Tag Archives: Intrust Bank arena

Located across the street from the Transit Center, the city-owned garage on William Street suffers from maintenance issues that diminish its value for its intended use: retail space.

As landlord, Wichita has a few issues

Located across the street from the Transit Center, the city-owned garage on William Street suffers from maintenance issues that diminish its value for its intended use: retail space.

Located across the street from the Transit Center, the city-owned garage on William Street suffers from maintenance issues that diminish its value for its intended use: retail space.

Commercial retail space owned by the City of Wichita in a desirable downtown location was built to be rented. But most is vacant, and maintenance issues go unresolved.

At one time it was thought that the Wichita city-owned parking structure in the 400 block of East William Street would house retail shops along the street. But the present state of the property should cause us to be wary of government economic development efforts.

As reported by the Wichita Eagle twenty years ago on Wednesday, October 20, 1993:

The council also approved a plan to spend about $76 a square foot to construct roughly 6,000 square feet of retail space on the first floor of the parking garage. The space would lease for an estimated $8.70 a square foot.

Council member Sheldon Kamen questioned that part of the plan. ”I just can’t visualize spending $76 a square foot,” he said. “If I was a developer I wouldn’t spend $76 a square foot for retail space on William street.”

Council member Joan Cole disagreed with Kamen, calling $8.70 a “very good price” that would attract tenants. ”It is my feeling there are small operations that would find this kind of small space very attractive,” she said.

(Adjusted for inflation, these prices would be $122 and $14 today)

What has been the results of the city’s venture into commercial real estate? As can be seen in this video from September, a Wichita city government office occupied some of the space, but the office had moved to another location. Now, Wichita Festivals occupies some of the space, but much is still empty.

Rusted awnings near retail space in the city-owned garage on William Street in Wichita,

Rusted awnings near retail space in the city-owned garage on William Street in Wichita,

Inspecting the building last September, I found that this city-owned property had maintenance issues that might, in some circumstances, be considered as contributing to blight. As can be seen in the nearby photos taken this week (click them for larger versions), maintenance hasn’t improved in the nearly six months since then. Maybe that’s why there’s apparently little demand to rent this space.

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

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

It’s not as though the building has many of advantages that city planners tell us are needed for a vital downtown Wichita. There are hundreds of state employees parking in the garage each workday. It’s adjacent to the block with the Eaton Hotel and the Wichita Downtown Development Corporation, the agency charged with promoting downtown. This retail space is right across the street from the city’s bus transit center. It’s also one block away from the Intrust Bank Arena, which was promoted as a driver of commerce and activity for the surrounding area. Its Walk Score — a measure promoted by city planners — is 71, which is deemed “Very Walkable.”

Considering all the advantages this government-owned property has, it’s failing. It’s becoming blighted. The best thing the city could do is sell this property so that the benefits of markets and the profit-and-loss system can replace city bureaucrats.

WichitaLiberty.TV September 15, 2013

WichitaLiberty.TV logo

In this episode of WichitaLiberty.TV, host Bob Weeks reviews chapter 4 of “Economics in One Lesson,” about how public works mean taxes, and efforts to create jobs through spending on public works do more ham than good, if the public asset is not truly needed. The tax used to build the Instrust Bank Arena in Wichita is analyzed in this light. Then on to chapter 5, “Taxes Discourage Production.” Amanda BillyRock illustrates, and Bob explains that notwithstanding inventions like the powdered orange drink Tang, innovation and progress comes primarily from the private sector, not from government programs. Episode 13, broadcast September 15, 2013. View below, or click here to view at YouTube.

Touring a Wichita-owned downtown retail development

I have often wondered why economists, with these absurdities all around them, so easily adopt the view that men act rationally. This may be because they study an economic system in which the discipline of the market ensures that, in a business setting, decisions are more or less rational. The employee of a corporation who buys something for $10 and sells it for $8 is not likely to do so for long. … A politician who wastes his country’s resources on a grand scale may have a successful career.
– Ronald Coase

william-street-parking-garage-2013-09-02-01

At one time it was thought that the Wichita city-owned parking structure in the 400 block of East William Street would house retail shops along the street. But the results should give us reason to be wary of government economic development efforts.

As reported by the Wichita Eagle almost twenty years ago on Wednesday, October 20, 1993:

The council also approved a plan to spend about $76 a square foot to construct roughly 6,000 square feet of retail space on the first floor of the parking garage. The space would lease for an estimated $8.70 a square foot.

