Tag Archives: Corporate welfare

WichitaLiberty.TV: Wichita’s attitude towards empowering citizens, tax credits, and school choice

In this episode of WichitaLiberty.TV: The City of Wichita’s attitude towards empowering citizens, government spending through tax credits, and school choice in Kansas. View below, or click here to view on YouTube. Episode 103, broadcast December 13, 2015.

Wichita Chamber calls for more cronyism

By advocating for revival of the Export-Import Bank of the United States, the Wichita Metro Chamber of Commerce continues its advocacy for more business welfare, more taxes, more wasteful government spending, and more cronyism.

Your chamber of commerce radio buttonsThat may be surprising to read. Most people probably think that local chambers of commerce — since their membership is mostly business firms — support pro-growth policies that embrace limited government and free markets. But that’s usually not the case. It’s certainly is not the case in Wichita, where the Chamber supports higher taxes,1 2 more government spending, more business welfare, more government planning and control, more cronyism — and less economic freedom. The predictable result is less prosperity, which has been the case in Wichita under the leadership of the Wichita Chamber, its policies, and the politicians and bureaucrats it supports.

Email to Wichita Chamber of Commerce supporters (excerpt).
Email to Wichita Chamber of Commerce supporters (excerpt).
Now the Wichita Chamber is asking members to lobby Kansas representatives in support of the revival of the Export-Import Bank. In an email (read here), the Wichita Chamber speaks approvingly of a maneuver executed successfully in the United States House of Representatives that will force a vote on the reauthorization of the Export-Import Bank. The method used, a discharge petition, was signed by well over a majority of House members, including perhaps 42 Republicans. If the petition signers vote the same way, the bill to reauthorize the Ex-Im Bank will pass the House. It will then move to the Senate for consideration.

No members of the House of Representatives from Kansas signed the discharge petition. In July a vote on an amendment in favor of the Ex-Im Bank passed with 67 votes, including votes from both Kansas Senators Pat Roberts and Jerry Moran.

Wichita governmental agencies favor the Export-Import Bank.
Wichita governmental agencies favor the Export-Import Bank.
Business groups and government agencies usually favor Ex-Im. Business groups — as distinguished from capitalism. Free-market and capitalism advocacy groups are almost universally opposed.

In testimony to Congress on this matter, The Cato Institute providwed this:

The Export-Import Bank’s main functions of providing loan guarantees, insurance, and direct loans that benefit U.S. exporters are typically justified by Ex-Im Bank’s mission of providing that support when there are instances of “market failure” — i.e., when the private market does not provide those services on its own — or subsidized export finance that benefits foreign competitors. I hope to show that in neither instance is the Ex-Im Bank’s support called for.

Proponents of continued funding for the Ex-Im Bank often cite figures of export-related jobs created by Ex-Im’s finance to claim that the agency benefits the U.S. economy. The opportunity costs, or costs to the rest of the economy, of funding Ex-Im Bank’s activities are, however, never cited. By this logic, we are led to believe that the government export program is virtually cost-free or even provides a net economic gain.

The reality is much different, particularly since the market is a far more efficient allocator of resources than government. While it may be true that the export agency helps a few businesses — only about 2 percent of all U.S. goods and services exports are backed by the Ex-Im Bank — it is highly doubtful that the agency helps the U.S. economy. Indeed, as one Congressional Research Service study noted, “Most economists doubt … that a nation can improve its welfare over the long run by subsidizing exports. Internal economic policies ultimately determine the overall level of a nation’s exports… . By providing financing or insurance for exporters, Ex-Im Bank’s activities draw from the financial resources within the economy that would be available for other uses. Such opportunity costs, while impossible to estimate, potentially could be significant.”

Put another way, the Export-Import Bank is an example of corporate welfare. It benefits a small number of private businesses at the expense of other businesses and taxpaying citizens. That is true even if the agency does not lose money. …

Conclusion

The Export-Import Bank is a New Deal era agency with no relevance in a liberal global economy. It has not helped cause U.S. prosperity, but has certainly imposed opportunity costs larger than any alleged benefits; it has not corrected so-called market failures, but has rewarded foreign countries for failing to adopt market-oriented policies and institutions; and it affects such a small percentage of U.S. exports that even in the face of foreign nations’ wrong-headed, export-finance programs, the “playing field” already seems to favor U.S. businesses. The most important reason, however, that the Export-Import Bank’s charter should not be reauthorized is that it is neither morally correct nor constitutional for the federal government to use general taxpayer money to promote the economic welfare of specific groups.

A statement from Americans for Prosperity read:

Members are right to be frustrated with this attempt to sidestep regular order, especially to revive a defunct institution that represents the worst of Beltway crony capitalism. It’s unfortunate that some are determined not to take even a modest step toward restoring free markets or getting out of the business of special interest deals. Signing this discharge petition is an attempt to bring an inherently corrupt institution back from the dead, and it means siding with corporate lobbyists over taxpayers. Abandoning free-market principles is wrong, but trying to do it with a procedural gimmick just adds insult to injury.

FreedomWorks issued this:

This July, an 80-year-old corporate welfare program known as the U.S. Export-Import Bank was allowed to expire for the first time since its inception. Created by FDR as part of his New Deal, the bank offers taxpayer-backed loan guarantees to companies unable to secure independent financing — in other words, loans too risky for private investors to be willing to finance.

It’s a ridiculous and obsolete program, and while its cost is small in the grand scheme of government spending — $2 billion over years — the difficulty with which it was finally defunded shows the extreme disproportionate influence of special interests in Washington. When conservatives finally succeeded in stopping the Bank’s funding, it was regarded as a huge victory for the opponents of corporate cronyism, proof of the concept that we can stop, or at least roll back, the leviathan if we could only muster the political will. …

It’s cynical in the extreme for politicians to try to sneak this corporate handout past the voters, and anyone who supports the reauthorization should be ashamed of themselves. FreedomWorks has preemptively issued a Key Vote NO on any bill to reauthorize the Ex-Im Bank, and will count those votes on our legislative scorecard.

Heritage Foundation has an excellent discussion of the issues at Export–Import Bank: Propaganda versus the Facts.

  1. Weeks, B. (2015). Wichita Chamber speaks on county spending and taxes. Voice For Liberty in Wichita. Available at: wichitaliberty.org/sedgwick-county-government/wichita-chamber-speaks-on-county-spending-and-taxes
  2. Weeks, B. (2014). For Wichita Chamber of Commerce chair, it’s sales tax for you, but not for me. Voice For Liberty in Wichita. Available at: wichitaliberty.org/wichita-government/wichita-chamber-commerce-chair-sales-tax

Export-Import Bank threatens a revival

Last week members of the United States House of Representatives successfully executed a maneuver that will force a vote on the reauthorization of the Export-Import Bank of the United States. The method used, a discharge petition, was signed by well over a majority of House members, including perhaps 42 Republicans. If the petition signers vote the same way, the bill to reauthorize the Ex-Im Bank will pass the House. It will then move to the Senate for consideration.

No members of the House of Representatives from Kansas signed the discharge petition. In July a vote on an amendment in favor of the Ex-Im Bank passed with 67 votes, including votes from both Kansas Senators Pat Roberts and Jerry Moran.

Wichita governmental agencies favor the Export-Import Bank.
Wichita governmental agencies favor the Export-Import Bank.
Business groups and government agencies usually favor Ex-Im. Business — as distinguished from capitalism. Free-market and capitalism advocacy groups are almost universally opposed. A statement from Americans for Prosperity read:

Members are right to be frustrated with this attempt to sidestep regular order, especially to revive a defunct institution that represents the worst of Beltway crony capitalism. It’s unfortunate that some are determined not to take even a modest step toward restoring free markets or getting out of the business of special interest deals. Signing this discharge petition is an attempt to bring an inherently corrupt institution back from the dead, and it means siding with corporate lobbyists over taxpayers. Abandoning free-market principles is wrong, but trying to do it with a procedural gimmick just adds insult to injury.

FreedomWorks issued this:

This July, an 80-year-old corporate welfare program known as the U.S. Export-Import Bank was allowed to expire for the first time since its inception. Created by FDR as part of his New Deal, the bank offers taxpayer-backed loan guarantees to companies unable to secure independent financing — in other words, loans too risky for private investors to be willing to finance.

It’s a ridiculous and obsolete program, and while its cost is small in the grand scheme of government spending — $2 billion over years — the difficulty with which it was finally defunded shows the extreme disproportionate influence of special interests in Washington. When conservatives finally succeeded in stopping the Bank’s funding, it was regarded as a huge victory for the opponents of corporate cronyism, proof of the concept that we can stop, or at least roll back, the leviathan if we could only muster the political will. …

It’s cynical in the extreme for politicians to try to sneak this corporate handout past the voters, and anyone who supports the reauthorization should be ashamed of themselves. FreedomWorks has preemptively issued a Key Vote NO on any bill to reauthorize the Ex-Im Bank, and will count those votes on our legislative scorecard.

Heritage Foundation has an excellent discussion of the issues at Export–Import Bank: Propaganda versus the Facts.

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.

Wichita Chamber speaks on county spending and taxes

The Wichita Metro Chamber of Commerce urges spending over fiscally sound policies and tax restraint in Sedgwick County.

Today the Wichita Metro Chamber of Commerce issued a “key vote” alert. This procedure, used by political groups of all persuasions, alerts elected officials that the Chamber prefers a certain outcome on an issue. Those who vote in harmony with the Chamber are likely to receive support in their next election, while the noncompliant are implicitly threatened with opponents the Chamber will support.

Here’s what the Chamber sent to commissioners:

From: Barby Jobe
Sent: Tuesday, August 11, 2015 2:47 PM

TO: SEDGWICK COUNTY BOARD OF COUNTY COMMISSIONERS

FROM: WALTER BERRY, Vice Chair, Wichita Metro Chamber Government Relations Committee

RE: KEY VOTE ALERT

While we have not recently had many “key votes” at the local level, the Wichita Metro Chamber would like to alert you that we will be key voting the 2016 Budget.

The Chamber would like to encourage the Commission to consider a compromise by leaving the property tax rate as it is currently and reducing the amount of cash-funded roads thus allowing a reallocation of funds for economic development and education, culture and recreation, city partnerships, and health and human services.

Thank you for your consideration.

Wichita Pavement Condition Index, from the city's 2012 Performance Measure Report
Wichita Pavement Condition Index, from the city’s 2012 Performance Measure Report
It’s unclear precisely what the Wichita Chamber is asking commissioners to do. It seems likely the Chamber is asking for support of “Plan C.” That is the plan drafted by commissioners Tim Norton and Dave Unruh, which proposes deferring road maintenance in order to free funds for current spending. That plan sets the county on the course chosen by the city of Wichita some years ago. That is, defer maintenance on streets and other infrastructure to support current spending. That policy lead to declining quality of streets and a large backlog of other maintenance, with a recent report from the city finding that the “cost to bring existing deficient infrastructure up to standards” is an additional $45 to $55 million per year.

This deferral of maintenance needs is a form of deficit spending. It’s curious that a purportedly conservative organization like the Wichita Chamber of Commerce would support that.

Well, it’s not really surprising. The Wichita Chamber has long advocated for more taxation and spending, taking the lead in promoting the one cent per dollar sales tax proposal in Wichita last year. The Chamber has supported big-spending Republicans over fiscal conservatives for office at several levels.

Your chamber of commerce radio buttonsIn Wichita, and across the country, local chambers of commerce support crony capitalism instead of pro-growth policies that allow free enterprise and genuine capitalism to flourish.

That may be surprising to read. Most people probably think that local chambers of commerce — since their membership is mostly business firms — support pro-growth policies that embrace limited government and free markets. But that’s usually not the case. It’s certainly is not the case in Wichita, where the Chamber supports higher taxes, more government spending, more business welfare, more government planning and control, more cronyism — and less economic freedom. The predictable result is less prosperity, which has been the case in Wichita under the leadership of the Wichita Chamber, its policies, and the politicians and bureaucrats it supports.

Here, in an excerpt from his article “Tax Chambers” economist Stephen Moore — formerly of the Wall Street Journal and now with Heritage Foundation — explains the decline of the local chamber of commerce:

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

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

In the states, chambers have come to believe their primary function is to secure tax financing for sports stadiums, convention centers, high-tech research institutes and transit boondoggles. Some local chambers have reportedly asked local utilities, school administrators and even politicians to join; others have opened membership to arts councils, museums, civic associations and other “tax eater” entities.

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

From Stephen Moore in the article “Tax Chambers” published in The Wall Street Journal February 10, 2007. The complete article is here.

In Sedgwick County, expectation of government entitlements

In Sedgwick County, we see that once companies are accustomed to government entitlements, any reduction is met with resistance.

When an executive of Spirit Aerosystems accused the Sedgwick County Commission of “working against us,” the company may have forgotten the assistance and special treatment the company has received from local governments and taxpayers. This assistance has amounted to hundreds of millions of dollars over several decades, when we consider both Spirit and its predecessor, Boeing.

Now, Spirit objects to a proposed reduction in funding to Wichita Area Technical College, and also cuts to local attractions such as the zoo. The proposed cut to WATC is less than the cut made the year before, although part of that cut was rescinded, making the proposed cut equal to last year’s cut. These cuts follow a trajectory recommended by the former county manager, who was widely praised as understanding and accommodating the needs of area business firms.

So when Spirit accuses county taxpayers as working against the company, it’s a little hard to stomach. Residents of Sedgwick County pay higher taxes so that Spirit can pay less.

Especially glaring is when companies ask for forgiveness of paying sales tax, as Spirit routinely does. In Kansas, low-income families must pay sales tax on their groceries, and at a rate that is among the highest in the country. Even more difficult to fathom are the companies that campaigned for a higher sales tax in Wichita, but engage in financial maneuvers designed to avoid paying any sales tax. Sometimes companies campaign for higher property taxes, especially school bonds, but then ask for exemption from paying those taxes. 1 2 3

Following, a discussion of a Spirit Aerosystems tax abatement request from 2014.

This week the Wichita City Council will hold a public hearing concerning the issuance of Industrial Revenue Bonds to Spirit AeroSystems, Inc. The purpose of the bonds is to allow Spirit to avoid paying property taxes on taxable property purchased with bond proceeds for a period of five years. The abatement may then be extended for another five years. Additionally, Spirit will not pay sales taxes on the purchased property.

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

City: $81,272
State: $3,750
County: $73,442
USD 259: $143,038

No value is supplied for the amount of sales tax that may be avoided. The listing of USD 259, the Wichita public school district, is likely an oversight by the city, as the Spirit properties lie in the Derby school district. This is evident when the benefit-cost ratios are listed:

City of Wichita: 1.98 to one
General Fund: 1.78 to one
Debt Service: 2.34 to one
Sedgwick County: 1.54 to one
U.S.D. 260: 1.00 to one (Derby school district)
State of Kansas: 28.23 to one

The City of Wichita has a policy where economic development incentives should have a benefit cost ratio of 1.3 to one or greater for the city to participate, although there are many loopholes the city regularly uses to approve projects with smaller ratios. Note that the ratio for the Derby school district is 1.00 to one, far below what the city requires for projects it considers for participation. That is, unless it uses one of the many available loopholes.

We have to wonder why the City of Wichita imposes upon the Derby school district an economic development incentive that costs the Derby schools $143,038 per year, with no payoff? Generally the cost of economic development incentives are shouldered because there is the lure of a return, be it real or imaginary. But this is not the case for the Derby school district. This is especially relevant because the school district bears, by far, the largest share of the cost of the tax abatement.

Of note, the Derby school district extends into Wichita, including parts of city council districts 2 and 3. These districts are represented by Pete Meitzner and James Clendenin, respectively.

The city’s past experience

Wichita Mayor Carl Brewer Facebook 2012-01-04Spirit Aerosystems is a spin-off from Boeing and has benefited from many tax abatements over the years. In a written statement in January 2012 at the time of Boeing’s announcement that it was leaving Wichita, Mayor Carl Brewer wrote “Our disappointment in Boeing’s decision to abandon its 80-year relationship with Wichita and the State of Kansas will not diminish any time soon. The City of Wichita, Sedgwick County and the State of Kansas have invested far too many taxpayer dollars in the past development of the Boeing Company to take this announcement lightly.”

