 2012 Wichita Eagle), after listing four items economic development professionals say Wichita needs but lacks, reported “The missing pieces have been obvious for years, but haven’t materialized for one reason or another.”

If these pieces are truly needed and have been obviously missing for years: Isn’t that a startling assessment of failure of Wichita’s economic development regime?

Wichita’s high tax hotels

One of the strategies that two downtown Wichita hotels have pursued is to form a Community Improvement District (CID) to benefit their hotel.

CIDs are a creation of the Kansas Legislature from the 2009 session. They allow merchants in a district to collect additional sales tax of up to two cents per dollar. The extra sales tax is used for the exclusive benefit of the CID. In the case of the two hotels in downtown Wichita — Fairfield Inn & Suites Wichita Downtown and Drury Plaza Hotel Broadview — both elected to go for the full two cents of taxpayer welfare.

Now Douglas Place, a proposed hotel in Wichita, wants the same deal for itself.

To stay in these hotels, guests must now pay 15.3 percent in taxes. That’s 7.3 percent regular sales tax, 6 percent regular guest tax, and now 2 percent in CID tax. That places these hotels in a pretty high tax bracket. By way of comparison, guests staying in New Orleans hotels pay just 13.5 percent in tax. New York City hotels charge 15.4 percent, almost exactly the same as these Wichita hotels. In Las Vegas it’s 12 percent, and Overland Park tops the chart of the cities I looked at with tax of 17.6 percent added to hotel bills.

The rise of CIDs is an example of the city working at cross-purposes with itself, as many of the CIDs are for the benefit of hotels and other tourist attractions. Now we have the situation where we spend millions every year subsidizing airlines so that airfares to Wichita are low. Then we turn around and add extra tax to visitors’ hotel bills and perhaps the shops and restaurants they visit. Wichita City Council Member Jeff Longwell and others approve this as a wise strategy.

Defenders of the CID tax say it is a voluntary tax that the hotels or merchants place upon themselves. That’s true, although in some cases, such as retail stores, customers will probably not be aware of the tax until after they make their purchases, because the city decided against notifying customers of the extra CID tax in a meaningful way. Lawrence, however, has decided to require strong warning signage to inform customers about the special CID taxes they’ll pay.

Hotel guests are likely to be better informed than retail store customers about the taxes they’ll pay, as for both Wichita hotels, their reservation systems accurately reported the 15.3 percent tax as part of the total cost of staying at the hotel.

The problem is that the extra tax that CIDs collect risks giving Wichita a reputation as a high tax place to live or conduct business. We don’t have mountains, oceans, or even casinos to attract visitors and business. We do have a relatively low cost of living, which could translate into a low cost place to hold a convention or business meeting.

But the CID tax — a tax that is often targeted at visitors under the Longwell strategy — works against this advantage.

Job creation at young firms declines

A new report by the Kauffman Foundation holds unsettling information for the future of job growth in the United States. Kauffman has been at the forefront of research regarding entrepreneurship and job formation.

Previous Kauffman research has emphasized the importance of young firms in productivity growth. Research by Art Hall found that for the period 2000 to 2005, young firms created nearly all the net job growth in Kansas.

So young firms — these are new firms, and while usually small, the category is not the same as small businesses in general — are important drivers of productivity and job growth. That’s why the recent conclusion from Kauffman in its report Starting Smaller; Staying Smaller: America’s Slow Leak in Job Creation is troubling: “The United States appears to be suffering from a long-term leak in job creation that pre-dates the recession and has the potential to persist for an unknown time. The heart of the problem is a pullback by newly created businesses, the economy’s most critical source of job creation, which are generating substantially fewer jobs than one would expect based on past experience. … This trend has only worsened since the onset of the most recent recession. The cohort of firms started in 2009, for example, is on track to contribute close to a million jobs less in its first five to ten years than historical averages.”

The report mentions two assumptions that are commonly made regarding employment that the authors believe are incorrect:

First, policymakers’ focus on big changes in employment because of events such as a new manufacturing plant or the recruitment of a business to a community ignore the more important fact that our jobs outlook will be driven more by the collective decisions of the millions of young and small businesses whose changing employment patterns are not as easy to see or influence. Second, it is just as easy to be deluded into thinking that the jobs problem will be solved by growth in the number of the self-employed.