Council member Sheldon Kamen questioned that part of the plan. ”I just can’t visualize spending $76 a square foot,” he said. “If I was a developer I wouldn’t spend $76 a square foot for retail space on William street.”

Council member Joan Cole disagreed with Kamen, calling $8.70 a “very good price” that would attract tenants. ”It is my feeling there are small operations that would find this kind of small space very attractive,” she said.

(Adjusted for inflation, these prices would be $122 and $14.)

But it hasn’t happened. As can be seen in this video, a Wichita city government office occupied some of the space, but the office has moved to another location.

It’s not as though the building has some advantages. There are hundreds of state employees parking in the garage each workday. It’s adjacent to the block with the Eaton Hotel and the Wichita Downtown Development Corporation, the agency charged with promoting downtown. This retail space is right across the street from the city’s bus transit center. It’s also one block away from the Intrust Bank Arena, which was promoted as a driver of commerce and activity for the surrounding area.

william-street-parking-garage-2013-09-02-02

As can be seen in the nearby photos (click them for larger versions), a walk down this block also reveals maintenance issues that might, in some circumstances, be considered as contributing to blight. Maybe that’s why there’s evidently no demand to rent this space — except by a government office, and even it has left.

The difference

What is the difference between private ownership of assets and government ownership? A big factor is the accountability provided by markets, along with the profit motive. Private owners of rental property like this have a big incentive to keep it filled with tenants. If the private owners are able to attract tenants and control their costs, they can earn a profit. Markets impose a discipline on these costs, because landlords can charge only what the market will bear for rent. If landlords can’t attract tenants, or can’t control costs, they go out of business. That makes the property available to someone else, perhaps someone who can manage the property successfully.

Markets and the profit motive are not perfect. But when private landlords are inefficient, no one is harmed except the landlords.

Government, however, can’t earn a profit or suffer a loss. It can’t even calculate profit and loss in any meaningful sense. Usually government doesn’t account for its capital investment. That’s certainly the case with this empty retail space. A private landlord would realize that this empty space that can’t be rented has an opportunity cost that is very real. That doesn’t appear to be the case with Wichita city management.

This illustrates the weak accountability that government faces. Despite situations like this, the Wichita city manager received effusive praise from the Wichita City Council this year, along with a large raise in pay. Two years ago the incumbent Wichita mayor didn’t inspire a strong opponent, and only about 12 percent of the people bothered to vote.

Considering all the advantages this government property has, it’s failing. It has no tenants, and it’s becoming blighted. The best thing the city could do is sell this property so that the benefits of markets and the profit-and-loss system can replace city bureaucrats.

For Wichita, more districts, more taxes, more bureaucracy

red-tape-person-upset

Tomorrow the Wichita City Council will consider formation of a Tourism Business Improvement District. Actually, the council will formation of a planning committee to determine boundaries, parameters, budgets, and how to fund the budget.

The impetus behind the TBID, according to city documents, is “Go Wichita has proposed that a TBID be created to enhance its marketing efforts.” Go Wichita is the Wichita Convention and Visitors Bureau. The source of its funds, again from city documents: “A fee is assessed to each of these properties based on room night sales. This fee is usually determined as a percentage of the room rate or as a flat dollar amount per night. The funds collected in the district are spent exclusively for the benefit of the hotels and are usually programmed by the local convention and visitor’s bureau.”

What will be done with the money that is raised? “The funds generated from the district would be used to increase convention advertising in key meeting planner publications, convention sales initiatives in key markets and digital advertising. Additionally, a significant portion of the new funds would be earmarked for leisure marketing efforts.”

Tomorrow’s action contemplated by the council is just the formation of a planning committee, not he actual TBID. So there’s still time to think this through. Here’s what I hope the city considers:

First, is there any way to distinguish this “fee” from a tax? A tax that will probably be passed along to visitors to Wichita?

Second: Is there any way to characterize this as anything other than an expansion of bureaucracy in Wichita? I really wonder if the hotel operators know what they’re getting themselves mixed up in. If the hotels feel they need more marketing firepower to attract business to Wichita, I’m sure they’d do better to form a voluntary association to undertake this task. This would be nimble and flexible in way that a government bureaucracy can never be. But who will stand up to this expansion of our tourism bureaucracy? A hotel owner that wishes to receive referrals? Like most government bureaucrats, those who will run this new program “profit” from increasing their power and influence, and by expansion of their budgets, perks, and staffs. They won’t look favorably on those who don’t go along with the program.