Along with the mayor’s statement the city released a compilation of the industrial revenue bonds authorized for Boeing starting in 1979. The purpose of the IRBs is to allow Boeing to escape paying property taxes, and in many cases, sales taxes. According to the city’s compilation, Boeing was granted property tax relief totaling $657,992,250 from 1980 to 2017. No estimate for the amount of sales tax exemption is available. I’ve prepared a chart showing the value of property tax abatements in favor of Boeing each year, based on city documents. There were several years where the value of forgiven tax was over $40 million.

Boeing Wichita tax abatements, annual value, from City of Wichita.
Boeing Wichita tax abatements, annual value, from City of Wichita.
Kansas Representative Jim Ward, who at the time was Chair of the South Central Kansas Legislative Delegation, issued this statement regarding Boeing and incentives:

Boeing is the poster child for corporate tax incentives. This company has benefited from property tax incentives, sales tax exemptions, infrastructure investments and other tax breaks at every level of government. These incentives were provided in an effort to retain and create thousands of Kansas jobs. We will be less trusting in the future of corporate promises.

Not all the Boeing incentives started with Wichita city government action. But the biggest benefit to Boeing, which is the property tax abatements through industrial revenue bonds, starts with Wichita city council action. By authorizing IRBs, the city council cancels property taxes not only for the city, but also for the county, state, and school district.

Government creates obstacles to progress

“Overcoming obstacles can be a difficult challenge even on a level playing field. We need to change the rigged system that favors the politically connected over the hardworking, honest citizen,” writes Charles Koch in a recent edition of Perspectives.

Overcoming Obstacles

By Charles Koch
July 13, 2015

America’s founding fathers had a unique vision for the United States. As the Declaration of Independence famously put it, this country was conceived as a place where people could enjoy “unalienable Rights,” including “Life, Liberty and the pursuit of Happiness.”

These concepts are much more than just words to me. I believe the greatest gift we can receive or pass on is the opportunity to find and pursue our passion, and, in doing so, make a difference by helping others improve their lives.

It seems to me we’re now losing much of the vision our founders fought so hard to establish. Time and time again, government policies have made it tougher for people to realize their potential.

This change creates some serious consequences, especially for the least-advantaged Americans, who now face more obstacles than ever in their struggle to develop and apply their unique talents and abilities.

To remove these obstacles, we need to revise poverty-creating regulations and abolish corporate welfare, reform our approach to education and enact criminal justice reform.

OVERCOMING OBSTACLES

Consider the challenges of starting a small business. Most would be entrepreneurs have very little capital. To raise money, many will pledge or mortgage whatever assets they have; others will ask for a small business loan.

In the past, community banks usually made such loans. But the Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law in 2010, put a particular burden on local lenders.

Community banks now face higher compliance costs, more complicated regulations and some strong disincentives to make traditional loans. As Forbes bluntly put it: “Dodd-Frank is killing community banks.”

When small borrowers have no local options, they are forced to turn to bigger banks for help, where they have even less of a chance of getting a loan.

Regressive and anti-competitive regulations are also stalling progress. In particular, licensure requirements (especially at the state and local level) have become a huge obstacle.

Millions are now denied jobs in more than 100 lower-income occupations because of unnecessary licensing requirements, months of mandated training and unaffordable fees.

At the corporate level, excessive permitting requirements (such as a decade-long approval process for a new facility) are very anticompetitive. Such requirements not only prevent the creation of jobs, they protect existing businesses from competition and keep out new entrants, which is a form of corporate welfare.

CORPORATE WELFARE

Even as the little guy is getting stiff-armed, the government has opened its arms to corporate cronyism by subsidizing big banks and corporations through the tax code, mandates, protective tariffs and so on.

I believe this corporate welfare has created a two-tier system with far more “have-nots” than “haves.”

Too many CEOs owe their profits to government “gimmes” rather than the creation of real value by helping others improve their lives. This is the major cause of so much profit being bad rather than good (the subject of my upcoming book).

Speaking of books, another troubling area is education, which should be a path for overcoming obstacles.

Having an effective education that imparts the skills and values needed to make a contribution in society is essential for success.

But that doesn’t mean we should try to push almost all high school graduates into a four-year liberal arts program where they may collect a lot of debt without getting any usable skills.

Educational choices should reflect aptitude. Many kids with mechanical aptitudes will be much more successful by learning a skilled trade or craft.

RENEWED VISION

America should be a place that encourages and enables people to find opportunities to contribute and succeed, and have meaning and fulfillment in their lives.

Instead, it appears that America has become a two-tiered system, in which those with political connections get favors while obstacles are placed in front of those who are left behind.

A great nation does not treat people according to some group classification, whether it be race, religion, gender or age, instead of on their individual merits.

We need to reform our legal and regulatory system so that it treats everyone equally and doesn’t discriminate against the least-advantaged in our society.

Overcoming obstacles can be a difficult challenge even on a level playing field. We need to change the rigged system that favors the politically connected over the hardworking, honest citizen.

A Wichita Shocker, redux

Based on events in Wichita, the Wall Street Journal wrote “What Americans seem to want most from government these days is equal treatment. They increasingly realize that powerful government nearly always helps the powerful …” But Wichita’s elites don’t seem to understand this.

A Wichita ShockerThree years ago from today the Wall Street Journal noted something it thought remarkable: a “voter revolt” in Wichita. Citizens overturned a decision by the Wichita City Council regarding an economic development incentive awarded to a downtown hotel. It was the ninth layer of subsidy for the hotel, and because of our laws, it was the only subsidy that citizens could contest through a referendum process.

In its op-ed, the Journal wrote:

The elites are stunned, but they shouldn’t be. The core issue is fairness — and not of the soak-the-rich kind that President Obama practices. One of the leaders of the opposition, Derrick Sontag, director of Americans for Prosperity in Kansas, says that what infuriated voters was the veneer of “political cronyism.”

What Americans seem to want most from government these days is equal treatment. They increasingly realize that powerful government nearly always helps the powerful, whether the beneficiaries are a union that can carve a sweet deal as part of an auto bailout or corporations that can hire lobbyists to write a tax loophole.

The “elites” referred to include the Wichita Metro Chamber of Commerce, the political class, and the city newspaper. Since then, the influence of these elites has declined. Last year all three campaigned for a sales tax increase in Wichita, but voters rejected it by a large margin. It seems that voters are increasingly aware of the cronyism of the elites and the harm it causes the Wichita-area economy.

Last year as part of the campaign for the higher sales tax the Wichita Chamber admitted that Wichita lags in job creation. The other elites agreed. But none took responsibility for having managed the Wichita economy into the dumpster. Even today the local economic development agency — which is a subsidiary of the Wichita Chamber — seeks to shift blame instead of realizing the need for reform. The city council still layers on the levels of subsidy for its cronies.

Following, from March 2012:

A Wichita shocker

“Local politicians like to get in bed with local business, and taxpayers are usually the losers. So three cheers for a voter revolt in Wichita, Kansas last week that shows such sweetheart deals can be defeated.” So starts today’s Wall Street Journal Review & Outlook editorial (subscription required), taking notice of the special election last week in Wichita.

The editorial page of the Wall Street Journal is one of the most prominent voices for free markets and limited government in America. Over and over Journal editors expose crony capitalism and corporate welfare schemes, and they waste few words in condemning these harmful practices.

The three Republican members of the Wichita City Council who consider themselves fiscal conservatives but nonetheless voted for the corporate welfare that voters rejected — Pete Meitzner (district 2, east Wichita), James Clendenin (district 3, southeast and south Wichita), and Jeff Longwell (district 5, west and northwest Wichita) — need to consider this a wake up call. These members, it should be noted, routinely vote in concert with the Democrats and liberals on the council.

For good measure, we should note that Sedgwick County Commission Republicans Dave Unruh and Jim Skelton routinely — but not always — vote for these crony capitalist measures.

The Wichita business community, headed by the Wichita Metro Chamber of Commerce endorsed this measure, too.

Hopefully this election will convince Wichita’s political and bureaucratic leaders that our economic development policies are not working. Combined with the startling findings by a Tax Foundation and KMPG study that finds Kansas lags near the bottom of the states in tax costs to business, the need for reform of our spending and taxing practices couldn’t be more evident. It is now up to our leaders to find within themselves the capability to change — or we all shall suffer.

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.

Year in Review: 2014

Here is a sampling of stories from Voice for Liberty in 2014.

January

A transparency agenda for Wichita
Kansas has a weak open records law, and Wichita doesn’t want to follow the law, as weak as it is. But with a simple change of attitude towards open government and citizens’ right to know, Wichita could live up to the goals its leaders have set.

New York Times on Kansas schools, again
The New York Times — again — intervenes in Kansas schools. As it did last October, the newspaper makes serious errors in its facts and recommendations.

Visit Wichita, and pay a tourism fee
The Wichita City Council will consider adding a 2.75 percent tax to hotel bills, calling it a “City Tourism Fee.” Welcome to Wichita!

Wichita’s growth in gross domestic product
Compared to peer areas, Wichita’s record of growth in gross domestic product is similar to that of job creation: Wichita performs poorly.

The death penalty in Kansas, a conservative view
What should the attitude of conservatives be regarding the death penalty? Ben Jones of Conservatives Concerned about the Death Penalty spoke on the topic “Capital Punishment in Kansas from a conservative perspective: Is it a failed policy?”

Kansas school test scores, the subgroups
To understand Kansas school test scores, look at subgroups. Sometimes Kansas ranks very well among the states. In other instances, Kansas ranks much lower, even below the national average. It’s important for Kansans — be they citizens, schoolchildren, parents, education professionals, or (especially) politicians of any party — to understand these scores.

The state of Wichita, 2014
Wichita Mayor Carl Brewer delivered the annual State of the City address. He said a few things that deserve discussion.

February

In Wichita, why do some pay taxes, and others don’t?
A request by a luxury development in downtown Wichita raises issues, for example, why do we have to pay taxes?

Wichita considers policy to rein in council’s bad behavior
he Wichita City Council considers a policy designed to squelch the council’s ability to issue no-bid contracts for city projects. This policy is necessary to counter the past bad behavior of Wichita Mayor Carl Brewer and several council members, as well as their inability to police themselves regarding matters of ethical behavior by government officials.

Our Kansas grassroots teachers union
Letters to the editor in your hometown newspaper may have the air of being written by a concerned parent of Kansas schoolchildren, but they might not be what they seem.

Wichita’s legislative agenda favors government, not citizens
This 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.

Wichita planning documents hold sobering numbers
The documents hold information that ought to make Wichitans think, and think hard. The amounts of money involved are large, and portions represent deferred maintenance. That is, the city has not been taking care of the assets that taxpayers have paid for.

In Wichita, citizens want more transparency in city government
In a videographed meeting that is part of a comprehensive planning process, Wichitans openly question the process, repeatedly asking for an end to cronyism and secrecy at city hall.

March

Special interests struggle to keep special tax treatment
When a legislature is willing to grant special tax treatment, it sets up a battle to keep — or obtain — that status. Once a special class acquires preferential treatment, others will seek it too.

In Wichita, West Bank apartments seem to violate ordinance
Last year the Wichita City Council selected a development team to build apartments on the West Bank of the Arkansas River, between Douglas Avenue and Second Street. But city leaders may have overlooked a Wichita City Charter Ordinance that sets aside this land to be “open space, committed to use for the purpose of public recreation and enjoyment.”

In Wichita, pushing back at union protests
A Wichita automobile dealer is pushing back at a labor union that’s accusing the dealer of unfair labor practices.

Wichita City Council to consider entrenching power of special interest groups
The Wichita City Council will consider a resolution in support of the status quo for city elections. Which is to say, the council will likely express its support for special interest groups whose goals are in conflict with the wellbeing of the public.

State employment visualizations
There’s been dueling claims and controversy over employment figures in Kansas and our state’s performance relative to others. I present the actual data in interactive visualizations that you can use to make up your own mind.

State and local government employment levels vary
The states vary widely in levels of state government and local government employees, calculated on a per-person basis. Only ten states have total government employee payroll costs greater than Kansas, on a per-person basis.

April

Wichita not good for small business
When it comes to having good conditions to support small businesses, well, Wichita isn’t exactly at the top of the list, according to a new ranking from The Business Journals.

Cronyism is welfare for rich and powerful, writes Charles G. Koch
“The central belief and fatal conceit of the current administration is that you are incapable of running your own life, but those in power are capable of running it for you. This is the essence of big government and collectivism,” writes Charles G. Koch in the Wall Street Journal.

Rich States, Poor States for 2014 released
In the 2014 edition of Rich States, Poor States, Utah continues its streak at the top of Economic Outlook Ranking, meaning that the state is poised for growth and prosperity. Kansas continues with middle-of-the-pack performance rankings, and fell in the forward-looking forecast.

Wichita develops plans to make up for past planning mistakes
On several issues, including street maintenance, water supply, and economic development, Wichita government and civic leaders have let our city fall behind. Now they ask for your support for future plans to correct these mistakes in past plans.

May

Poll: Wichitans don’t want sales tax increase
According to a newly released poll from Kansas Policy Institute, Wichitans may want more jobs and a secure water source but they certainly don’t support a sales tax increase as the means to get either. Reporting on this poll is available in these articles: In Wichita, opinion of city spending consistent across party and ideology, Few Wichitans support taxation for economic development subsidies, Wichitans willing to fund basics, and To fund government, Wichitans prefer alternatives to raising taxes.

Contrary to officials, Wichita has many incentive programs
Wichita government leaders complain that Wichita can’t compete in economic development with other cities and states because the budget for incentives is too small. But when making this argument, these officials don’t include all incentives that are available.

In Wichita, the streetside seating is illuminated very well
Wichita city leaders tell us that the budget and spending have been cut to the bone. Except for the waste, that is.

Wichita seeks to form entertainment district
A proposed entertainment district in Old Town Wichita benefits a concentrated area but spreads costs across everyone while creating potential for abuse.

In Wichita, capitalism doesn’t work, until it works
Attitudes of Wichita government leaders towards capitalism reveal a lack of understanding. Is only a government-owned hotel able to make capital improvements?

Wichita, again, fails at government transparency
At a time when Wichita city hall needs to cultivate the trust of citizens, another incident illustrates the entrenched attitude of the city towards its citizens. Despite the proclamations of the mayor and manager, the city needs a change of attitude towards government transparency and citizens’ right to know.

Wichita per capita income not moving in a good direction
Despite its problematic nature, per capita income in Wichita is used as a benchmark for the economy. It’s not moving in the right direction. As Wichita plans its future, leaders need to recognize and understand its recent history.

Uber, not for Wichita
A novel transportation service worked well for me on a recent trip to Washington, but Wichita doesn’t seem ready to embrace such innovation.

For Kansas’ Roberts, an election year conversion?
A group of like-minded Republican senators has apparently lost a member. Is the conservative voting streak by Pat Roberts an election year conversion, or just a passing fad?

June

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

Government employee costs in the states
The states vary widely in levels of state government and local government employees and payroll costs, calculated on a per-person basis. Kansas ranks high in these costs, nationally and among nearby states.

With new tax exemptions, what is the message Wichita sends to existing landlords?
As the City of Wichita prepares to grant special tax status to another new industrial building, existing landlords must be wondering why they struggle to stay in business when city hall sets up subsidized competitors with new buildings and a large cost advantage.

Wichita city council schools citizens on civic involvement
Proceedings of a recent Wichita City Council meeting are instructive of the factors citizens should consider if they want to interact with the council and city government at a public hearing.

Forget the vampires. Let’s tackle the real monsters.
Public service announcements on Facebook and Wichita City Channel 7 urge Wichitans to take steps to stop “vampire” power waste. But before hectoring people to introduce inconvenience to their lives in order to save small amounts of electricity, the city should tackle the real monsters of its own creation.

July

Wichita property taxes rise again
The City of Wichita is fond of saying that it hasn’t raised its mill levy in many years. But the mill levy has risen in recent years.

For Wichita leaders, novel alternatives on water not welcome
A forum on water issues featured a presentation by Wichita city officials and was attended by other city officials, but the city missed a learning opportunity.

For Wichita’s new water supply, debt is suddenly bad
Wichita city leaders are telling us we need to spend a lot of money for a new water source. For some reason, debt has now become a dirty word.

Pat Roberts, senator for corporate welfare
Two years ago United States Senator Pat Roberts voted in committee with liberals like John Kerry, Chuck Schumer, and Debbie Stabenow to pass a bill loaded with wasteful corporate welfare.

August

Charles Koch: How to really turn the economy around
Writing in USA Today, Charles Koch offers insight into why our economy is sluggish, and how to make a positive change.