The importance of young firms is vital to formulating Kansas economic development policy. Kansas Governor Sam Brownback has incorporated some of the ideas of economic dynamism in his economic plan released in February. The idea of dynamism, as developed by Dr. Art Hall, is that economic development is best pursued by creating a level playing field where as much business experimentation as possible can take place. The marketplace will sort out the best firms. The idea that government economic development agencies can select which firms should receive special treatment is sure to fail. It is failing.

While the governor’s plan promotes the idea of economic dynamism, some of his actual policies, such as retaining a multi-million dollar slush fund for economic development, are contrary to the free marketplace of business experimentation and letting markets pick winning firms.

At the City of Wichita, economic development policy is tracking on an even worse direction. Among city hall bureaucrats and city council members, there is not a single person who appears to understand the importance of free markets and capitalism except for one: council member Michael O’Donnell, who represents district 4 (south and southwest Wichita).

The policy of Wichita is that of explicit crony capitalism, with city leaders believing they have the wisdom to develop policies that recognize which firms are worthy of taxpayer support. And if they want to grant subsidies to firms that don’t meet policies, they find exceptions or write new policies. Elected officials like Wichita Mayor Carl Brewer and city council member Jeff Longwell lust for more tools in the economic development toolbox.

At the Sedgwick County Commission, two of the five members — Karl Peterjohn and Richard Ranzau understand the importance of free markets for economic development. But the city has a much larger role in targeted incentives for economic development, as it is the source of tax increment financing districts, industrial revenue bonds, economic development exemptions, community improvement districts, and other harmful forms on economic interventionism.

Kansas and Wichita quick takes: Monday July 11, 2011

TIF in Louisiana. Randal O’Toole recently examined the use of tax increment financing in Louisiana. He finds this: “Property tax TIFs are limited to that portion of property taxes that are not already obligated to some specific purpose — and most property taxes are so obligated, so most if not all Louisiana TIFs rely on sales and hotel taxes instead.” This is different from Kansas, where all the property tax, except for the usually small base, benefits the TIF district exclusively. … He describes sales-tax TIFs, which we in Kansas call community improvement districts or CID. While describing them as the least objectionable form of TIF, he notes problems: Why don’t stores just raise their prices? Stores that charge extra sales tax don’t have warning signage. And: “In the end, TIF is still just a way for elected officials to hand out favors to selected developers and other special interests. There is no reason to think that cities in Louisiana that use TIF grow any faster than ones that do not. Instead, all the TIFs do is shuffle new developments around, favoring certain property owners in the TIF districts over owners outside of the TIF districts. TIF may even reduce growth as developers who don’t get TIF subsidies may decide to build elsewhere where they won’t have to compete against subsidized developments.” … All these warnings have been raised before the Wichita City Council. … California has new legislation designed to kill redevelopment districts there, which are like TID districts in Kansas. … The full article is A Different Kind of TIF.

Overland Park may see tax hike. Ben Hodge reports that Overland Park, the second largest city in Kansas and the largest in Johnson County, may increase its property tax rates. Hodge quotes a Kansas City Star editorial: “One plan from [Overland Park City Manager Bill] Ebel would boost the city’s mill levy by 46 percent and bring in more than $10 million a year in new revenue. The other option, a 41 percent increase, would create an extra $9 million annually.” To which Hodge replies: “So, those are the innovative ideas of today’s Overland Park Council: either a 41% increase, or else a 46% tax increase.” … The Overland Park Chamber of Commerce supports the proposal, which is simply more evidence of the decline of local chambers of commerce. … Hodge’s article is Between a Rock and a Tax Hike.

Medicinal cannibis to be topic. This Friday’s (July 15th) meeting of the Wichita Pachyderm Club features Dr. Jon Hauxwell, a physician from Hays, speaking on “Medicinal Cannabis.” The public is welcome and encouraged to attend Wichita Pachyderm meetings. For more information click on Wichita Pachyderm Club. Upcoming speakers: On July 22, Steve Anderson, Director of the Budget for Kansas. On July 29, Dennis Taylor, Secretary, Kansas Department of Administration and “The Repealer” on “An Overview of the Office of the Repealer.”