Then: The members of the committee are appointed by the mayor. Hotel owners: Do you want Carl Brewer to be in charge of appointing people to oversee something important to your business?

Finally, the people of Wichita need to realize that pursuit of convention and tourism business is not the wisest path to follow. Wall Street Journal reporting from last year concluded with:

“Mr. Sanders, the University of Texas professor, predicts the glut of convention space will only get worse, because a number of cities continue to push expansions. He blames cities’ hired consultants, who he said predict “all these people are going to come and do wonderful things to your economy.”

“But the problem is they aren’t coming anymore, because there are lots of other convention centers … that desperately want that business,” he said. “So Atlanta steals from Boston, Orlando steals from Chicago and Las Vegas steals from everywhere.”

The “Mr. Sanders” referred to in the Journal reporting is Heywood T. Sanders, who is professor in the Department of Public Administration at the University of Texas at San Antonio. He is a noted critic of public efforts to chase convention business for economic development. His 2005 report report Space Available: The Realities of Convention Centers as Economic Development Strategy was published by the left-leaning think tank The Brookings Institution. It provides a look at the realities of the convention trade.

Sanders writes that convention center business has been on the decline, and it started well before the terrorist attacks in 2001. In a section titled “Trends: Portrait of a Faltering Industry” we can read that attendance is down, exhibit space demand is down, and hotel room demand in cities has fallen too.

The author notes that the decline in convention business is a structural decline: “[Reasons for decline] are the product of industry consolidation, particularly in the hardware and home improvement industry, reductions in business travel in the face of increasing cost and difficulty, and alternative means of conveying and gathering information.” These are not cyclical trends that are likely to reverse in the future.

Despite shrinking demand, cities are building more convention space: “Despite diminishing demand, the last few years have seen a remarkable boom in the volume of exhibit space in U. S. convention centers.” The building of larger convention centers in many cities means that more cities are able to host the larger events, or, cities can now host several smaller events simultaneously. The result, says the author, is fierce competition for both large and small events.

What about the costs? The author introduces a section on costs with: “The studies that justify both the new center space and the publicly-owned hotels paint a picture of tens of thousands of new out-of-town visitors and millions of dollars in economic impact. Despite that rhetoric, these projects carry real risks and larger potential costs, particularly in an uncertain and highly competitive environment.”

The convention center is just the start of costs: “A new [convention] center is thus often followed by a subsidized or fully publicly-owned hotel.” Wichita, of course, has a fully publicly-owned hotel, the large 303-room Hyatt. Now Wichita has been providing, and will probably continue, subsidy programs to other downtown hotels. None of the hotels alone provide as many rooms as Wichita convention planners say the city needs, so we are likely to see proposals for a subsidies to hotels continue.

In fact, until Wichita has as many hotel rooms as our nation’s largest convention cities have, there is always a larger goal — a next step on the ladder. Can you imagine our city leaders ever proclaiming that we have enough hotel rooms in downtown Wichita?

Other things Sanders says that are likely to be proposed are a sports arena. Wichita, of course, recently opened a taxpayer-financed and government-owned facility, the Intrust Bank Arena. After a brief honeymoon fling with good financial performance, the arena has settled down to a less-acceptable level of revenue production. Residents of Sedgwick County, which owns the arena, should be cautioned that the financial results hailed by the county don’t include depreciation costs, so the true financial picture is not anywhere near complete.

Entertainment, retail, and cultural attractions are often proposed, Sanders writes, and Wichita downtown planners have indicated their desire for these.

The conclusion to this paper describes Wichita’s current situation and foreshadows what is likely for the future of Wichita:

But if taxing, spending, and building have been successful, the performance and results of that investment have been decidedly less so. Existing convention centers have seen their business evaporate, while new centers and expansions are delivering remarkably little in terms of attendance and activity.

What is even more striking, in city after city, is that the new private investment and development that these centers were supposed to spur — and the associated thousands of new visitors — has simply not occurred. Rather, city and convention bureau officials now argue that cities need more space, and more convenience, to lure those promised conventions. And so underperforming convention centers now must be redeemed by public investment and ownership of big new hotels. When those hotels fail to deliver the promises, then the excuse is that more attractions, or more retail shops, or even more convention center space will be needed to achieve the goal of thousands of new visitors.