Wichita airport statistics updated
As the Wichita City Council prepares to authorize funding for Southwest Airlines, it’s worth taking a look at updated statistics regarding the airport.

Wichita sales tax hike would hit low income families hardest
Analysis of household expenditure data shows that a proposed sales tax in Wichita affects low income families in greatest proportion, confirming the regressive nature of sales taxes.

Welcome back, Gidget
Gidget stepped away for a few months, but happily she is back writing about Kansas politics at Kansas GOP Insider (wannabe).

September

Wichita planning results in delay, waste
Wichita plans an ambitious road project that turns out to be too expensive, resulting in continued delays for Wichita drivers and purchases of land that may not be needed.

‘Transforming Wichita’ a reminder of the value of government promises
When Wichita voters weigh the plausibility of the city’s plans for spending proposed new sales tax revenue, they should remember this is not the first time the city has promised results and accountability.

Fact-checking Yes Wichita: NetApp incentives
In making the case that economic development incentives are necessary and successful in creating jobs, a Wichita campaign overlooks the really big picture.

Arrival of Uber a pivotal moment for Wichita
Now that Uber has started service in Wichita, the city faces a decision. Will Wichita move into the future by embracing Uber, or remain stuck in the past?

Fact-checking Yes Wichita: Boeing incentives
The claim that the “city never gave Boeing incentives” will come as news to the Wichita city officials who dished out over $600 million in subsidies and incentives to the company.

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

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

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

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

Water, economic development discussed in Wichita
Dr. Art Hall, Executive Director of the Center for Applied Economics at the University of Kansas School of Business, presented his “Thoughts on Water and Economic Development” at the Wichita Pachyderm Club Friday, September 19, 2014

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

October

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

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

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

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

Wichita debt levels seen to rise
As part of the campaign for a proposed Wichita sales tax, the city says that debt is bad. But actions the city has taken have caused debt levels to rise, and projections are for further increases.

For Wichita, another economic development plan
The Wichita City Council will consider a proposal from a consultant to “facilitate a community conversation for the creation of a new economic development diversification plan for the greater Wichita region.” Haven’t we been down this road before?

In Wichita, pro-sales tax campaign group uses sales tax-exempt building as headquarters
While “Yes Wichita” campaigns for higher sales taxes, it operates from a building that received a special exemption from paying sales tax.

For Wichita Chamber of Commerce chair, it’s sales tax for you, but not for me
A Wichita company CEO applied for a sales tax exemption. Now as chair of the Wichita Metro Chamber of Commerce, he wants you to pay more sales tax, even on the food you buy in grocery stores.

Should Wichita expand a water system that is still in commissioning stage?
Should we be concerned about rushing a decision to expand a water production system that has not yet proven itself?

Wichita sends educational mailer to non-Wichitans, using Wichita taxes
Why is the City of Wichita spending taxpayer money mailing to voters who don’t live in the city and can’t vote on the issue?

Wichita to consider tax exemptions
A Wichita company asks for property and sales tax exemptions on the same day Wichita voters decide whether to increase the sales tax, including the tax on groceries.

November

In election coverage, The Wichita Eagle has fallen short
Citizens want to trust their hometown newspaper as a reliable source of information. The Wichita Eagle has not only fallen short of this goal, it seems to have abandoned it.

Kansas school spending visualization updated
There’s new data available from Kansas State Department of Education on school spending. I’ve gathered the data, adjusted it for the consumer price index, and now present it in this interactive visualization.

In Kansas, school employment rises again
For the fourth consecutive year, the number of teachers in Kansas public schools has risen faster than enrollment, leading to declining pupil-teacher ratios.

Richard Ranzau, slayer of cronyism
In Sedgwick County, an unlikely hero emerges in the battle for capitalism over cronyism.

Kansans still uninformed on school spending
As in the past, a survey finds Kansans are uninformed or misinformed on the level of school spending, and also on the direction of its change.

In Kansas, voters want government to concentrate on efficiency and core services before asking for taxes
A survey of Kansas voters finds that Kansas believe government is not operating efficiently. They also believe government should pursue efficiency savings, focus on core functions, and spend unnecessary cash reserves before cutting services or raising taxes.

Kansas cities should not unilaterally grant tax breaks
When Kansas cities grant economic development incentives, they may also unilaterally take action that affects overlapping jurisdictions such as counties, school districts, and the state itself. The legislature should end this.

City of Wichita State Legislative Agenda: Cultural Arts Districts
Wichita government spending on economic development leads to imagined problems that require government intervention and more taxpayer contribution to resolve. The cycle of organic rebirth of cities is then replaced with bureaucratic management.

December

City of Wichita State Legislative Agenda: Airfares
The City of Wichita’s legislative agenda regarding the Affordable Airfares subsidy program seems to be based on data not supported by facts.

Options for funding Wichita’s future water supply
Now that the proposed Wichita sales tax has failed, how should Wichita pay for a future water supply?

KU records request seen as political attack
A request for correspondence belonging to a Kansas University faculty member is a blatant attempt to squelch academic freedom and free speech.

Why is this man smiling?
In Wichita, the chair of the Wichita Metro Chamber of Commerce crafts a sweetheart deal for his company to the detriment of Wichita taxpayers.

Wichita Metro Chamber of Commerce: What is the attitude towards taxes?
Does the Wichita Metro Chamber of Commerce support free markets, capitalism, and economic freedom, or something else?

Will the next Wichita mayor advocate enforcing our ethics laws?
Wichita has laws that seem clear. But the city attorney said they don’t mean what they seem to say. Will our next mayor stand up for ethics?

Campaign contribution stacking in Wichita
Those seeking favors from Wichita City Hall use campaign contribution stacking to bypass contribution limits. This has paid off handsomely for them, and has harmed everyone else.

Economic development in Wichita: Looking beyond the immediate
Decisions on economic development initiatives in Wichita are made based on “stage one” thinking, failing to look beyond what is immediate and obvious.

Economic development in Sedgwick County
The issue of awarding an economic development incentive reveals much as to why the Wichita-area economy has not grown.

Wichita Metro Chamber of Commerce: What is the attitude towards taxes?

Does the Wichita Metro Chamber of Commerce support free markets, capitalism, and economic freedom, or something else?

Your chamber of commerce radio buttonsVery often, local chambers of commerce support crony capitalism instead of pro-growth policies that allow free enterprise and genuine capitalism to flourish.

We saw this in Wichita this year, where the Wichita Metro Chamber of Commerce campaigned for a sales tax increase. The Chamber recommended that Wichitans vote in favor of a sales tax of one cent per dollar, with some of the proceeds to be dedicated for a jobs fund. (Other uses were to be for a new water supply, expanded bus transit, and accelerated neighborhood street repair.) Chamber leaders told the Wichita city council that if the jobs fund was not included in the package presented to voters, the Chamber would not support the sales tax.

Not long ago the Wichita Chamber was opposed to higher sales taxes. In March 2010, as chair of the Wichita Chamber, Sam Williams submitted a letter to the Wichita Eagle in which he wrote “Tax increases and government spending will not create employment or revive the state’s economic engine. Increasing the costs of goods and services will only lead to fewer purchases, more business closures, higher unemployment and less taxes being paid.”

In April of same year, he wrote again to the Eagle, advising Wichitans this: “Simply put, raising taxes hurts business, costs jobs and ultimately leads to fewer taxpayers and fewer taxes being paid to fund state and local government.”

Having espoused these anti-tax sentiments just four years ago, it’s curious that the Wichita Chamber would support and campaign for a sales tax for Wichita this year. This spills over to mayoral politics. As far as I saw, Sam Williams, — the Chamber’s chair in 2010 — did not take a public position on the sales tax this year. Except for this: Williams is chair of the Wichita Downtown Development Corporation, and that organization endorsed the sales tax.

Regarding mayoral politics: Did you know that Sam Williams is running for mayor? And that it appears he has the support of the Wichita Chamber?

I have a request. If you see Sam Williams, would you ask him about his position on raising sales taxes?

Your chamber of commerce

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

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

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

In the states, chambers have come to believe their primary function is to secure tax financing for sports stadiums, convention centers, high-tech research institutes and transit boondoggles. Some local chambers have reportedly asked local utilities, school administrators and even politicians to join; others have opened membership to arts councils, museums, civic associations and other “tax eater” entities.

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

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

Wichita to consider tax exemptions

A Wichita company asks for property and sales tax exemptions on the same day Wichita voters decide whether to increase the sales tax, including the tax on groceries.

This week the Wichita City Council will hold a public hearing concerning the issuance of Industrial Revenue Bonds to Spirit AeroSystems, Inc. The purpose of the bonds is to allow Spirit to avoid paying property taxes on taxable property purchased with bond proceeds for a period of five years. The abatement may then be extended for another five years. Additionally, Spirit will not pay sales taxes on the purchased property.

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

City: $81,272
State: $3,750
County: $73,442
USD 259: $143,038

No value is supplied for the amount of sales tax that may be avoided. The listing of USD 259, the Wichita public school district, is likely an oversight by the city, as the Spirit properties lie in the Derby school district. This is evident when the benefit-cost ratios are listed:

City of Wichita: 1.98 to one
General Fund: 1.78 to one
Debt Service: 2.34 to one
Sedgwick County: 1.54 to one
U.S.D. 260: 1.00 to one (Derby school district)
State of Kansas: 28.23 to one

The City of Wichita has a policy where economic development incentives should have a benefit cost ratio of 1.3 to one or greater for the city to participate, although there are many loopholes the city regularly uses to approve projects with smaller ratios. Note that the ratio for the Derby school district is 1.00 to one, far below what the city requires for projects it considers for participation. That is, unless it uses one of the many available loopholes.

We have to wonder why the City of Wichita imposes upon the Derby school district an economic development incentive that costs the Derby schools $143,038 per year, with no payoff? Generally the cost of economic development incentives are shouldered because there is the lure of a return, be it real or imaginary. But this is not the case for the Derby school district. This is especially relevant because the school district bears, by far, the largest share of the cost of the tax abatement.

Of note, the Derby school district extends into Wichita, including parts of city council districts 2 and 3. These districts are represented by Pete Meitzner and James Clendenin, respectively.

The city’s past experience

Wichita Mayor Carl Brewer Facebook 2012-01-04Spirit Aerosystems is a spin-off from Boeing and has benefited from many tax abatements over the years. In a written statement in January 2012 at the time of Boeing’s announcement that it was leaving Wichita, Mayor Carl Brewer wrote “Our disappointment in Boeing’s decision to abandon its 80-year relationship with Wichita and the State of Kansas will not diminish any time soon. The City of Wichita, Sedgwick County and the State of Kansas have invested far too many taxpayer dollars in the past development of the Boeing Company to take this announcement lightly.”

Along with the mayor’s statement the city released a compilation of the industrial revenue bonds authorized for Boeing starting in 1979. The purpose of the IRBs is to allow Boeing to escape paying property taxes, and in many cases, sales taxes. According to the city’s compilation, Boeing was granted property tax relief totaling $657,992,250 from 1980 to 2017. No estimate for the amount of sales tax exemption is available. I’ve prepared a chart showing the value of property tax abatements in favor of Boeing each year, based on city documents. There were several years where the value of forgiven tax was over $40 million.

Boeing Wichita tax abatements, annual value, from City of Wichita.
Boeing Wichita tax abatements, annual value, from City of Wichita.
Kansas Representative Jim Ward, who at the time was Chair of the South Central Kansas Legislative Delegation, issued this statement regarding Boeing and incentives:

Boeing is the poster child for corporate tax incentives. This company has benefited from property tax incentives, sales tax exemptions, infrastructure investments and other tax breaks at every level of government. These incentives were provided in an effort to retain and create thousands of Kansas jobs. We will be less trusting in the future of corporate promises.

Not all the Boeing incentives started with Wichita city government action. But the biggest benefit to Boeing, which is the property tax abatements through industrial revenue bonds, starts with Wichita city council action. By authorizing IRBs, the city council cancels property taxes not only for the city, but also for the county, state, and school district.

WichitaLiberty.TV: Author and philosopher Andrew Bernstein

In this episode of WichitaLiberty.TV: Andrew Bernstein is a proponent of Ayn Rand’s Objectivism, an author, and a professor of philosophy. We talk about capitalism and other subjects. View below, or click here to view at YouTube. Episode 62, broadcast October 12, 2014.

What incentives can Wichita offer?

Wichita government leaders complain that Wichita can’t compete in economic development with other cities and states because the budget for incentives is too small. But when making this argument, these officials don’t include all incentives that are available.

In making the case for an economic development fund paid for by a sales tax, the argument goes like this: “Wichita and Sedgwick County compete conservatively with incentives. The City of Wichita and Sedgwick County have a total of $1.65 million in new uncommitted funds for cash incentives this year with any unused money going back to the general fund.” (Will Wichita Accelerate Competition for Primary Jobs?, presentation made to Wichita city council.)

This statement is true only if we use a very narrow definition of the word “incentive.” By any reasonable definition, Wichita has many incentives worth much more than what is claimed by Wichita economic development officials and politicians.

In fact, the report cited above contains contradictory information about the amounts that are available for economic development incentives in Wichita. Here is an example: “The $4.5 million PEAK program incentive from the Kansas Department of Commerce was an important factor in keeping NetApp in Wichita. Locally we were able to provide $836,000 in incentives.”

So with an incentives budget of $1.65 million, a Wichita company received $5.3 million in incentives. Some of that, like the PEAK incentive, is paid over a period of years. But that amount doesn’t begin to describe the benefits NetApp received.

Available incentive programs

Kansas Department of Commerce logoA letter to NetApp from the Kansas Department of Commerce laid out the potential benefits from the state. As detailed in the letter, the programs with potential dollar amounts are:

  • Promoting Employment Across Kansas (PEAK), up to $7,705,535
  • Kansas Industrial Training with PEAK, up to $160,800
  • sales tax savings of $6,880,000
  • personal property tax exemption, $11,913,682
  • High Performance Incentive Program (HPIP), $8,500,000

The total of these is $35,160,017. Some of these benefits are paid over a period of years. The PEAK benefits are payable over seven years, according to the letter, so that’s about $1.1 million per year. These are potential benefits; the company may not actually qualify for and receive this entire amount. But it’s what the state offered.

It’s true that some of these programs are not cash incentives of the type Wichita complains of lacking. But if a company is going to make purchases, and the state says you can skip paying sales tax on the purchases — well, that’s as good as cash. $6,880,000 in the case of NetApp, according to the Kansas Department of Commerce.

Local tax exemptions

Besides sales tax exemptions, the city has other types of tax exemptions it regularly offers. These exemptions can have substantial value. In 2008 as Drury contemplated Broadview Hotel 2013-07-09 020purchasing the Broadview Hotel, the city allowed the hotel to escape paying much of the taxes that the rest of us have to pay. According to city information, Drury planned to spend $22,797,750 on the hotel. If we use this as the appraised value for the property when it is complete, the annual property taxes due for this property would be $22,797,750 times .25 times 126.323 divided by 1000, or $719,970. This calculation may be rough, but it gives us an approximation of the annual operating subsidy being given to this hotel for the next ten years.

It's important for citizens to know incentivesWhen Boeing announced in 2012 that it was closing its Wichita operations, city leaders complained that Boeing was leaving Wichita even though it had received many incentives. From 1979 to 2007, Boeing received tax abatements through the industrial revenue bond process worth $658 million, according to a compilation provided by the City of Wichita. (This is not money the city lent or gave to Boeing. IRBs provide a vehicle for granting tax abatements or exemptions.) At the time, city officials said the average amount of bonds was $120 million per year. With Wichita commercial property tax rates at 3.008 percent ($30.08 per $1,000 of appraised value), according to GWEDC, that’s a tax savings of around $3.6 million per year. To Boeing, that’s as good as receiving cash year after year.

Tax increment financing

In 2013 Wichita approved a package benefiting Exchange Place in downtown. Here’s what the city council agenda packet gives as the sources of financing for this project.

HUD Loan Amount         $29,087,700
Private Equity            5,652,254
Tax Credit Equity        19,370,395
TIF Proceeds             12,500,000
Total Sources of Funds  $66,610,349

TIF, or tax increment financing, diverts future increased tax revenues away from their normal uses and diverts them back to the project. In this case, the city will borrow $12,500,000 by selling bonds. It will give this money to the developer. Then, TIF proceeds will be used to repay these bonds.