Employment on a long slow, slide. Wichita’s Malcolm Harris takes a look at the dismal employment numbers from last week. But, there is some better news for Wichita regarding airplane orders.

We already know it’s hot in Wichita. But now here’s proof. The Weather Channel ranks Wichita as fourth hottest city in the nation — and that’s based on weather, not economic growth or something really desirable. Wichita is also ranked as “Midwest” hottest city.

Pursuing happiness, not politics. That’s the title of the prologue to the recently-published book The Declaration of Independents: How Libertarian Politics Can Fix What’s Wrong with America by Nick Gillespie and Matt Welch, both of Reason, the libertarian magazine of “Free Minds and Free Markets.” So far, the prologue is all I’ve read, but I can tell — okay, I already knew — that these guys get it. Here’s what I mean: “In 2011, we do not equate happiness with politics; the mere juxtaposition of the words feels obscene. And for good reason: Politics, John Adams’s great-grandson Henry famously observed, ‘has always been the systematic organization of hatreds.’ Every election cycle — and we are always in an election cycle — we are urged to remember that deep down inside we really despise the opposing gang of crooks. We hate their elite (or Podunk) ways, their socialist (or fascist) economics, their reliance on shadowy billionaires with suspect agendas. In a world where mutual gains from trade have lifted a half billion people out of poverty in just the past half decade, politics is one of the last remaining zero-sum games of I win, you lose, where the victor gets to spend everyone else’s money in ways that appall the vanquished, until they switch places again after the next election. We instinctively know that our tax dollars aren’t being spent efficiently; the proof is in the post office, or the permitting offices at city hall, or the neighborhood school. We roll our eyes when President Barack Obama announces a new national competitiveness initiative in his State of the Union address just five years after George W. Bush announced a new American Competitiveness Initiative in his, or when each and every president since Richard Milhous Nixon swears chat this time we’re gonna kick that foreign-oil habit once and for all. And yet, the political status quo keeps steering the Winnebago of state further and further into the ditch.”

More ‘Economics in One Lesson.’ Tonight (Monday July 11th) Americans For Prosperity Foundation is sponsoring a continuation of the DVD presentation of videos based on Henry Hazlitt’s classic work Economics in One Lesson. The event is Monday from 7:00 pm to 8:30 pm at the Lionel D. Alford Library located at 3447 S. Meridian in Wichita. The library is just north of the I-235 exit on Meridian. The event’s sponsor is Americans for Prosperity, Kansas. For more information on this event contact John Todd at [email protected] or 316-312-7335, or Susan Estes, AFP Field Director at [email protected] or 316-681-4415.

Kansas and Wichita quick takes: Monday June 20, 2011

CIDs to start collecting tax. Soon two community improvement districts in Wichita will start collecting their additional sales tax, and so a Wichita city webpage is now available to warn consumers of the extra taxes they’ll pay at these merchants. There were some — like me — who wanted the city to have a policy of stronger consumer protection, such as a sign at the entry to a merchant, but city council members recognized, as did developers, that this full disclosure would be bad for business. The website disclosure allows the city to say it’s doing its job warning consumers, but the website is such a weak form of disclosure that it is nearly meaningless. Still, it satisfies council members like Jeff Longwell, who expressed concern that Wichitans would be “confused” by signs at merchants. You see, some CIDs may charge different amounts of extra tax, and Longwell thought informing shoppers of these different rates would confuse them. It seems that Longwell doesn’t have a very high opinion of the cognitive processing abilities of the people of Wichita, and it’s not the first time he’s expressed this sentiment. A few years ago when citizens complained that documents were not made available until just hours before a city council meeting, Longwell said he doubted citizens would read them anyway. See Wichita Council Member Jeff Longwell: We Can, and Do, Read. … For more on the CID disclosure issue, see In Wichita, two large community improvement districts proposed.