We already see some of this excuse-making taking place: Private investment in downtown Wichita has been weak, it is said, because there’s not yet a critical mass of development. It is promised by downtown boosters that given enough public money, critical mass will be achieved, and private investment will rush in. But since there is no definition of what constitutes critical mass, this excuse is always available to justify failure.

Downtown Wichita: What happened?

Recently commercial real estate agent Patrick Ahern was interviewed by the Wichita Eagle. A few portions of the interview relate directly to public policy.

How is the downtown market reacting to the slow disappearance of the Minnesota Guys?

The buildings they condoed, by selling the floors off, has created quite a mess. You have multiple property owners in one building. Some owners have the resources to fix things and others don’t, and the ones who do don’t want to pay for the guy who doesn’t. But that will work itself out through the foreclosure process. And two of their buildings went to auction — Farmers and Bankers, and the Landmark building. Kaufman is being foreclosed on, and it’s no secret that at the Wichita Executive Centre, the lender has taken over operations and is making the decisions now. So, the market is shaking them out. They’re swirling the drain.

On the condominium ownership of office building floors: Two years ago the Wichita Business Journal reported on this decline: “Prices on two bank-owned floors at the Broadway Plaza building — at the corner of Douglas and Broadway — were reduced last week to just $59,000 apiece. … They are just two of a handful office condo floors that originally were developed by Minnesota-based Real Development Corp. Most of them were sold to California investors, and many of them subsequently landed in foreclosure. Prices since then have plummeted.”

Some of these floors carried mortgage loans of over $400,000 not long ago.

Broadway Plaza Building, Wichita, KS

Tax values on these properties have fallen, too. According to Sedgwick County records, a typical floor in the Broadway Plaza building was appraised at around $387,000 in 2007. In 2013, the same property is appraised at only $92,000. This drop in real estate values is not reflective of the general trend of office values in downtown Wichita. A survey by two real estate firms shows rents for both class A and class B office space holding steady in downtown over the same time period.

While the floors in question are not currently owned by Real Development, and that company did not default on bank loans, the projects were developed and marketed by Real Development. And at the same time these values were plummeting, the Wichita City Council judged it was wise economic development strategy to award the Minnesota Guys millions in tax increment financing. The developers were never able to tap that financing, however.

For another downtown building, the Minnesota Guys stopped paying special assessment taxes as part of the city’s facade improvement program. The city says that these loans carry very low risk. In this case, it’s likely the city will get its money, but several years late, and only as part of the building’s foreclosure proceedings. (Bank of Kansas seeks to foreclose on Kaufman Building in downtown Wichita, June 12, 2013 Wichita Eagle)

Also, Ahern talked about the Intrust Bank Arena in downtown Wichita, which was sold to voters as an engine of economic development.

Intrust Bank Arena, Wichita, KS

Nothing has bloomed up around the arena. Why?

On the nights when you have a major event, say Billy Joel, the restaurants in the area, like Cafe Bel Ami, are sold out. The nights when you have hockey games, not so much. If there was a major event more frequently, maybe stuff would have popped up around it. But there is not enough going on to support a new sports bar across the street.

So, does that mean we’ll never see any economic overflow from the arena?

I don’t think so. I see people coming from western Kansas, from Hutch or wherever, coming to country concerts, staying overnight, eating out and whooping it up at Old Town. Even with the smaller stuff, like the hockey games, there is some economic benefit.

This sober assessment is quite different than from what arena boosters promised.

The full article is A conversation with Patrick Ahern.

Intrust Bank Arena depreciation expense is important, even today

Proper attention given to the depreciation expense of Intrust Bank Arena in downtown Wichita recognizes and accounts for the sacrifices of the people of Sedgwick County and its visitors to pay for the arena.

Sedgwick County Working for You

The true state of the finances of the Intrust Bank Arena in downtown Wichita are not often a subject of public discussion. Arena boosters promote a revenue-sharing arrangement between the county and the arena operator, referring to this as profit or loss. But this arrangement is not an accurate and complete accounting, and hides the true economics of the arena.