Some will argue that TIF isn’t really an incentive. The owners of the property will have to pay their property taxes, just like any other property owner. But for this project, the property taxes are used for the project’s own benefit instead of funding the costs of city government. This project gets to spend $12.5 million of its property tax payments on itself, rather than funding the costs of Wichita city government.

Tax credits

Ambassador Hotel sign 2014-03-07Note that the sources of financing for the Exchange Place project includes “Tax Credit Equity.” Here’s an example of another downtown project, the Ambassador Hotel, and the incentive package the city prepared:

  • $3,325,000 in tax increment financing.
  • $4,245,000 in city funding under the capital improvement plan (CIP), to build parking for the hotel.
  • $3,800,000 in tax credits from the State of Kansas.
  • $3,500,000 in tax credits from the U.S. government.
  • $537,075 in sales tax exemptions on purchases during the construction and furnishing of the hotel.
  • $60,000 per year in community improvement district (CID) sales tax. The hotel charges an extra two cents per dollar sales tax, which the state returns to the hotel.
  • $127,499 per year (estimated) in rental revenue to the developers from a sweetheart lease deal.
  • Participation in Wichita’s facade improvement program, which provides special assessment financing that is repaid.

All told, this project was slated to receive $15,407,075 in taxpayer funds to get started, with additional funds provided annually.

The tax credits for this project are historic preservation tax credits. They have the same economic impact as a cash payment. The federal tax credits are available across the country, while the Kansas tax credits, of course, are a state program. In this case the hotel developers received an upfront payment of $3.8 million from the state in a form that’s as good as cash.

STAR bonds

Last year a STAR bonds district in northeast Wichita was approved to receive $31,570,785 from these bonds. The STAR bonds are paid off with sales tax revenue that would otherwise go to the state and overlapping jurisdictions. This is sales tax collected from the business’s customers, and doesn’t cost the business anything.

Adding it up

This list is not complete. There are other programs and other beneficiaries of economic development subsidies. With this in mind, it is disingenuous for city and other officials to use the $1.65 million figure as though it was all Wichita had to offer. It’s important for citizens to know that contrary to the claims of officials, Wichita has many economic development incentive programs available, and some have substantial value to the recipients, with corresponding cost to the city and other jurisdictions.

Elections in Kansas: Federal offices

Kansas Republican primary voters made two good decisions this week.

Kansas held primary elections this week. The primary election, of course, does not determine who wins the office; it only selects one Democratic and one Republican candidate to move forward to the November general election. But in many cases, the primary is the election, at least the one that really makes a difference. That’s because in Kansas, often there may be no Democratic Party candidate. Or if there is a Democrat, that candidate may have little money available to campaign in a district with a large Republican voter registration advantage.

It’s important to note that some candidates who will appear on the general election ballot in November did not appear on any primary election ballot. That’s because parties other than Democratic and Republican select their candidates in a convention. In particular, there are two prominent candidates in this category. One is Keen Umbehr, the Libertarian Party candidate for governor. The other is independent candidate Greg Orman, who is running for United States senator. Both are serious candidates that deserve consideration from voters.

Let’s take a look at a few results from the primary election.

United States Senate

United States Senate Primary, 2014
In the contest for the Republican Party nomination for United States Senate, Pat Roberts won, receiving 48 percent of the vote. He moves on to face not only the Democratic nominee, but also an independent candidate who is already advertising on television. The problem Roberts faces going forward is the fallout from his scorched-earth campaign. He went negative against Milton Wolf from the start, focusing on issues that are worth considering, but quite trivial considering the big picture.

Pat Roberts millions on negative ads
Roberts ran an advertisement near the end of the campaign that took Wolf’s words grossly out of context, and Roberts should be ashamed for stooping to that level. Another thing Roberts can be ashamed of is his refusal to debate opponents. He said he would debate. He should debate. It’s a civic obligation. He also largely avoided news media.

Pat Roberts StarKistDuring the campaign, I was critical of Roberts. I looked at votes he had taken while in the Senate. I looked at the way he ran his campaign. I was critical. I hope that I kept my criticism based on — and focused on — facts and issues. But another problem Roberts has is the behavior of his supporters, both official and unofficial. They too ran a scorched-earth campaign.

Tweet about Milton Wolf I’d like to show you some of the posts made on Facebook and Twitter about Wolf and his supporters, but this is a family-oriented blog. Roberts will need the support of all Kansas Republicans in the general election. He needs to hope that they don’t peel off to the Democrat or Independent candidates. Roberts needs all Kansas Republicans to vote, and vote for him. But the behavior of his campaign and its supporters has harmed Republican party unity. What’s curious to me is that I don’t think they realize the harm they have caused.

United States House of Representatives, district 4

United States House, District 4For United States House, fourth district, which is Wichita and the surrounding area, incumbent Mike Pompeo won over Todd Tiahrt, 63 percent to 37 percent. This contest was curious for a number of reasons, such as the former holder of the office seeking it again, and running against a man he endorsed twice. It attracted national attention for that reason, but also for something more important: Tiahrt was advocating for a return to the practice of earmarking federal spending. Tiahrt concentrated a few issues in a campaign that was negative from the start.

Tiahrt claimed that Pompeo voted to support Obamacare seven times. But everyone who examined that claim, including several political science professors, said it was unfounded, going as far as saying it broke the truth entirely. The Tiahrt campaign also took a speech Pompeo had made on the floor of the House of Representatives and used just one sentence of it in a deceptive manner. The campaign also took a bill that Pompeo introduced — having to do with GMOs — and twisted its meaning in order to claim that Pompeo doesn’t want you to know the ingredients used in food. Tiahrt criticized Pompeo for missing some votes during the campaign, even though Tiahrt had missed many votes during his own campaign four years ago.

In the face of these negative ads, Pompeo remained largely positive. He released one television ad that rebutted the claims that Tiahrt had made. Is it negative campaigning to rebut the false accusations of your opponent? Pompeo had one ad that mentioned “goofy accusations” made by his opponent, which hardly qualifies as negative. Other than that, the Pompeo campaign remained largely positive. That is quite an accomplishment in today’s political environment.

This campaign was also marred by vitriol among supporters. In my opinion, based on my observations, the Tiahrt supporters that engaged in this behavior have some apologies to make. Pompeo goes on to face a relatively unknown Democrat in the heavily Republican fourth district.

United States House of Representatives, district 1

United States House, District 1For United States House, first district, which is western Kansas, although the district extends east enough to include Emporia and Manhattan, incumbent Tim Huelskamp was challenged by Alan LaPolice. Huelskamp won with 55 percent of the vote. Huelskamp had faced criticism for not being supportive of various subsidy programs that benefit farmers, most notably for ethanol. Outside groups joined the race, running ads critical of Huelskamp for that reason. Some ads were critical of Huelskamp for being removed from the House Agriculture committee, that move seen as retaliation for not supporting Speaker of the House John Boehner. Huelskamp now moves on to face a Kansas State University history professor who was also the mayor of Manhattan.

The meaning of these results

What do these results mean? These three elections — Senate and two House contests — attracted national attention. The Friday before the election, Kimberly Strassel wrote in the Wall Street Journal of the importance of the fourth district contest. She wrote:

A big decision comes Tuesday in the Kansas GOP primary. The Sunflower State is in the throes of political upheaval, with most of the attention on the fortunes of Gov. Sam Brownback and Sen. Pat Roberts. But the race that may say far more about the direction of the GOP is taking place in Wichita, the state’s Fourth District, in the standoff between Rep. Mike Pompeo and challenger Todd Tiahrt.

Pompeo was elected in the 2010 tea party surge, with a particular focus on liberating private enterprise. He’s made a name for himself as a leader in the fight to end corporate welfare and pork, and to cut back on strangling regulations.

A Crony Capitalist Showdown

After detailing some legislative activity and accomplishment, Strassel noted the difficulty that fighters for economic freedom encounter: She wrote “Such principles are precisely what conservative voters claim to demand from their representatives. Yet the antisubsidy line has hardly been an easy one, even in conservative Kansas — which collects its share of federal largess. And Mr. Tiahrt knows it.”

Continuing, she wrote: “The choice voters fundamentally face on Tuesday is whether they want a congressman who works to get government smaller for everyone and to end corporate welfare, or a congressman who grabs what he can of big government to funnel to his district, and embraces crony capitalism. The latter is a return to the unreformed GOP, a groove plenty of Republicans would happily slide back into — if only voters gave the nod. We’ll see if Kansas conservatives do.”

There’s something there that bears repeating: “Such principles are precisely what conservative voters claim to demand from their representatives.” In the case of Huelskamp and Pompeo, voters supported two candidates who have these principals, and who follow them. In the United States Senate contest, that almost happened.

In Kansas fourth district, fundamental issues of governance arise

The contest in the Kansas fourth district is a choice between principle and political expediency, and between economic freedom and cronyism.

While some news articles and political columns have described the contest for Republican Party nomination for United States House of Representatives between Todd Tiahrt and Mike Pompeo as a yawner, as between two candidates with few and only minor distinguishing positions — there are important differences. The press is starting to notice.

A Crony Capitalist Showdown

In the Wall Street Journal columnist Kimberly Strassel made the case for this contest’s importance as a bellwether of Republican sentiment:

A big decision comes Tuesday in the Kansas GOP primary. The Sunflower State is in the throes of political upheaval, with most of the attention on the fortunes of Gov. Sam Brownback and Sen. Pat Roberts. But the race that may say far more about the direction of the GOP is taking place in Wichita, the state’s Fourth District, in the standoff between Rep. Mike Pompeo and challenger Todd Tiahrt.

The 50-year-old Mr. Pompeo — an Army veteran, Harvard Law grad and businessman — was elected in the 2010 tea party surge, with a particular focus on liberating private enterprise. He’s made a name for himself as a leader in the fight to end corporate welfare and pork, and to cut back on strangling regulations. (Potomac Watch: A Crony Capitalism Showdown, August 1, 2014)

(If the above link does not work for you because you don’t have a subscription to the Wall Street Journal, click here.)

Such principles are preciselyAfter detailing some legislative activity and accomplishment, Strassel notes the difficulty that fighters for economic freedom encounter: “Such principles are precisely what conservative voters claim to demand from their representatives. Yet the antisubsidy line has hardly been an easy one, even in conservative Kansas — which collects its share of federal largess. And Mr. Tiahrt knows it.”

Concluding her column, Strassel outlines the choice that so many writers have failed to realize:

The choice voters fundamentally face on Tuesday is whether they want a congressman who works to get government smaller for everyone and to end corporate welfare, or a congressman who grabs what he can of big government to funnel to his district, and embraces crony capitalism. The latter is a return to the unreformed GOP, a groove plenty of Republicans would happily slide back into — if only voters gave the nod. We’ll see if Kansas conservatives do.

Another example of the difference between the two candidates is the Export-Import Bank. Conservative groups are urging that Congress not reauthorize the bank, a vote that will happen soon. The most common argument is that it harms American jobs, and there are allegations of corruption in its operations.

While in Congress, Pompeo voted against the reauthorization of the bank. He has said he would vote against its reauthorization again unless there is significant reform. Tiahrt, on the other hand, voted in favor of the Export-Import Bank. It’s representative of the type of cronyism he has supported while in office, and would likely support again, especially as his positions tack to the political left.

Finally, Tiahrt has recently criticized Charles Koch and Americans for Prosperity, leading us to wonder if Tiahrt understands or embraces the principles of economic freedom and free markets.

Pat Roberts, senator for corporate welfare

Two years ago United States Senator Pat Roberts voted in committee with liberals like John Kerry, Chuck Schumer, and Debbie Stabenow to pass a bill loaded with wasteful corporate welfare.

The Wall Street Journal noticed a vote made by Senator Roberts in committee that lead to the fiscal cliff bill . The newspaper explained the harm of this bill in its editorial:

The great joke here is that Washington pretends to want to pass “comprehensive tax reform,” even as each year it adds more tax giveaways that distort the tax code and keep tax rates higher than they have to be. Even as he praised the bill full of this stuff, Mr. Obama called Tuesday night for “further reforms to our tax code so that the wealthiest corporations and individuals can’t take advantage of loopholes and deductions that aren’t available to most Americans.”

One of Mr. Obama’s political gifts is that he can sound so plausible describing the opposite of his real intentions.

Senator for Corporate WelfareThe costs of all this are far greater than the estimates conjured by the Joint Tax Committee. They include slower economic growth from misallocated capital, lower revenues for the Treasury and thus more pressure to raise rates on everyone, and greater public cynicism that government mainly serves the powerful.

Republicans who are looking for a new populist message have one waiting here, and they could start by repudiating the corporate welfare in this New Year disgrace. (Crony Capitalist Blowout: A tax increase for everyone but the favored wealthy few. January 4, 2013)

The Journal took the rare measure of calling out the senators who voted for this bill in committee, as shown in its nearby graphic. There it is: Pat Roberts voting in concert with the likes of John Kerry, Chuck Schumer, and Debbie Stabenow.

If Tom Coburn of Oklahoma could vote against this bill in committee, then so could have Pat Roberts. But he didn’t.

Wichita: We have incentives. Lots of incentives.

In this excerpt from WichitaLiberty.TV: Wichita government leaders complain that Wichita can’t compete in economic development with other cities and states because the budget for incentives is too small. But when making this argument, these officials don’t include all incentives that are available. View below, or click here to view on YouTube. More information on this topic is at Contrary to officials, Wichita has many incentive programs.

In Wichita, ‘free markets’ cited in case for economic development incentives

A prominent Wichita business uses free markets to justify its request for economic development incentives. A gullible city council buys the argument.

At the December 10, 2013 meeting of the Wichita City Council, Bombardier LearJet received an economic development incentive that will let it avoid paying some property taxes on newly-purchased property. The amount involved in that particular incident is relatively small. According to city documents, “the value of the abated taxes on that investment could be as much as $1,980.”

Wichita Economic DevelopmentThis week Bombardier was before the council again asking for property tax abatements. City documents estimate the amount of tax to be forgiven as $1,098,294 annually, for up to ten years. The document prepared for council members did not address sales tax, but generally sales taxes are forgiven when using the program Bombardier qualified for.

The December 10 meeting was useful because a representative of Bombardier appeared before the council. His remarks help us understand how some prominent members of Wichita’s business community have distorted the principles of free markets and capitalism. As illustrated by the fawning of Wichita City Council Member and Vice Mayor Pete Meitzner (district 2, east Wichita) and others, elected officials have long forsaken these principles.

Bombardier’s argument

Don Pufahl, who is Director of Finance at Bombardier Learjet, addressed the council regarding this matter. He started his remarks on a positive note, telling the council “There are various aspects to a free-market economy. There’s the rule of law, there’s property rights, and another major aspect is incentives.”

Economic development incentives reduce riskWe must be careful when using the term incentive. In a free-market economy or capitalism, incentive refers to the motivation of the possibility of earning profits. Another incentive — the other side of the same coin — is avoiding losses. That’s why capitalism is called a profit-and-loss system. The losses are just as important as profits, as losses are a signal that the economic activity is not valued, and the resources should be shifted to somewhere else where they are valued more highly.

But in the field of economic development as practiced by government, incentive means something given to or granted to a company. That’s what the representative from Bombardier meant by incentive. He explained: “One party, in this case, the local government, uses incentives for another party, in this case our company, to invest in the community.”

A few thoughts: First, Bombardier is not investing in the community. The company is investing in itself. I’m sure Bombardier’s shareholders hope that is true.

Second, the free market system that the speaker praised is a system based on voluntary exchange. That flows from property rights, which is the foundational idea that people own themselves and the product of their labor, and are free to exchange with others. But when government uses incentives, many people do not consent to the exchange. That’s not a free market system.

Milton Friedman: Capitalism and FreedomThird, an important part of a free market system is market competition. That is, business firms compete with others for customers. They also compete with other business firms for resources needed for production, such as capital. When government makes these decisions instead of markets, we don’t have a free market system. Instead, we have cronyism. Charles G. Koch has described the harm of cronyism, recently writing: “The effects on government are equally distorting — and corrupting. 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.”

In the same article Koch wrote: “We have a term for this kind of collusion between business and government. It used to be known as rent-seeking. Now we call it cronyism. Rampant cronyism threatens the economic foundations that have made this the most prosperous country in the world.” (Charles G. Koch: Corporate cronyism harms America)

The representative from Bombardier also said that the city’s incentives would reduce Bombardier’s investment risk. There is little doubt this is true. When a company is given money with no strings attached except what the company already intends to do and wants to do, that reduced a company’s risk. What has happened, however, is that risk has not been eliminated or reduced. It has merely been shifted to the people of Wichita, Sedgwick County, the Wichita public school district, and the State of Kansas. When government does this on a piecemeal basis, this is called cronyism. When done universally, we call this socialism.