Wichita City Council. This week the Wichita City Council considers these items: A facade improvement program loan is requested for a building at 1525 E. Douglas to house GLMV Architecture. This action will loan $500,000 for the purposes of sprucing up the outside of the building, with that amount, plus interest, to be paid back in the form of special assessments collected with the regular property tax. It’s similar to the special assessment financing used in new housing developments, but here applied to existing structures. Interestingly, the city documents proclaim a “gap,” meaning that “applicants show a financial need for public assistance in order to complete the project, based on the owner’s ability to finance the project and assuming a market-based return on investment.” In other words, private financing was not available, so the city steps in, and we have another example of the city investing in money-losing projects. Although it is likely the city will be paid back, the program also includes a $30,000 grant for this project. That, of course, is a gift from Wichita taxpayers made by the city council, and will not be paid back. … The council will be asked to decide whether to proceed with a new airport terminal costing $160 million and parking facilities costing $40 million. It’s said by city leaders that this will not cost Wichita taxpayers a thing. That is, unless you use the airport or paid any taxes to the federal government. Federal grants are a source of some funds for the airport, and are thought by city leaders to be free money, without cost. … On a consent agenda item, we learn that the bridge over the Big Ditch is going to cost more, as a supplemental agreement for $521,369 in additional funds for the planning of the bridge is requested. The reason, according to the city is “additional work is needed to comply with Federal requirements.” This is just the planning, not the actual construction of the bridge. So far the budget for planning and design is $5,219,145. … Also on the consent agenda is something that’s become not unusual: the need to repeal an ordinance and replace it with a corrected ordinance. … As always, the agenda packet is available at Wichita city council agendas.

Rich States, Poor States event this week. Kansas Policy Institute and the Wichita Independent Business Association are hosting a breakfast event this Friday (June 24th) featuring Jonathan Williams, one of the authors of Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index. There’s still time to RSVP. For more information, see Rich States, Poor States author to be in Wichita.

Wichita’s riverside parks to be topic. This Friday (June 24th), Jim Mason, Naturalist at the Great Plains Nature Center will have a presentation and book signing at the Wichita Pachyderm Club. Mason is author of Wichita’s Riverside Parks, published in April 2011. The public is welcome and encouraged to attend Wichita Pachyderm meetings. For more information click on Wichita Pachyderm Club. Upcoming speakers: On July 1 there will be no meeting due to the Independence Day holiday. On July 8, Dave Trabert, President, Kansas Policy Institute, on “Stabilizing the Kansas Budget.”

Pompeo noted for opposition to opposition to energy spending. Tax credits — mysterious to the general public, therefore increasingly used as a way to disguise government spending — come under attack from Chris Chocola in the Washington Examiner: “Last fall, voters sent a clear message to cut spending and get the country’s fiscal house in order. These same voters should take heed because some of the candidates they elected are suffering from temporary insanity when it comes to a classic Washington giveaway: the tax credit. Nearly 80 Republicans, many of whom ran on restoring fiscal sanity to Washington, have joined 100 liberal Democrats in sponsoring HR 1380, the New Alternative Transportation to Give Americans Solutions Act, known colloquially as the NAT GAS Act.” … The bill is a pet project of energy investor T. Boone Pickens in an effort to obtain billions in subsidy for his project to use natural gas as a transportation fuel. But, writes Chocola: “The goal should be creating a sustainable market, not a false one. It is not the role of Congress or the federal government to pick winners or losers in the broad field of energy alternatives. Backing any one industry over another distorts the market and destroys our system of free enterprise.” He criticizes those who campaigned on fiscal responsibility and support this bill. Chocola also calls out Wichita Republican U.S. Representative Mike Pompeo for his opposition to these energy tax and spending programs.

Even quicker. Open Letter to Paul Krugman: The New York Times columnist taken to task by Donald J. Boudreaux. … House GOP retreats from borrowing freeze, more Republicans drift from pledge to deny debt-limit increase without conditions. … Rasmussen poll: 70% say default is bad for economy, 56% say failure to cut spending is worse. … The Metaphysics of Contemporary Theft: “The remedy to address theft would be not more government help — public assistance, social welfare, counseling — but far less, given that human nature rises to the occasion when forced to work and sinks when leisured and exempt.” … Investor’s Business Daily: Times’ Bias Shows In Palin Email Affair. … Michael Barone: Government Looks to Past, Free Enterprise to Future: “Republicans want less government spending and more leeway for entrepreneurs to create new businesses and jobs. No one knows what innovative products and services will emerge. That’s the beauty of free enterprise, but it also makes it a hard sell politically.”