There are at least two ways of looking at the finance of the arena. Most attention is given to the “profit” (or loss) earned by the arena for the county according to an operating and management agreement between the county and SMG, a company that operates the arena.

This agreement specifies a revenue sharing mechanism between the county and SMG. For 2102, the accounting method used in this agreement produced a profit of $703,000, to be split (not equally) between SMG and the county.

While described as “profit” by many, this payment does not represent any sort of “profit” or “earnings” in the usual sense. In fact, the introductory letter that accompanies these calculations warns readers that these are “not intended to be a complete presentation of INTRUST Bank Arena’s financial position and results of operations and are not intended to be a presentation in conformity with accounting principles generally accepted in the United States of America.”

That bears repeating: This is not a reckoning of profit and loss in any recognized sense. It is simply an agreement between Sedgwick County and SMG as to how SMG is to be paid, and how the county participates.

A much better reckoning of the economics of the Intrust Bank Arena can be found in the county’s Comprehensive Annual Financial Report for 2012. It states: “The Arena had an operating loss of $4.8 million. The loss can be attributed to $5.3 million in depreciation expense.”

Depreciation expense is not something that is paid out in cash. Sedgwick County didn’t write a check for the $5.3 million in depreciation expense. Instead, it provides a way to recognize and account for the cost of long-lived assets over their lifespan. It provides a way to recognize opportunity costs, that is, what could be done with our resources if not spent on the arena.

But some don’t recognize this. In years past, Dave Unruh made remarks that show the severe misunderstanding that he and almost everyone labor under regarding the nature of the spending on the arena: “I want to underscore the fact that the citizens of Sedgwick County voted to pay for this facility in advance. And so not having debt service on it is just a huge benefit to our government and to the citizens, so we can go forward without having to having to worry about making those payments and still show positive cash flow. So it’s still a great benefit to our community and I’m still pleased with this report.”

The contention of Unruh and other arena boosters such as the Wichita Eagle editorial board is that the capital investment of $183,625,241 (not including an operating and maintenance reserve) on the arena is merely a historical artifact, something that happened in the past, something that has no bearing today. This attitude, however, disrespects the sacrifices of the people of Sedgwick County and its visitors to raise those funds.

Any honest accounting or reckoning of the performance of Intrust Bank Arena must take depreciation into account. While Unruh is correct in that depreciation expense is not a cash expense that affects cash flow, it is an economic fact that can’t be ignored — except by politicians, apparently.

Without frank and realistic discussion of numbers like these and the economic facts they represent, we make decisions based on incomplete and false information. This is especially important as civic leaders such as Wichita Mayor Carl Brewer ask for a dedicated revenue stream for economic development, or for another sales tax or other taxes to pay for more public investment.

For Wichita’s Block 1 garage, public allocation is now zero parking spaces

A downtown Wichita parking garage paid for by taxpayers now offers zero parking spaces to the public.

That’s one way to interpret information contained in a budget request for the garage located at 123 South Topeka. The block the garage is in is now branded as “Block 1.” It holds the Ambassador Hotel, Kansas Health Foundation, the Henry’s Building under renovation, and the Kansas Leadership Center building under construction.

The garage is being paid for with a combination of tax increment financing and capital improvement program funds. The original plan called for 282 parking stalls. The Ambassador Hotel would take 125 stalls of the 282. Slawson, for the renovation of the Henry’s building, would take up to 100 stalls. This left 57 stalls for public use, which was promoted as a huge asset to downtown Wichita and justification for building the garage with TIF and CIP funds.

Now, according to the budget, the plan is for 270 stalls in the garage, less 125 for the hotel, less 100 for Slawson, and now less 45 for the Kansas Leadership Center building. That leaves precisely zero stalls for public use.

It’s not quite that simple, as Slawson will use its spaces only during the workday, leaving them available to the public evenings and weekends. Probably the same arrangement will be made for the Kansas Leadership Center.

The city also conducted a parking demand model for the garage. According to the study made available by the city manager’s office, the peak weekday demand for spaces will be 171, leaving 99 spaces available for public use.

The same study indicates that from 135 to 147 spaces will be available in evenings and on weekends.

But there’s an agreement the city has with the Ambassador Hotel and Slawson. Section 4 is titled “Parking Arrangements.” It speaks of “guaranteed availability” of the 125 hotel spaces. It repeats the same language for the Slawson spaces.