We can easily argue that actions like this — and especially the large subsidies granted to Bombardier by the state — increase the risk of these investments. Since the subsidies reduce the cost of its investment, Bombardier may be motivated to make risky investments that it might otherwise not make, were it investing its own funds (and that of its shareholders).

Entrepreneurship, EntrepreneurThe cost of Bombardier’s investments, and the accompanying risk, is spread to a class of business firms that can’t afford additional cost and risk. These are young startup firms, the entrepreneurial firms that we need to nurture in order to have real and sustainable economic growth and jobs. But we can’t identify these. We don’t know who they are. But we need an economic development strategy that creates an environment where these young entrepreneurial firms have the greatest chance to survive. (See Kansas economic growth policy should embrace dynamism and How to grow the Kansas economy.)

Now the city and Bombardier will say that these investments have a payoff for the taxpayer. That is, if Bombardier grows, it will pay more in taxes, and that constitutes “profit” for taxpayers. Even if we accept that premise — that the city “profits” from collecting taxes — why do we need to invest in Bombardier in order to harvest its “profits” when there are so many companies that pay taxes without requiring subsidy?

Finally, the representative from Bombardier said that these incentives are not a handout. I don’t see how anyone can say that and maintain a straight face.

wichita-chamber-job-growth-2013-12It would be one thing if the Wichita area was thriving economically. But it isn’t. We’re in last place among our self-identified peers, as illustrated in Wichita and Visioneering peers job growth. Minutes from a recent meeting of Greater Wichita Economic Development Coalition, the primary organization in charge of economic development, holds this paragraph: “As shown in the Chart below Wichita economy suffered the largest loss of employment among peer cities and has not seen any signs of rebounding as the other communities have. Wichita lost 31,000 jobs during the recession principally due to the down turn in general aviation.”

Following is a fuller representation of the Bombardier representative’s remarks to the council.

There are various aspects to a free-market economy. There’s the rule of law, there’s property rights, and another major aspect is incentives.

One party, in this case, the local government, uses incentives for another party, in this case our company, to invest in the community.

As the company moves forward to invest in the community, those investments are not without risk. … Your incentives allow us to offset some of that risk so that we can move forward with those investments, which hopefully create new jobs and also then also improves the quality of life in our community. … These incentives are not a handout. They are a way that the local government uses such things to offset some of the risk that is involved in local companies as they invest in the community, bring jobs to the community, and improve the community overall.

‘Earmark Distribution Agency,’ dealer of pork, proposed for elimination

From the office of United States Representative Mike Pompeo, an example of Rep. Pompeo opposing corporate and business welfare that benefits a few parties at detriment to the rest of the economy. Video of Pompeo speaking on the floor of the House on this matter is here, or below.

Congressman Mike Pompeo, R-Kansas, offered an amendment to H.R. 4660, the Commerce, Justice, Science, and Related Agencies Appropriations Act for Fiscal Year 2015, to eliminate the Economic Development Administration (or the “Earmark Distribution Agency”). The amendment would send EDA’s total funding — $247 million in FY 2015 — to the Deficit Reduction Account, saving up to $2.5 billion over 10 years based on current levels.

“We need to solve America’s debt crisis before it is too late, and that means reducing wasteful spending, no matter the agency or branch of government,” said Rep. Pompeo. “The EDA should be called the ‘Earmark Distribution Agency,’ as it continues to spend taxpayer dollars on local pet projects in a way similar to congressional earmarks — which have already been banned by the House.” Examples of the “Earmark Distribution Agency” spending taxpayer dollars wastefully:

    Harry Reid Research Park
  • In 2008, the EDA provided $2,000,000 to begin construction of the UNLV Harry Reid Research and Technology Park in Las Vegas, NV. Currently the UNLV Harry Reid Research & Technology Park features a paved road and a website claiming the first anticipated tenant would move in in 2010. (There’s nothing there.)
  • In 2010, $25,000,000 was spent by the EDA for a Global Climate Mitigation Incentive Fund and $2,000,000 for a “culinary amphitheater,” wine tasting room and gift shop in Washington State.
  • In 2011, the EDA gave a New Mexico town $1,500,000 to renovate a theater.
  • In 2013, the EDA also gave Massachusetts $1.4 million to promote new video games.
  • Back in the 1980s, the EDA used taxpayer dollars to build replicas of the Great Wall of China and the Egyptian Pyramids in the middle of Indiana. They were never completed—it is now a dumping ground for tires.

Rep. Pompeo concluded: “EDA has for too long been the dumping ground for taxpayer money. The road to America’s return to fiscal sanity starts with abolishing this agency.

Contrary to officials, Wichita has many incentive programs

Wichita government leaders complain that Wichita can’t compete in economic development with other cities and states because the budget for incentives is too small. But when making this argument, these officials don’t include all incentives that are available.

The document Will Wichita Accelerate Competition for Primary Jobs? contains contradictory information about money available for economic development incentives in Wichita. The usual argument that officials make is represented by this quotation from the report: “Wichita and Sedgwick County compete conservatively with incentives. The City of Wichita and Sedgwick County have a total of $1.65 million in new uncommitted funds for cash incentives this year with any unused money going back to the general fund.”

But the same report contains this: “The $4.5 million PEAK program incentive from the Kansas Department of Commerce was an important factor in keeping NetApp in Wichita. Locally we were able to provide $836,000 in incentives.”

So with an incentives budget of $1.65 million, a Wichita company received $5.3 million in incentives. Some of that, like the PEAK incentive, is paid over a period of years. But that amount doesn’t begin to describe the benefits NetApp received.

A sample of available incentive programs

Kansas Department of Commerce logoA letter to NetApp from the Kansas Department of Commerce laid out the potential benefits from the state. As detailed in the letter, the programs with potential dollar amounts are: Promoting Employment Across Kansas (PEAK), up to $7,705,535; Kansas Industrial Training with PEAK, up to $160,800; sales tax savings of $6,880,000; personal property tax exemption, $11,913,682; and High Performance Incentive Program (HPIP), $8,500,000. The total of these is $35,160,017. Some of these benefits are paid over a period of years. The PEAK benefits are payable over seven years, according to the letter, so that’s about $1.1 million per year. These are potential benefits; the company may not actually qualify for and receive this entire amount. But it’s what the state offered.

It’s true that some of these programs, strictly speaking, are not “cash incentives” of the type Wichita complains of lacking. But if a company is going to make purchases, and the state says you can skip paying sales tax on the purchases — well, that’s about as good as cash. $6,880,000 in the case of NetApp, according to the Kansas Department of Commerce.

Local tax exemptions

Besides sales tax exemptions, the city has other types of tax exemptions it regularly offers. These exemptions can have substantial value. In 2008 as Drury contemplated Broadview Hotel 2013-07-09 020purchasing the Broadview Hotel, the city allowed the hotel to escape paying much of the taxes that the rest of us have to pay. According to city information, Drury planned to spend $22,797,750 on the hotel. If we use this as the appraised value for the property when it is complete, the annual property taxes due for this property would be $22,797,750 times .25 times 126.323 divided by 1000, or $719,970. This calculation may be rough, but it gives us an idea of the annual operating subsidy being given to this hotel for the next ten years. Remember, city officials complain of an incentives budget of only $1.65 million per year.

It's important for citizens to know incentivesWhen Boeing announced in 2012 that it was closing its Wichita operations, city leaders complained that Boeing was leaving Wichita even though it had received many incentives. From 1979 to 2007, Boeing received tax abatements through the industrial revenue bond process worth $658 million, according to a compilation provided by the City of Wichita. At the time, city officials said the average amount of bonds was $120 million per year. With Wichita commercial property tax rates at 3.008 percent ($30.08 per $1,000 of appraised value), according to GWEDC, that’s a tax savings of around $3.6 million per year. To Boeing, that’s as good as receiving cash year after year. Remember, city officials say the incentives budget is $1.65 million per year.

Tax increment financing

In 2013 Wichita approved a package benefiting Exchange Place in downtown. Here’s what the city council agenda packet gives as the sources of financing for this project.

HUD Loan Amount         $29,087,700
Private Equity            5,652,254
Tax Credit Equity        19,370,395
TIF Proceeds             12,500,000
Total Sources of Funds  $66,610,349

TIF, or tax increment financing, diverts future increased tax revenues away from their normal uses and diverts them back to the project. In this case, the city will borrow $12,500,000 by selling bonds. It will give this money to the developer. Then, TIF proceeds will be used to repay these bonds.

Some will argue that TIF isn’t really an incentive. The owners of the property will have to pay their property taxes, just like any other property owner. But for this project, the property taxes are used for the project’s own benefit instead of paying for city government. This project gets to spend $12.5 million of its property tax payments on itself, rather than funding the costs of Wichita city government.

Tax credits

Ambassador Hotel sign 2014-03-07Note that the sources of financing for the Exchange Place project includes “Tax Credit Equity.” Here’s an example of another downtown project, the Ambassador Hotel, and the incentive package the city prepared:

  • $3,325,000 in tax increment financing.
  • $4,245,000 in city funding under the capital improvement plan (CIP), to build parking for the hotel.
  • $3,800,000 in tax credits from the State of Kansas.
  • $3,500,000 in tax credits from the U.S. government.
  • $537,075 in sales tax exemptions on purchases during the construction and furnishing of the hotel.
  • $60,000 per year in community improvement district (CID) sales tax. The hotel charges an extra two cents per dollar sales tax, which the state returns to the hotel.
  • $127,499 per year (estimated) in rental revenue to the developers from a sweetheart lease deal.
  • Participation in Wichita’s facade improvement program, which provides special assessment financing that is repaid.

All told, this project was slated to receive $15,407,075 in taxpayer funds to get started, with additional funds provided annually.

The tax credits for this project are historic preservation tax credits. They have the same economic impact as a cash payment. The federal tax credits are available across the country, while the Kansas tax credits, of course, are a state program. In this case the hotel developers received an upfront payment of $3.8 million from the state in a form that’s as good as cash. Remember, city officials say the incentives budget is $1.65 million per year.

STAR bonds

There are more programs the city and state use to provide incentives. Last year, according to city documents, a STAR bonds district in northeast Wichita was approved to receive $31,570,785 from these bonds. The STAR bonds are paid off with sales tax revenue that would otherwise go to the state and overlapping jurisdictions. This is sales tax collected from the business’s customers, and doesn’t cost the business anything. Remember, city officials say the incentives budget is $1.65 million per year.

This list is not complete. There are other programs and other beneficiaries of economic development subsidies. It’s important for citizens to know that contrary to the claims of officials, Wichita has many economic development incentive programs available, and some have substantial value to the recipients, with corresponding cost to the city and other jurisdictions.

Poll: Wichitans don’t want sales tax increase

kansas-policy-institute-logoFollowing is a press release from Kansas Policy Institute.

Scientific Poll: Wichitans Don’t Want Sales Tax Increase

They’re opposed to business incentives, want to pursue privatization over tax increases, and have concerns about how city hall has recently spent money.

May 2, 2014 — Wichita — According to a newly released poll from Kansas Policy Institute, Wichitans may want more jobs and a secure water source but they certainly don’t support a sales tax increase as the means to get either. A scientific survey of 502 registered Wichita voters, conducted by SurveyUSA, shows strong opposition to a sales tax increase, as well as a possible explanation for their opposition. Full results, cross tabs, and methodology are available here.

  • 63 percent oppose a sales tax increase to provide incentives to businesses; only 28 percent support the idea
  • 64 percent oppose a sales tax increase to expand or renovate convention spaces such as the Hyatt Hotel and Century II; only 28 percent support the idea
  • 78 percent would be willing to pay a higher sales tax to secure a long-term water source and build new infrastructure but 65 percent believe the City should fund those projects through privatization rather than raise taxes.

“Government typically claims that citizen support for certain projects means they are also supportive of higher taxes, but that’s often because citizens are presented with false choices,” said Dave Trabert, president of Kansas Policy Institute. “That’s exactly what the City of Wichita did with their ACT ICT community meetings. Wichita officials were simply looking for justification to do what they wanted to do — raise taxes.”

Trabert believes the survey provides insight on citizens’ opposition to tax increases. “Only 28 percent of Wichitans believe city officials have efficiently used taxpayer money. 78 percent believe the City should adjust spending and be more efficient to fund new infrastructure and secure a long-term water source. City officials would understand that if they had an honest dialogue with citizens about all of the options, instead of just pushing a tax increase.”

Kansas Policy Institute is planning a series of public forums over the coming months to examine multiple options for long-term water solutions, economic development and infrastructure. National experts on privatization and other options will be brought in, as well as government officials who have successfully used privatization to provide services. The effectiveness of taxpayer subsidies will also be explored. Local elected officials and other civic leaders will be invited to participate.

Cronyism is welfare for rich and powerful, writes Charles G. Koch

“The central belief and fatal conceit of the current administration is that you are incapable of running your own life, but those in power are capable of running it for you. This is the essence of big government and collectivism.”

That’s Charles G. Koch writing in the Wall Street Journal. The article is Charles Koch: I’m Fighting to Restore a Free Society, and is available to read without subscription or payment. In the article, Koch explains his involvement in public affairs:

Far from trying to rig the system, I have spent decades opposing cronyism and all political favors, including mandates, subsidies and protective tariffs — even when we benefit from them. I believe that cronyism is nothing more than welfare for the rich and powerful, and should be abolished.

Koch Industries was the only major producer in the ethanol industry to argue for the demise of the ethanol tax credit in 2011. That government handout (which cost taxpayers billions) needlessly drove up food and fuel prices as well as other costs for consumers — many of whom were poor or otherwise disadvantaged. Now the mandate needs to go, so that consumers and the marketplace are the ones who decide the future of ethanol.

There, Charles Koch explains a big problem with the insidious nature of government. Even those who are opposed to government interventions in markets find themselves forced to participate in government subsidy programs. When they do, they are often labeled as hypocrites for accepting benefits from the government programs they oppose. Koch Industries, as a manufacturer of gasoline, blends ethanol with the gasoline it produces. Federal law requires that. Even though Koch Industries opposed subsidies for ethanol, the company accepted the payments. A company newsletter explained: “Once a law is enacted, we are not going to place our company and our employees at a competitive disadvantage by not participating in programs that are available to our competitors.” (As Koch explains in the current article, the subsidy program for ethanol has ended, but there is still the mandate requiring its use in gasoline.)

Learn how economic freedom creates prosperity and improves lives throughout the world.
Learn how economic freedom creates prosperity and improves lives throughout the world.
Walter Williams, as he often does, explains the core of the problem using his characteristically blunt imagery: “Once legalized theft begins, it pays for everybody to participate.” Williams says not only does it pay to participate, the reality is that it is often necessary to participate in order to stay in business. This is part of the treacherous nature of government interventionism: A business can be humming along, earning a profit by meeting the needs of its customers, when government radically alters the landscape. Perhaps government backs a competitor, or forces changes to business methods that have been working satisfactorily and harming no one. What is the existing business to do in response? Consent to be driven out of business, just to prove a point?

Existing firms, then, are usually compelled to participate in the government program — accepting subsidies, conforming to mandates, letting government pull the strings. This creates an environment where government intervention spirals, growing by feeding on itself. It’s what we have today.

It happens not only at the federal level, but at state and local levels. Referring to a City of Wichita incentive program for commercial real estate, Wichita developer Steve Clark said: “Once you condition the market to accept these incentives, there’s nothing someone else can do to remain competitive but accept them yourself. Like the things we’re working on with the city, now we have to accept incentives or we’re out of business.”

In Kansas, there are state income tax credit programs that award credits (economically equivalent to cash payments) to companies that meet certain requirements that were established by the legislature and are administered by bureaucrats. These corporate welfare programs, which represent cronyism, are more valuable than lower tax rates, at least to influential Kansas businesses.

All this leads to a country whose government stifles the potential of its people — or even worse, as Koch explains — causes actual and severe harm:

Instead of fostering a system that enables people to help themselves, America is now saddled with a system that destroys value, raises costs, hinders innovation and relegates millions of citizens to a life of poverty, dependency and hopelessness. This is what happens when elected officials believe that people’s lives are better run by politicians and regulators than by the people themselves. Those in power fail to see that more government means less liberty, and liberty is the essence of what it means to be American. Love of liberty is the American ideal.