What if the hotel and Slawson want to make sure their spaces, 225 in total, are all available for their use? Guaranteed to be available, as specified in the developer agreement? And if the Kansas Leadership Center asks for the same guaranteed availability agreement for their 45 spaces, what then?

This item is on the consent agenda, where items deemed to be non-controversial are voted on in bulk, perhaps two dozen at a time. Unless a council member asks to have this item “pulled” for discussion and a possible vote separate from the other consent items, there will be no discussion of this issue.

Finally, the availability of parking spaces for public use evenings and weekends is welcome. As the garage is very close to the Intrust Bank Arena, they will be useful.

But for long stretches of the year, they won’t be used very often.

In 2011, there were two events in the month of June at Intrust Bank Arena. There were three in July, three in August, and three in September. This year, according to the event calendar on the arena’s website, there were no events in July and August.

Wichita City Council can’t judge airport contract

On Tuesday the Wichita City Council will conduct a hearing for review of the award of a contract for the construction of the new Wichita Airport terminal. But because of relationships between nearly all council members — especially Wichita Mayor Carl Brewer — and one of the parties to the dispute, the city council should not participate in this decision.

The contract, worth about $100 million, was awarded to Dondlinger and Sons and its partner. Dondlinger has built many large projects, including INTRUST Bank Arena. But the city then ruled that Dondliger’s bid is “unresponsive.” The reason is that Dondlinger may not have met bid requirements regarding disadvantaged and minority business enterprises.

The firm next in line to receive the contract is Key Construction of Wichita. If the city council finds against Dondllinger, Key gets the contract, presumably. That’s the source of the problem the city council faces, as Key is heavily involved in politics, with its executives and their spouses often making the maximum allowed campaign contributions to nearly all members of the council. Personal relationships may play a role, too.

For the mayor and current council members, here is my tabulation of how much Key-associated persons made to each member’s most recent campaign:

Carl Brewer: $4,500
Jeff Longwell (district 5, west and northwest Wichita): $4,000
Lavonta Williams (district 1, northeast Wichita): $3,000
Pete Meitzner (district 2, east Wichita): $2,500
Janet Miller (district 6, north central Wichita): $1,500
James Clendenin (district 3, southeast and south Wichita): $1,000
Michael O’Donnell (district 4, south and southwest Wichita): $0

Is there a pattern to these contributions? That is, does Key make contributions to candidates with a specific political philosophy, such as conservatism or liberalism? Of the top three contributors, two have distinctly liberal ideas about taxation and spending, while the other is touting conservative credentials as he campaigns for another office. Patterns like this suggest that the contributions are made to gain access to officeholders, or for favorable consideration when the donor asks the council to vote to give it money or contracts. Key Construction does that a lot.

Wichita mayor Carl Brewer with major campaign donor Dave Wells of Key Construction.

The political influence of Key Construction extends beyond campaign contributions, too. Mayor Brewer’s personal Facebook profile has a photo album holding pictures of him on a fishing trip with Dave Wells of Key Construction.

These political investments have paid off for Key Construction, as it has received a number of no-bid contracts over the years. Last August the council decided to award Key a no-bid contract to build the parking garage that is part of the Ambassador Hotel project. The no-bid cost of the garage was to be $6 million, according to a letter of intent. All council members except Michael O’Donnell (district 4, south and southwest Wichita) voted for the no-bid contract to Key Construction, although Mayor Carl Brewer was absent. It is likely that he would have voted with the majority, however.

Later the city decided to place the contract for bid. Key Construction won the bidding, but for a price some $1.3 million less.

What citizens need to know is that the city council, except O’Donnell, was willing to spend an extra $1.3 million on a project awarded to a politically-connected construction firm.

So should the Wichita City Council make the decision on the airport contract? City documents don’t indicate whether Tuesday’s hearing is of a quasi-judicial nature, as it is sometimes when the council rules on certain matters involving appeal of decisions made by city authorities. But the council is being asked to make decisions involving whether discretion was abused or whether laws were improperly applied.

That sounds a lot like the role of judges. In 2009 the U.S. Supreme Court ruled that, in the words of legal watchdog group Judicial Watch, “… significant campaign contributions or other electoral assistance pose a risk of actual bias. Writing for the majority, Justice Anthony Kennedy said: ‘Just as no man is allowed to be a judge in his own cause so too can fears of bias arise when a man chooses the judge in his own cause.’”