Charles Koch: I’m Fighting to Restore a Free Society

Instead of welcoming free debate, collectivists engage in character assassination.

By Charles G. Koch

I have devoted most of my life to understanding the principles that enable people to improve their lives. It is those principles — the principles of a free society — that have shaped my life, my family, our company and America itself.

Unfortunately, the fundamental concepts of dignity, respect, equality before the law and personal freedom are under attack by the nation’s own government. That’s why, if we want to restore a free society and create greater well-being and opportunity for all Americans, we have no choice but to fight for those principles. I have been doing so for more than 50 years, primarily through educational efforts. It was only in the past decade that I realized the need to also engage in the political process.

Continue reading at Wall Street Journal (subscription not required). More about Koch Industries, including an interview with Charles Koch that covers some of these topics, is available in a recent issue of Wichita Business Journal. Click here for free access.

Wichita not good for small business

The Wichita Business Journal reports today:

When it comes to having good conditions to support small businesses, well, Wichita isn’t exactly at the top of the list, according to a new ranking from The Business Journals.

In fact, the Wichita metro area’s small-business vitality score is nearly at the bottom — 99th out of the 101 U.S. metro areas included in the study. (Wichita near bottom for small-business vitality score, April 2, 2014)

Many in Wichita don’t want to recognize and confront the bad news about the performance of the Wichita-area economy. Last year, when presenting its annual report to local governmental bodies, the leaders of Visioneering Wichita would not present benchmark data to elected officials.

wichita-peer-job-growth-1990-2014-01

So what is the record of the Wichita metropolitan area regarding job creation, that seeming to be the most popular statistic our leaders cite and promote? I’ve prepared statistics from the Bureau of Labor Statistics, U.S. Department of Labor for Wichita and a broad group of peer cities. I included our Visioneering peer cities, cities that Visioneers traveled to on official visits, and a few others. The result, shown nearby, is not pretty. (Click on charts for larger versions, or click here to use the interactive visualization)

wichita-peer-job-growth-2007-2014-01

If we look at job creation starting in 1990, Wichita lags behind our Visioneering peers, but not behind all the peer cities that I selected. Wichita does better than Springfield, Illinois, for example. I chose to include that as a peer metropolitan area because that’s the immediate past city that Gary Plummer worked in. He was president of that city’s Chamber of Commerce, and is now president of the Wichita Chamber. Note the position of Springfield: Last place.

In next-to-last place we see Wichita Falls, Texas. I chose to include it because it is the immediate past home of Tim Chase. He was the head of Wichita Falls Economic Development Corporation. He’s now president of Greater Wichita Economic Development Coalition, the primary organization in charge of economic development for the Wichita area.

In second-to-last place we see Pittsburgh, which I added because Visioneering leaders recently made a visit there.

Then, we come to Wichita.

If we look at job creation since 2007 we find Wichita in a common position: Last place in job creation, and by a wide margin except for two cities. One is Wichita Falls, where our present GWEDC president recently worked. The other city that barely out-performs Wichita is Chattanooga, which I included because Visioneering civic leaders recently traveled there to learn from that city.

Over the decades in which Wichita has performed poorly, there have been a few common threads. Carl Brewer has been council member or mayor since 2001. Economic development director Allen Bell has been working for the city since 1992. City Attorney Gary Rebenstorf has served for decades. At Sedgwick County, manager William Buchanan has held that position for more than two decades. On the Sedgwick County Commission, Dave Unruh has been in office since 2003, and Tim Norton since 2001. It is these officials who have presided over the dismal record of Wichita.

Wichita City Manager Robert Layton has had less time to influence the course of economic development in Wichita. But he’s becoming part of the legacy of Wichita’s efforts in economic development.

toolbox-29058_640

These leaders often complain that Wichita does not have enough “tools in the toolbox” to compete with other cities in economic development. Wichita does, however, have and use incentives. The State of Kansas regularly offers incentives so generous that Kansas business leaders told the governor that they value these incentives more than they would value elimination of the state corporate income tax.

Incentives: We have them. They haven’t worked for us.

It is nearly certain that this year Wichitans will be asked to approve a higher sales tax in order to pay for many things, including the more aggressive approach to job creation that Brewer mentioned. Based on the track record of our elected officials and bureaucrats, we need to do this: Before approving the tax and expenditures, Wichitans need to take a long look at the people who have been in charge, and ask what will be different going forward.

Wichita economic development: Worth higher taxes?

In this excerpt from WichitaLiberty.TV: Wichita city and business leaders are likely to ask Wichitans to support a higher sales tax in order to support additional economic development efforts. Should Wichitans vote in favor of this? View below, or click here to view at YouTube.

Another thing that a tax increase in Wichita might be used for is for economic development. That is, paying subsidies to companies so that they will provide jobs in Wichita.

wichita-chamber-job-growth-2013-12
It’s felt that Wichita needs to step up its economic development efforts because things haven’t been going well lately. Not that everyone agrees. You’ve seen the charts I showed you, showing the growth of jobs in Wichita and also other economic indicators. When we compare Wichita with the nation as a whole and with our Visioneering peer cities, Wichita is almost always in last place. When I presented this data to the Wichita city Council, the Council members did not believe these numbers. So here’s a chart that was presented recently at a Wichita Metro Chamber of Commerce meeting. It uses the same data source that I use, the Bureau of Economic Analysis, and it shows the same data using the same methodology. It comes to the same conclusion: Wichita performs poorly.

Our chamber of commerce and its leadership will use this poor performance to argue that Wichita needs to spend more money on economic development. And that’s a problem.

Your chamber of commerce radio buttons
Very often, local chambers of commerce support principles of crony capitalism instead of pro-growth policies that allow free enterprise and genuine capitalism to flourish.

Now you may be confused. Most people probably think that local chambers of commerce, since their membership is mostly business firms, support pro-growth policies that embrace limited government and free markets. But that’s not always the case. Here, in an excerpt from his Wall Street Journal article “Tax Chambers” Stephen Moore explains:

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

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

This is the argument that the Wichita Chamber of Commerce and the city council will be making: We don’t spend enough on business welfare. Capitalism and the free market: These things don’t work, they will tell us. Only government can save Wichita from decline. Business leaders will tell us we need more taxes for more spending on economic development. But be careful here:

There’s a difference between “business leaders” and “capitalists.”

Last year Charles Koch explained the difference in an article in the Wall Street Journal. He wrote:

“Far too many businesses have been all too eager to lobby for maintaining and increasing subsidies and mandates paid by taxpayers and consumers. This growing partnership between business and government is a destructive force, undermining not just our economy and our political system, but the very foundations of our culture.”

He continued:

“The effects on government are equally distorting — and corrupting. 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.”

In his article, Koch makes an important observation when he defines cronyism: “We have a term for this kind of collusion between business and government. It used to be known as rent-seeking. Now we call it cronyism. Rampant cronyism threatens the economic foundations that have made this the most prosperous country in the world.”

You regular viewers know that we have a problem with cronyism in Wichita. This is exemplified by incidents like where a mayor votes to send millions of taxpayer dollars to a man who owns movie theaters, and then the mayor sells his barbeque sauce in those theaters. It’s when a real estate developer lists the mayor and city manager as business references when bidding for a city project and thinks that no one will care or notice. It’s when a city council member receives thousands in campaign contributions from an out-of-state construction company right at the time he votes to award a contract to that company. It’s when the city council votes to give over-priced no-bid construction contracts to their significant campaign contributors.

In other words, instead of allowing people to direct resources to where they believe they will be most useful, our local government direct resources to their cronies. Where it’s useful for their political careers.

I’m of the opinion that it has harmed Wichita’s economic growth. It’s one of the reasons why Wichita is the bottom line in the charts we’ve seen. But many of our business leaders, and almost all of our political leaders, propose more of the same.

That’s right. Instead of focusing on things like water and sewer pipes, government wants to raise taxes so that it can direct more of our economy. Having neglected our water and sewer infrastructure to the point where the mayor says we need to spend at the rate of $70 million dollars per year for the next 30 years, our city leaders are going to ask us for more tax money so that they can try to fix the Wichita economy.

Returning to Stephen Moore’s article. Here he quotes Jon Caldera of the Independence Institute. “I used to think that public employee unions like the National Education Association were the main enemy in the struggle for limited government, competition and private sector solutions. I was wrong. Our biggest adversary is the special interest business cartel that labels itself ‘the business community’ and its political machine run by chambers and other industry associations.”

Let’s ask our business and political leaders some questions. First, will we acknowledge Wichita’s poor economic performance, or will we continue to ignore the facts and statistics? Second: Will we realize that the cozy relationship between city hall and a small group of insiders — Wichita’s cronies, if you will — is harmful and corrosive? Third: Will we realize that free enterprise and capitalism work better than cronyism?

In Wichita, ‘free markets’ used to justify business welfare

Wichita City HallIncredibly, a prominent Wichita business uses the free market to justify its request for economic development incentives. A gullible city council buys the argument.

At the December 10, 2013 meeting of the Wichita City Council, Bombardier LearJet received an economic development incentive that will let it avoid paying some property taxes on newly-purchased property. The amount involved in this particular incident is relatively small. According to city documents, “the value of the abated taxes on that investment could be as much as $1,980.”

(Bombardier receives millions each year in other government subsidies; see Kansas PEAK program: corporate welfare wrapped in obfuscation and Bombardier Learjet should pay just a little for examples.)

While the amount of the incentive granted in the December 10 action is small, the meeting was useful in letting us understand how some prominent members of Wichita’s business community have distorted the principles of free markets and capitalism. As illustrated by the fawning of Wichita City Council Member and Vice Mayor Pete Meitzner (district 2, east Wichita) and others, elected officials have long forsaken these ideas.

Bombardier’s argument

Don Pufahl, who is Director of Finance at Bombardier Learjet, addressed the council regarding this matter. He started his remarks on a positive note, telling the council “There are various aspects to a free-market economy. There’s the rule of law, there’s property rights, and another major aspect is incentives.”

We must be careful when using the term incentive. In a free-market economy or capitalism, incentive refers to the motivation of the possibility of earning profits. Another incentive — the flip side of the same coin — is avoiding losses. That’s why capitalism is called a profit-and-loss system. The losses are just as important as profits, as losses are a signal that the economic activity is not valued, and the resources should be shifted to somewhere else where they are valued more highly.

But in the field of economic development as practiced by government, incentive means something given to or granted to a company. That’s what the representative from Bombardier meant by incentive. He explained: “One party, in this case, the local government, uses incentives for another party, in this case our company, to invest in the community.”

A few thoughts: First, Bombardier is not investing in the community. The company is investing in itself.

Second, the free market system that the speaker seemed to praise is a system based on voluntary exchange. That flows from property rights, which is the fundamental idea that people own themselves and the product of their labor, and are free to exchange with others, or to not exchange. But when government uses incentives, many people do not consent to the exchange. That’s not a free market system.

Third, an important part of a free market system is market competition. That is, business firms compete with others for customers. They also compete with other business firms for resources needed for production, such as capital. When government makes these decisions instead of markets, we don’t have a free market system. Instead, we have cronyism. Charles G. Koch has described the harm of cronyism, recently writing: “The effects on government are equally distorting — and corrupting. 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.”

In the same article Koch wrote: “We have a term for this kind of collusion between business and government. It used to be known as rent-seeking. Now we call it cronyism. Rampant cronyism threatens the economic foundations that have made this the most prosperous country in the world.” (Charles G. Koch: Corporate cronyism harms America)

The representative from Bombardier also said that the city’s incentives would reduce Bombardier’s investment risk. There is little doubt this is true. What has happened, however, is that the risk has not been eliminated or reduced. It has merely been shifted to the people of Wichita, Sedgwick County, the Wichita public school district, and the State of Kansas. When government does this on a piecemeal basis, this is called cronyism. When done universally, we call this socialism.

We can easily argue that actions like this — and especially the large subsidies granted to Bombardier the by state — increase the risk of these investments. Since the subsidies reduce the cost of its investment, Bombardier may be motivated to make risky investments that it might otherwise not make, were it investing its own funds (and that of its shareholders).

The cost of Bombardier’s investments, and the accompanying risk, is spread to a class of business firms that can’t afford additional cost and risk. These are young startup firms, the entrepreneurial firms that we need to nurture in order to have real and sustainable economic growth and jobs. But we can’t identify these. We don’t know who they are. But we need an economic development strategy that creates an environment where these young entrepreneurial firms have the greatest chance to survive. (See Kansas economic growth policy should embrace dynamism and How to grow the Kansas economy.)

Now the city and Bombardier will say that these investments have a payoff for the taxpayer. That is, if Bombardier grows, it will pay more in taxes, and that constitutes “profit” for taxpayers. Even if we accept that premise — that the city “profits” from collecting taxes — why do we need to invest in Bombardier in order to harvest its “profits” when there are so many companies that pay taxes without requiring subsidy?

Finally, the representative from Bombardier said that these incentives are not a handout. I don’t see how anyone can say that and maintain a straight face.

wichita-chamber-job-growth-2013-12
It would be one thing if the Wichita area was thriving economically. But it isn’t. We’re in last place among our self-identified peers, as illustrated in Wichita and Visioneering peers job growth. Minutes from a recent meeting of Greater Wichita Economic Development Coalition, the primary organization in charge of economic development, holds this paragraph: “As shown in the Chart below Wichita economy suffered the largest loss of employment among peer cities and has not seen any signs of rebounding as the other communities have. Wichita lost 31,000 jobs during the recession principally due to the down turn in general aviation.”

Following is a fuller representation of the Bombardier representative’s remarks to the council.

There are various aspects to a free-market economy. There’s the rule of law, there’s property rights, and another major aspect is incentives.

One party, in this case, the local government, uses incentives for another party, in this case our company, to invest in the community.

As the company moves forward to invest in the community, those investments are not without risk. … Your incentives allow us to offset some of that risk so that we can move forward with those investments, which hopefully create new jobs and also then also improves the quality of life in our community. … These incentives are not a handout. They are a way that the local government uses such things to offset some of the risk that is involved in local companies as they invest in the community, bring jobs to the community, and improve the community overall.


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Wichita City Council makes an uneconomic decision

Wichita City HallLast year the Wichita City Council was faced with a decision regarding a program designed to stimulate the sales of new homes. Analysis revealed that even though the city had an opportunity to make an investment with a purportedly high return on investment, it would be better off, dollar-wise, if it did not make the investment. What did the city council do? The following video explains the decision the council faced. View below, or click here to view in High Definition on YouTube. More information is at Wichita new home tax rebate program: The analysis and Wichita HOME program has negative consequences.

Your local chamber of commerce: Working for you?

Your chamber of commerce radio buttonsVery often, local chambers of commerce support principles of crony capitalism instead of pro-growth policies that allow free enterprise and genuine capitalism to flourish.

We may soon have an example of this in Wichita, where business leaders are tossing about ideas for tax increases. I distinguish between “business leaders” and “capitalists.”

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

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

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

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

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

Wichita City Council makes an economic decision

Last year the Wichita City Council was faced with a decision regarding a program designed to stimulate the sales of new homes. Analysis revealed that even though the city had an opportunity to make an investment with a purportedly high return on investment, it would be better off, dollar-wise, if it did not make the investment. What did the city council do? The following video explains the decision the council faced. View below, or click here to view in high definition on YouTube. More information is at Wichita new home tax rebate program: The analysis and Wichita HOME program has negative consequences.

Change in needed in Wichita

A version of this op-ed by John Todd appeared in the Wichita Eagle.

John Todd, American PatriotChange is desperately needed in Wichita — change to allow exceptionalism and end failed economic subsidies.

Once again, several of the favored downtown development group partners have lined up outside City Hall with outstretched palms to receive prime city owned Arkansas River corridor land for bargain basement prices layered with generous incentives.

I heartily support private real estate development downtown and across Wichita. It creates jobs, enhances quality of life, expands the tax base and provides economic uplift. However, projects involving generous taxpayer funded “economic development” incentive handouts transfer the risk and tax burden from developers back to taxpayers who rarely realize any direct benefits from the projects.

The downtown WaterWalk project essentially gave away 20 acres of prime city owned land with a reported $41 million incentive package that included diverting tax revenue to the developer with unknown benefits to taxpayers. Compare this with the Waterfront development at 13th and Webb Road that received no subsidy and generates an estimated $2.5 million in annual tax revenues for the public treasury.