Judicial Watch also noted “The ruling will likely affect judges in 39 states that elect them — including Washington, Texas and California — from presiding over cases in which their campaign contributions could create a conflict of interest. The nation’s judicial code has long said that judges should disqualify themselves from proceedings in which impartiality might reasonably be questioned, but the Supreme Court ruling is the first to address hefty election spending.”

The mayor and council members are not judges. But they’re being asked to make a judge-like decision. If held to the same standards as the U.S. Supreme Court says judges must follow, Mayor Brewer and the five council members who accepted campaign contributions from Key Construction need to recuse themselves from Tuesday’s decision on the Wichita Airport construction contract. A similar argument can be made for city manager Robert Layton and all city employees. Directly or indirectly they serve at the pleasure of the council.

Finally, this episode is another example of why Wichita and Kansas need pay-to-play laws.

Intrust Bank Arena finances: The worst news is hidden

The true state of the finances of the Intrust Bank Arena in downtown Wichita are not often a subject of public discussion. Arena boosters promote a revenue-sharing arrangement between the county and the arena operator, referring to this as profit or loss. But this arrangement is not an accurate and complete accounting, and hides the true economics of the arena.

There are two ways of looking at the finance of the arena. Most attention is given to the “profit” (or loss) earned by the arena for the county according to an operating and management agreement between the county and SMG, a company that operates the arena.

This agreement specifies a revenue sharing mechanism between the county and SMG. Based on the terms of the agreement, Sedgwick County received payment of $1,116,442 for the 2010 year, the first year of operation for the arena. While described as “profit” by many — and there was much crowing last year over the seemingly large amount — this payment does not represent any sort of “profit” or “earnings” in the usual sense. In fact, the introductory letter that accompanies these calculations warns readers that these are “not intended to be a complete presentation of INTRUST Bank Arena’s financial position and results of operations and are not intended to be a presentation in conformity with accounting principles generally accepted in the United States of America.”

That bears repeating: This is not a reckoning of profit and loss in any recognized sense. It is simply an agreement between Sedgwick County and SMG as to how SMG is to be paid, and how the county participates.

The presentation made to commissioners in February for the 2011 operating year said that the arena’s “profit” was $389,659. This is smaller than the threshold for the county to participate, so the county received nothing for 2011.

While county manager Bill Buchanan and Commissioner Dave Unruh referred to this as a profit, the true facts of the arena’s finances appear — to some degree — in the county’s comprehensive annual financial report for 2011. In this document, we learn that the arena suffered an operating loss of $5.7 million. A large part of that was due to $5.2 million in depreciation expense.

This is a much better reckoning of the economics of the Intrust Bank Arena.

Depreciation expense is not something that is paid out in cash every year. Instead, it provides a way to recognize and account for the cost of long-lived assets over their lifespan. It provides a way to recognize opportunity costs, that is, what could be done with our resources if not spent on the arena.

But some don’t recognize this. Last year, Unruh made remarks that show the severe misunderstanding that he and almost everyone labor under regarding the nature of the spending on the arena: “I want to underscore the fact that the citizens of Sedgwick County voted to pay for this facility in advance. And so not having debt service on it is just a huge benefit to our government and to the citizens, so we can go forward without having to having to worry about making those payments and still show positive cash flow. So it’s still a great benefit to our community and I’m still pleased with this report.”

The contention of Unruh and other arena boosters such as the Wichita Eagle editorial board is that the capital investment of $183,625,241 (not including an operating and maintenance reserve) on the arena is merely a historical artifact, something that happened in the past, something that has no bearing today. This attitude, however, disrespects the sacrifices of the people of Sedgwick County and its visitors to raise those funds.

Any honest accounting or reckoning of the performance of Intrust Bank Arena must take depreciation into account. While Unruh is correct in that depreciation expense is not a cash expense that affects cash flow, it is an economic fact that can’t be ignored — except by politicians, apparently.

Without honest discussion of numbers like these, we make decisions based on incomplete and false information. This is especially important as civic leaders agitate for another sales tax or other taxes to pay for more public investment. The sales pitch is that once the tax is collected and the assets paid for, we don’t need to consider the cost. They contend, as is the attitude of Unruh and arena boosters, that we can just sweep it under the rug and pretend it doesn’t exist. This is a false line of reasoning, and citizens ought not to be fooled.