To paraphrase a thought attributed to several authors: “A Democracy cannot survive as a permanent form of government, because, when people discover they can vote money for themselves out of the public treasury, they will bankrupt it.”

I believe it is time for the citizens of Wichita to move forward by putting a new marketing program in place titled, “Capitalizing on Exceptionalism: A New Chapter in Wichita.”

To make it work, we must enlist the support of key, wealth producing, connected people of influence in our community as well as the everyday hard working citizen entrepreneurs and craftsmen, and provide the marketing forum for them to recognize and realize that Wichita can be exceptional, and that we don’t have to embrace a “follow the herd” mentality that will lead us to economic destruction and mediocrity.

We must change the “entitlement” mentality that permeates the social and the business segments of our whole country, starting in particular with our own community. Wichita can become the exceptional example of economic prosperity others will strive to emulate.

If we can move away from the entitlement attitude and get government out of the way, our private sector entrepreneurs and craftsmen can match anyone in the country; and all of this can be achieved by rejecting the corporate welfare trap we have fallen into.

John Todd
Wichita

Could Wichita be the next Detroit?

That Detroit has declared bankruptcy: Does this mean anything for Wichita? From time to time we see news stories wondering if there is a parallel between these two cities — one known as Motor City, and the other as the Air Capital.

wichita-detroit-job-industry-concentration

The similarity is the concentrated nature of the economies of the two cities. Both have, as can be seen in the nearby chart, a greater percentage of jobs in manufacturing than does the United States as a whole.

Furthermore, when considering the dominant manufacturing industry in each city, we see that Wichita is more concentrated in aviation than Detroit is in automobiles. Much more concentrated, 13 percent to six percent.

On his radio show, Joseph Ashby talked about the business of making airplanes. He’s an aerospace engineer. The complexity of airplane manufacturing, he says, has protected the domestic industry from foreign competition. But that can change. I would say that change is likely.

Ashby also noted that our economic development programs heavily favor the aviation industry, which makes it more difficult for aspiring companies in other diverse industries to start and thrive. He isn’t the first to wonder about this. In 2010 Alan Cobb wrote:

What can we do to prevent Wichita from falling into the hole that is Detroit?

A simple answer is to continue throwing money and other goodies to keep the aviation companies. A better answer is we need to get rid of the notion that our elected officials and others have so much forethought to know what will or won’t be successful in 20 or 50 years. They don’t. …

While state and local government poured incentives into the Big Three’s trough, the marginal costs of doing business for everyone else crept up. …

It‘s the classic example of the seen vs. the unseen. We see the new factory Pontiac builds. We don’t see the businesses that reduce their size, close or just move. The irony is we will still see the Pontiac factory after it is closed and boarded up.

For each tax dollar given to the auto industry, one is taken one away from entrepreneurs trying to create the next GM, Ford, Google or Apple. This may not be too bad the first time or the second time, but over years and decades, the results can be significant. The “next big thing” will be created in a state with a better tax and regulatory climate. (Detroit, corporate welfare and Wichita’s future)

This week the Sedgwick County Commission will be asked to make a forgivable loan — in essence, a grant of free money — to an aerospace company. The City of Wichita will likely be asked to do the same. The State of Kansas is probably offering additional business welfare, although the state won’t say. These actions increase the cost of business for the firms that we need to diversify our economy, and makes it more difficult for them to survive.

Here’s something else: Wichita has a lot of debt. Not Detroit levels, thankfully. But we can’t borrow even $30 million to build a new library without swelling debt ratios over acceptable limits.

How does Wichita have so much debt? Here’s an example. Recently the city spent $400,000 on a project to analyze aging fire stations with the aim of planning future projects. Fire stations are a long-lived capital asset, which is the type of asset and spending spending that is commonly financed with long-term debt. But an analysis to see if the spending is necessary and what type of spending is needed? This is current consumption and should not be paid for by long-term debt. Yet, the city paid for this with borrowed funds. This type of borrowing is common.

Finally, a big problem that contributed to Detroit’s problems is corruption. Wichita isn’t Detroit when it comes to corruption. But we could be headed that way. We have serious problems like overpriced no-bid contracts for the mayor’s fishing buddy, mysterious campaign contributions from a Michigan company involved in a large contract before the council, and a Methodist minister’s foray into real estate development and politics. We have city ordinances regarding ethics that seem to have a clear meaning, but the city attorney says they don’t apply.

Warren Theater Brewer's Best 2013-07-18

Notwithstanding these serious issues, it’s darkly comical to note this: Wichita Mayor Carl Brewer has voted several times to grant various forms of business welfare to movie theater owner Bill Warren and his partners. Then — and I swear I am not making this up — when Brewer started manufacturing and selling barbeque sauce, it was sold at Warren’s theaters. It still is, as of last week.

Are there no adults in the room?

Kansas bonds downgraded; economic development programs imperiled

money-bag-struggleMoody’s Investor Service has downgraded the credit rating of a series of bonds that Kansas uses to fund an economic development program. The program is IMPACT (Investments in Major Projects and Comprehensive Training), which provides financial benefits to companies locating to or expanding in Kansas.

The problem is that the state borrows money to give to companies, and uses the withholding taxes of these companies’ employees to repay the bonds. So what happens if the state reduces — or eliminates — the personal income tax? Moody’s explains:

Because IMPACT program bonds are backed by a statutory allocation of revenue from income tax withholding, efforts to eliminate the state income tax without defeasing the debt or substituting a new revenue source will expose bondholders to risks greater than previously anticipated. IMPACT debt has historically been supported by steadily growing revenues from a source that was broad-based and important to the state’s continued operations. Last year’s major income tax rate reductions, followed by additional cuts this year, constitute what we expect to be a trend of repeated cuts in the revenues pledged to these bonds. The final maturity on the IMPACT bonds is 2023, by which time Kansas may have fully removed the income tax. So far, there is no assurance the state will allocate revenue from a different source or take other steps protect bondholders. (Moody’s downgrades Kansas Department of Commerce IMPACT bonds to A3 from Aa3)

I don’t think there’s much likelihood that the state will fail to pay these bonds fully as payments become due. Even though the spending that produced this debt, in my opinion, is ill-considered, it’s still an obligation of the state.

But in a blog post, the Wichita Eagle editorial board could barely conceal its glee that a State of Kansas program might encounter difficulties during the Brownback regime. That’s because income tax rates have been reduced, and will fall farther. This threatens the government spending that the Eagle editorialists favor over private-sector spending.

Besides this one Kansas spending program, others will probably also be affected by lower income tax rates. Another economic development program Kansas uses is the Promoting Employment Across Kansas (PEAK) program. Administered by the Kansas Department of Commerce, the program allows qualifying companies to retain 95 percent of the state income withholding taxes their employees pay.

It’s a roundabout method of distributing corporate welfare that allows companies — and gullible or self-serving politicians — to pretend as though this program has no cost, or that companies are in fact investing their own money.

What’s interesting is that the money paid to companies is based on the withholding of employee taxes, not actual taxes paid. Withholding is just an estimate. At the end of the year employees file tax returns to compute their actual tax liability. Based on the difference between withholdings and liability, the state may issue a refund (or maybe the employee owes more).

It’s common for people to receive tax refunds. For employees that work for companies participating in PEAK, their tax withholdings (less five percent) have already been spent by the state in the form of economic development incentives. Their refunds have to be funded in some other way.

Other government spending programs will be affected, too. Historic preservation tax credits are used to funnel millions to developers in downtown Wichita, for example. These credits have value only as long as someone owes income tax (or similar taxes paid by financial institutions) to the state. If there are no income taxes, these tax credits have no value.

This is all good. It’s great that tax rates are falling. It’s also good that the state loses some of its tools for dishing out business welfare. With programs like PEAK and tax credits, the legislature authorizes the program by passing a law. After that, the programs function on auto-pilot. Companies apply for the benefits, and then either automatically or at the discretion of the bureaucracy, applications are approved and benefits flow.

This leads to systems with little accountability. Expenditures are barely noticed. The normal basis for justifying taxation is threatened. Employees that work at PEAK companies might look at the Kansas tax withheld on the paychecks and rationalize “Well, at least it’s going for the kids’ schools or some other beneficial purpose.”

No. Their withholding taxes are being paid (less five percent) to their employer.

Without these tax expenditure programs, legislatures would have to pass specific bills to spend taxpayer money. Can you imagine if the State of Kansas passed a bill to give $3.5 million in taxpayer credits to developers of a luxury hotel in downtown Wichita? Citizens would look at things differently. They’d wonder why we’re spending this way. Using semi-mysterious mechanisms like PEAK and tax credits shrouds the true economic transactions taking place.

Starwood calls on Wichita

Office worker using telephone and computer

This Tuesday the Wichita City Council considers economic development incentives to Starwood Hotels & Resorts for a call center to open in Wichita.

Besides the usual problems with cronyism and corporate welfare (see Wichita-area economic development policy changes proposed for explanation of some problems), there are a few issues to consider regarding this item.

First, the site where the Starwood call center will be located is owned by Max Cole. He and his wife are significant campaign contributors to Wichita City Council Member James Clendenin (district 3, southeast and south Wichita). Under the concept of pay-to-play laws that Wichita needs, Clendenin should refrain from voting on this matter.

Second, a table of salaries supplied in the agenda packet makes an implied promise that probably won’t be kept. The table shows numbers of jobs (actually full-time equivalents), the hourly pay rate, and the annual wage. The annual wage, in all cases, is 2,080 times the hourly rate, meaning it is assumed that workers will work 40 hours per week, 52 weeks per year.

Information from the Kansas Department of Commerce offers more detail. Initially, 495 full-time and 55 part-time jobs will be created. In year five, the total will be 860 full-time and 95 part-time total. There is also this notation: “The company will pay at least 50% of employee health insurance benefits.”

As you may be aware, one of the provisions of Obamacare is that if employees work over 30 hours per week, the employer must provide health insurance or be fined. As a result, many companies across the county are scaling back weekly work hours to less than 30.

We ought to ask if Starwood intends to hire employees who will work 40 hours per week, if they want to. Will the liberals on the Wichita City Council — Mayor Carl Brewer, Council Member Lavonta Williams (district 1, northeast Wichita), and Council Member Janet Miller (district 6, north central Wichita) — ask that Starwood operate under the standards of Obamacare? The table presents data as “full-time equivalents,” which provides room for Starwood to go either way.

Starwood is asking for a forgivable loan of $200,000 from Wichita, and another of the same amount from Sedgwick County. I asked the Kansas Department of Commerce if it would reveal the programs and incentives that Starwood will receive from the State of Kansas. It would not supply that information at this time, but I obtained the information by another means. The state describes its offer to Starwood as worth “up to $1,583,272.” Of this, $750,000 would be in the form of direct cash grants.

Here is a link to the relevant pages from the Wichita city council agenda: Starwood Hotels & Resorts Economic Development Incentive Agreement with City of Wichita, Kansas. Also, from the Department of Commerce: Starwood Hotels & Resorts Economic Development Incentives offered by State of Kansas.

Governing by extortion destroys freedom

By Dave Trabert, Kansas Policy Institute.

Government takes and gives

Merriam-Webster defines extortion as the “… exaction of money or property through intimidation or undue exercise of authority.” It’s illegal for individuals or corporations to engage in extortion, but some governments are increasingly using forms of extortion to exact higher taxes, make citizens more dependent upon government and ultimately, strip away economic and political freedom.

Government intimidation may not come with Soprano-like threats of violence. Some government officials may not even realize they are extorting the populous — the practice of presenting the government solution as the only option has become that commonplace. But no matter how politely or subtly phrased, the message is “give us what we want or else …” The “or else” comes in many forms.

The federal government punishes citizens with flight delays and service cuts to senior citizens while continuing to lavish taxpayer money on favored political friends and countless other examples of waste and duplication. The federal government will either get to borrow and spend as much as it wants or innocent citizens will pay the price.

Some state officials in Kansas want to extend a temporary sales tax and/or take away deductions for home mortgage interest and property taxes. They say it’s necessary to avoid massive budget deficits that would de-fund schools and services. The message is that higher taxes are the only alternative, when in fact they could choose to bring down the cost of government services and stop giving out corporate welfare in the name of economic development.

University officials in Kansas say they will raise tuition, eliminate professors, and restrict student admissions if state aid is even slightly reduced. They say nothing of reducing administrative costs that rose three times faster than inflation or using large cash reserves that accumulated from a 137 percent increase in tuition and fees over the last ten years. Give them what they want or students, parents, and staff will suffer.

Local governments routinely tell citizens that taxes must be increased to avoid police and fire layoffs, pool closings and other direct service reductions. Why not consolidate overlapping government programs and bureaucracy instead of raising taxes? Or maybe stop giving taxpayer money away to friendly developers who support the growth of government and help underwrite campaigns for public office?

Our state and nation were founded on the principles of freedom and limited government. Yet those who stand in defense of freedom are often met with ridicule. Carl Brewer, the Mayor of Wichita, recently issued a thinly veiled threat to sue a woman for asking him to recuse himself from a vote to give a $700,000 sales tax exemption to a campaign contributor (and fishing buddy). A columnist for the Hutchinson News falsely blamed those who want less government intrusion in our lives for poverty, high property taxes and other woes as opposed to following his prescription for progressive, big government solutions.

Thomas Jefferson said, “Government exists for the interests of the governed, not for the governors.” Some in our state seems to have forgotten that and are working to prove another of his maxims, “The natural progress of things is for liberty to yield and government to gain ground.”

Citizens must be persistent and vocal in reminding elected officials of the former or we shall continue to suffer the loss of liberty.

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.)

Carl Brewer: The state of Wichita, 2013

Wichita Mayor Carl Brewer, State of the City Address, January 29, 2013Much like President Barack Obama in his recent inaugural address, Wichita Mayor Carl Brewer displayed his collectivist instincts in his “State of the City” address for 2013. His speech, as prepared, may be read here.

Opening, the mayor said “Wichita has overcome great challenges in the past and will overcome these as well, but we’ll need to work together.”

Near the close, the mayor said “THE TIME FOR ACTION IS NOW! We have reached a point where we MUST come together as a community, and create a plan that defines our priorities and the City we are to become.” And then: “For all of our differences, I have never doubted this community’s ability to come together and protect what matters most.” (The capitalization is in the mayor’s prepared text.)

But what’s really important to Wichita is economic development. Regarding that, Brewer said this:

As we struggle to compete for new businesses and new jobs, especially in light of job losses in aviation, we must face the reality that we are competing with other cities that offer economic incentives for business development and expansion. If we want to be IN the game, we need to PLAY the game, but we have no dedicated funding source for economic development. If we’re serious about finding new jobs for our people — and I am — we must change this scenario as soon as possible. Where will those incentive dollars come from? (Capitalization, again, is from the original.)

The idea of a dedicated funding source for economic development is something that many in Wichita would support. Many would oppose it, too. But instead of just lobbing rhetorical questions (Where will those incentive dollars come from?), the mayor should give us some answers. Or, at least make a specific proposal. Does the mayor recommend a sales tax increase? Or allocating specific levels of property tax to economic development? (The city is doing this on a temporary basis.) Or asking the state legislature to fund Wichita’s economic development, as we insist the legislature fund our airline subsidy program?

Whatever it is, Mayor Brewer, give us some specific ideas as to how you want to raise this money, and how you would spend it.

It’s that spending, I think, that people in Wichita have concern over. The cumulative record of Brewer, the city council, and city bureaucratic staff hasn’t inspired trust and confidence. Giving the city additional dollars to spend on economic development is not a wise investment.

For example, the mayor says that subsidizing downtown development is good economic development strategy. But we see the mayor and nearly all council members voting to give an overpriced no-bid contract to their significant campaign contributors. This happened despite the company’s large cost overruns on previous no-bid contracts awarded by the city. Is that good economic development practice?

We see the city council sitting in a quasi-judicial role, adjudicating the award of an airport construction contract when one of the parties is a significant campaign contributor. In fact, Key Construction — the company that prevailed in that decision — through its principals and executives, was the sole source of campaign funds raised by Lavonta Williams (district 1, northeast Wichita) in 2012 as she prepared to run for reelection this spring.

Key’s executives also contributed heavily to James Clendenin (district 3, southeast and south Wichita) last year. He’s running this spring, too.

At the time this airport contract was being handled, Council Member Jeff Longwell (district 5, west and northwest Wichita) was campaigning for the Sedgwick County Commission. Campaign finance reports revealed contributions from parties associated with Walbridge, a Michigan construction company. Why would those in Michigan have an interest in helping a Wichita City Council member fund his campaign for a county office? Would the fact that Walbridge is a partner with Key Construction on the new airport terminal, and that Longwell would be voting on that contract, provide a clue?

Or: A movie theater owner and business partners contribute to the mayor’s (and other) campaigns. Mayor and council vote to give a no-interest and low-interest loan and tax breaks to theater owner and his partners. Mayor goes into barbeque sauce business. Mayor’s barbeque sauce is now sold at movie theater.

Doesn’t Carl Brewer see anything wrong with this? Don’t his advisors tell him that this creates the appearance of impropriety? Does the mayor consider whether these actions make a positive impression on those who might want to invest in Wichita?

We see the city awarding economic development incentives that were not necessary for the project to proceed. It took a special election to teach the mayor and council that lesson. By the way, that unneeded and rejected incentive was awarded to the significant campaign contributors of Mayor Brewer and most council members.

We see the city taking credit for building up the tax base, yet giving away tax revenue in the form of property tax abatements, IRBs, tax increment financing, and STAR bonds.

The bureaucratic missteps: The Southfork TIF district is just the latest example.

The lack of respect for citizens’ right to know how taxpayer funds are spent is another troubling aspect of Brewer’s tenure as mayor. None of the words “accountability,” “transparency,” or “open government” were mentioned in the mayor’s address this year, as they have been in the past. No sense in calling attention to an area where the city has failed, I suppose.

All this is done in the name of economic development and jobs. But Wichita is underperforming Kansas and the nation in these areas. Under Brewer’s leadership, however, we are overachieving in the advancement of cronyism and its ills.

The record indicates that our officeholders, and those who advise them, are not worthy of our trust, and certainly not more taxes for economic development.

After last year’s State of the City speech, I noted “Wichita’s mayor is openly dismissive of economic freedom, free markets, and limited government, calling these principles of freedom and liberty ‘simplistic.’ Instead, his government prefers crony capitalism and corporate welfare.”

I also wrote: “Relying on economic freedom, free markets, and limited government for jobs and prosperity means trusting in free people, the energy of decentralized innovation, and spontaneous order. A government plan for economic development is the opposite of these principles.”

This year, the outlook for economic freedom and limited government in Wichita is gloomier than ever before. The door for those who wish to profit through cronyism is wide open. We’ll have to hope that, somehow, Wichita can learn to thrive under this regime.

Questioning Pat Roberts

One of the small news items emerging from the Kansas Republican Party Convention last weekend is that Pat Roberts will run for reelection to the U.S. Senate next year.

So is this a good thing, or not? Gidget of Kansas GOP Insider (wannabe) offers one opinion in her post on the topic:

Look, I like Sen. Roberts. He’s a nice enough guy, but he will not make any waves. He will not rock any boats. I do not understand it. Most 76 year olds are willing to wear purple suits and red hats in public as some sort of matter of pride. It’s their way of saying, I’ve lived long enough I’ll do as I damn well please.

But not Sen. Roberts.

Where every member of the Kansas delegation in the House voted against the plan to avoid the so-called fiscal cliff — there was Roberts being a “statesman” by raising your taxes without the agreement of any cuts.

This is a regularly repeated occurrence for those in the U.S. Senate. They are absolutely willing to sell the people down the river in return for being called “statesman” and getting re-elected.

The truly disgusting part is that we’re all going to vote for Sen. Roberts again.

If he draws a primary opponent, it will be a miracle. And even if he does draw a primary opponent, everyone will tip toe around for fear of upsetting Roberts and the many people who owe him their careers.

The Wall Street Journal noticed a vote made by Senator Roberts in committee that lead to the fiscal cliff bill. The newspaper explained the harm of this bill in its editorial:

The great joke here is that Washington pretends to want to pass “comprehensive tax reform,” even as each year it adds more tax giveaways that distort the tax code and keep tax rates higher than they have to be. Even as he praised the bill full of this stuff, Mr. Obama called Tuesday night for “further reforms to our tax code so that the wealthiest corporations and individuals can’t take advantage of loopholes and deductions that aren’t available to most Americans.”

One of Mr. Obama’s political gifts is that he can sound so plausible describing the opposite of his real intentions.

The costs of all this are far greater than the estimates conjured by the Joint Tax Committee. They include slower economic growth from misallocated capital, lower revenues for the Treasury and thus more pressure to raise rates on everyone, and greater public cynicism that government mainly serves the powerful.

Republicans who are looking for a new populist message have one waiting here, and they could start by repudiating the corporate welfare in this New Year disgrace.

The Journal took the rare measure of calling out the senators who voted for this bill in committee, as shown in its nearby graphic. There it is: Pat Roberts voting in concert with the likes of John Kerry, Chuck Schumer, and Debbie Stabenow.

If Tom Coburn of Oklahoma could vote against this bill in committee, then so could have Pat Roberts. But he didn’t.

Charles Koch profiled in Forbes

The new issue of Forbes features a cover story on Charles and David Koch. It is very interesting and seems a balanced and fair article, but there are a few things that stand out. (Inside The Koch Empire: How The Brothers Plan To Reshape America.)

An example: “Both Kochs innately understand that — unlike the populist appeal of their fellow midwestern billionaire Warren Buffett and his tax-the-rich advocacy — their message of pure, raw capitalism is a much tougher sell, even among capitalists.”

I think the author should have written “even among business executives” rather than capitalists. That’s because Charles Koch has been outspoken about business cronyism, in September writing in The Wall Street Journal: “Far too many businesses have been all too eager to lobby for maintaining and increasing subsidies and mandates paid by taxpayers and consumers. This growing partnership between business and government is a destructive force, undermining not just our economy and our political system, but the very foundations of our culture.”

I would imagine that most of the business leaders seeking government subsidies and mandates consider themselves capitalists. That’s a problem.

Then: the description of “pure” capitalism as raw. I think we’re starting to realize just how raw politics and government have become. Capitalism, however, is a system based on respect for property and peaceful, beneficial exchange. Tom G. Palmer in the introduction to The Morality of Capitalism explains: “Far from being an amoral arena for the clash of interests, as capitalism is often portrayed by those who seek to undermine or destroy it, capitalist interaction is highly structured by ethical norms and rules. Indeed, capitalism rests on a rejection of the ethics of loot and grab, the means by which most wealth enjoyed by the wealthy has been acquired in other economic and political systems. … It’s only under conditions of capitalism that people commonly become wealthy without being criminals.”

Often corporations are criticized by liberals as being too focused on short-term gains, that corporate raiders buy firms, gut them, chop them up, sell off assets, lay off employees, pile on debt — you know the story as used against Mitt Romney. But look at how Koch Industries operates:

Charles spent $6 billion upfront to buy Georgia-Pacific, and rather than satisfy quarterly earnings estimates or dividend-hungry investors, he immediately directed the new division’s cash flow toward paying down the $15 billion in liabilities that it inherited. …

The Koch long-game strategy is absolute: If it makes sense to them, the Kochs stay with the plan, no matter how burdensome or how long it takes. “We buy something not to milk it but to build it, to take its capabilities and add to them, and build new businesses,” [Charles] Koch says.

That sounds like a business strategy the left should embrace, not vilify.

Another curious statement by the author: “Given their strict adherence to the principals of transparent free markets, the Kochs’ secrecy seems hypocritical.” This is curious because transparency is an attribute not often associated with advocacy for free markets. Transparency is more associated with government as a desirable goal. Charles and David Koch are private citizens, not agents of government.

There’s good news near the end of the article:

The brothers’ new political emphasis in the coming year? Fighting corporate welfare.

While Obama talks about getting rid of lobbyists, Charles says, the “only way he can achieve that stated objective is to get government out of the business of giving goodies. That’s like flies to honey,” he adds. “The first thing we’ve got to get rid of is business welfare and entitlements.”

There’s much more in the article, available at Inside The Koch Empire: How The Brothers Plan To Reshape America.

Wichita’s $60 million gift to Spirit Aerosystems — not

When I read that Wichita had invested nearly $60 million in its Spirit AeroSystems plant, I thought I must have been napping during a city council meeting. Instead, the lede of the story in the Tulsa World newspaper was a misstatement of the mechanism of Industrial Revenue Bonds (IRBs).

The News reported “News that the city of Wichita is moving to invest nearly $60 million in its Spirit AeroSystems plant has Vision2 backers warning that Tulsa’s aerospace jobs are at risk of poaching by other cities.”

A Tulsa television news report offered similar reporting: “… after the City of Wichita, Kansas offered roughly $60 million in incentives to try and steal Spirit Aerosystems away from Tulsa.”

When news stories cover IRBs, the stories usually focus on the amount of the bonds, as in these two examples. That’s unfortunate, as the amount of the bonds is really a minor component of the story.

You see this misunderstanding revealed in comments left to newspaper articles reporting the issuance of IRBs, where comment writers complain that the city shouldn’t be in the business of lending companies money.

This confusion hides the reason why IRB transactions take place, which is tax avoidance. That’s the real story of Industrial Revenue Bonds: Companies escape paying the property and sales taxes that you and I — as well as most business firms — must pay.

Reading the city council agenda packet regarding the IRB issue tells the story. The city is not lending Spirit money. In fact, no one is, according to the city document: “Spirit AeroSystems, Inc. intends to purchase the bonds itself, through direct placement, and the bonds will not be reoffered for sale to the public.”

Also, the city has no obligation to pay the bondholders should Spirit default. This is a moot point in this case, as the issue of the bonds is also the buyer. But this is the case with all IRBs.

It’s not uncommon for the issuing company to buy the bonds. So why issue the bonds? The agenda packet has the answer: “The bond financed property will be eligible for sales tax exemption and property tax exemption for a term of ten years, subject to fulfillment of the conditions of the City’s public incentives policy.”

City documents didn’t give the amount of tax Spirit will avoid paying, so we’re left to surmise. Bonds could be issued up to $59.5 million. Taxable business property of that value would generate an annual tax bill of around $1.8 million per year, but Spirit would not pay that for up to ten years. If all the purchased property was subject to sales tax, that one-time tax exemption would be $4.3 million. These are the upper bounds of the tax savings Spirit Aerosystems may receive. Its actual savings will probably be lower, but still substantial.

These numbers are the economic benefit of the bonds to Spirit, and the opportunity cost of the bonds to taxing jurisdictions. The $60 million “investment” or “incentive” reported by two Tulsa news sources is incorrect.

Industrial Revenue Bonds, a confusing program

IRBs are a confusing economic development program. It sounds like a loan from the city or state, but it’s not. The purpose is to convey tax avoidance.

Here’s language from the Wichita ordinance that was passed to implement the bonds: “The Bonds, together with the interest thereon, are not general obligations of the City, but are special obligations payable (except to the extent paid out of moneys attributable to the proceeds derived from the sale of the Bonds or to the income from the temporary investment thereof) solely from the lease payments under the Lease, and the Bond Fund and other moneys held by the Trustee, as provided in the Indenture. Neither the credit nor the taxing power of the State of Kansas or of any political subdivision of such State is pledged to the payment of the principal of the Bonds and premium, if any, and interest thereon or other costs incident thereto.”

So no governmental body has obligations to pay the bondholders in case of default. But this language hints at another complicating factor of IRBs: The city actually owns the property purchased with the bond proceeds, and leases it to Spirit. Here’s the preamble of the ordinance: “An ordinance approving and authorizing the execution of a lease agreement between Spirit Aerosystems, Inc. and the City of Wichita, Kansas.”

Other language in the ordinance is “WHEREAS, the Company will acquire a leasehold interest in the Project from the City pursuant to said Lease Agreement.” There’s other language detailing the lease.

We create this imaginary lease agreement — and that’s what it is, as it doesn’t have the same purpose and economic meaning as most leases — for what purpose? Just so that certain companies can avoid paying taxes.

The city does have another program that allows it to exempt these taxes under some circumstances without having to issue bonds. In this case the goal of the program is laid clear: tax avoidance.

IRBs are a confusing program that obfuscates the actual economic transaction. That’s not good public policy, whether or not you agree with the concept of selective tax abatements as economic development.

Similarly, a principle of good tax policy is that those in similar situations should face the same laws. IRBs are contrary to this.

While we can understand that citizens — with their busy lives — may not be informed or concerned about the complex workings of IRBs, we should expect more from our elected (and paid) officials. But we find often they are not informed.

As an example, in 2004 the Wichita Eagle reported: “In July, the council approved industrial revenue bond financing and a $1.7 million property tax abatement for Genesis Health Clubs. Council members later said they didn’t realize they had also approved a sales-tax break.” (Kolb goal : Full facts in future city deals, September 26, 2004)

Here we see Wichita City Council members not aware of the basic mechanism of a major city program that is frequently used. This is in spite of an informative city web page devoted to IRBs which prominently states: “Generally, property and services acquired with the proceeds of IRBs are eligible for sales tax exemption.”

Yes, that page was active in 2004.

Wichita economic development, two stories

Two items on the agenda for the Wichita City Council give an insight into the nature and efficacy of economic development efforts in Wichita.

First, a local company will come to the Wichita City Council asking for a property tax exemption. This is not unusual, as it happens almost every week, and multiple times at some meetings. In this case, we learn that estimates of job creation used to support an economic development incentive weren’t realistic.

The company, MoJack, had received a forgivable loan from Wichita and Sedgwick County based on promises to create a certain number of jobs. The loan amount was $35,000 from each, for a total of $70,000. If MoJack meets the job and payroll targets, the loan will be forgiven.

But we learn in city materials this week that there’s been a change: “As a result of this expansion, Mojack plans to add at least 26 new employees to its workforce at a starting average wage of $44,000. In June 2012, Mojack repaid the forgivable loan because it had been based on an earlier estimate that 53 new jobs would be created, which was not realistic.” (The agenda report may be read at Public Hearing and Tax Exemption Request (Mojack Holdings, LLC/Mojack Distributors, LLC).)

In June, MoJack repaid its forgivable loan to Sedgwick County, presumably for the same reasons.

While city officials say they conduct due diligence before granting economic development incentives, the reality is that economic development officials have to work with whatever figures the applicant companies provide. How can the city verify the projected growth of a company? We wouldn’t want to even give that a try.

What’s important is this: Greater Wichita Economic Development Coalition is our economic development agency. In their annual report of their activities, they took credit for the MoJack jobs. Now that the number of jobs to be created is expected to be smaller, will GWEDC update its job creation figures?

Also, MoJack participated in several economic development incentives from the state of Kansas. Hopefully the Kansas Department of Commerce will consider the new, revised employment projects with managing its incentive awards, and will also update its claims of job creation accordingly.

We also learned this week that Hawker Beechcraft may not be meeting its agreed-upon employment levels required to continue to receive incentives from the state, Sedgwick County, and City of Wichita.

In Wichita Business Journal reporting we learn the numbers:

Hawker Beechcraft Corp. appears to be close to violating an agreement with state and local governments to maintain employment of at least 4,000 workers in Wichita.

The company has declined to discuss its employment level in detail and as recently as last week told the Wichita Business Journal that it had employment of 4,500 workers, the same number it reported to the WBJ in March.

However, according to a database of mass layoffs maintained by the Kansas Department of Commerce, from March to June this year Hawker issued 885 60-day layoff notices to Wichita employees. And since late July it has filed layoff notices for 56 more Wichita workers.

All told, that’s 941 layoff notices since March. If all those job cuts have taken place, and the 4,500 number was accurate in March, that would suggest a current employment level of 3,559 in Wichita, based solely on layoffs and not assuming any potential attrition or, on the other hand, new hires.

The article explains that while the official job count for agreement compliance purposes is taken at the end of the year, Hawker is not forthcoming with information about its employment levels. While it is not required to answer WBJ’s questions about its job count, we should remember that we have a public-private partnership with Hawker, under which taxpayers will be investing millions in the company. Wichita economic development leaders tout the public-private partnership as a powerful tool.

By taking our money and entering in a partnership, Hawker ought to be more forthcoming with legitimate information requests. Failure to do so is not polite, even if it is not required.

There’s also this question: When Hawker releases its employment figures, will GWEDC adjust its success story to reflect the likely lower number of jobs? If we’re to have an economic development effort that’s based on factual information, GWEDC should. But based on past history, I doubt it will. Therefore, we continue to make decisions based on incomplete data and facts.

By the way, the Hawker Beechcraft campus is outside the city limits of Wichita. By what authority does the city give it Wichita taxpayers’ money?