Wichita economic development isn’t working

Recently the Greater Wichita Economic Development Coalition issued its annual report on its economic development activities for the year. That report, along with a Wichita Eagle article from January, tells us that the traditional methods of economic development used in the Wichita area isn’t working very well.

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

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

While Wichita Mayor Carl Brewer was quoted in the article as saying “You hear a lot from the loud minority,” the fact is that the minority rarely wins. Six of seven members of the Wichita City Council will vote for almost any giveaway to any company, no matter how unnecessary or unwise the subsidy program is.

With two of its five members having a realistic view of government’s power to influence economic development, it’s a little tougher to push programs through the Sedgwick County Commission. But most programs make it through or don’t need the county’s participation.

The GWEDC report also shows us that power of government to influence economic development is weak. In its recent press release, the organization claimed to have created 1,509 jobs in Sedgwick County during 2011. According to the Bureau of Labor Statistics, the labor force in Sedgwick County in 2011 was 253,940 persons. So the jobs created by GWEDC’s actions amounted to 0.59 percent of the labor force. This is a very small fraction, and other economic events are likely to overwhelm these efforts.

In his 2012 State of the City address, Brewer took credit for creating a similar percentage of jobs in Wichita.

Not mentioned are the costs of creating these jobs. These costs have a negative economic impact on those who pay these costs. This means that economic activity and jobs are lost somewhere else in order to pay for the incentives.

Also, at least some of these jobs would have been created without the efforts of GWEDC. All GWEDC should take credit for is the marginal activity that it purportedly created. Government usually claims credit for all that is good, however.

GWEDC website stale and out-of-date

If GWEDC is looking for ways to improve its efforts in marketing Wichita, it might start with its own website. While the site features a high level of design sophistication, examining its contents reveals a lack of attention being paid to the site.

For example, on a GWEDC page titled Recent Relocations Highlights, the most recent item is from 2009.

The “News” page holds as its most current story one encouraging attendance at a conference that took place in 2010. The second and final story on this page notifies us that someday in the future there will be an Intrust Bank Arena in downtown Wichita. That arena has now been open for two years.

The site also promotes an RFP (request for proposal) with a deadline in 2009 — three years ago.

Anyone who comes across the GWEDC site would conclude from this negligence that this is an organization — and by extension, a city — that simply doesn’t care about its online presence.

Going forward

The danger we in Kansas, and specifically the Wichita area, face is the overwhelming urge of politicians to be seen doing something. For example, in response to the departure of Boeing, Wichita Mayor Carl Brewer called for the community to “launch an aggressive campaign of job recruitment and retention.”

It is likely that we will become susceptible to large-scale government interventions in an attempt to gain new jobs. Our best course would be to take steps to make Kansas and Wichita an inviting place for all firms to do business. The instinct of politicians such as Brewer, however, is to take action, usually in the form of targeted incentives as a way to spur economic development. GWEDC is the agency responsible for this.

We’ve seen the disappointing results — not only with Boeing, but also in a report showing that Wichita has declined in economic performance compared to other areas.

These targeted economic development efforts fail for several reasons. First is the knowledge problem, in that government simply does not know which companies are worthy of public investment. This, however, does not stop governments from creating policies for the awarding of incentives. It also doesn’t stop the awarding of incentives willy-nilly without a policy, as the Wichita City Council has done for a hotel.

This “active investor” approach to economic development is what has led to Boeing and other companies escaping hundreds of millions in taxes — taxes that others have to pay. That has a harmful effect on other business, both existing and those that wish to form.

Professor Art Hall of the Center for Applied Economics at the Kansas University School of Business is critical of this approach to economic development. In his paper Embracing Dynamism: The Next Phase in Kansas Economic Development Policy, Hall quotes Alan Peters and Peter Fisher: “The most fundamental problem is that many public officials appear to believe that they can influence the course of their state and local economies through incentives and subsidies to a degree far beyond anything supported by even the most optimistic evidence. We need to begin by lowering expectations about their ability to micro-manage economic growth and making the case for a more sensible view of the role of government — providing foundations for growth through sound fiscal practices, quality public infrastructure, and good education systems — and then letting the economy take care of itself.”

In the same paper, Hall writes this regarding “benchmarking” — the bidding wars for large employers that Wichita is sure to undertake in response to the loss of Boeing: “Kansas can break out of the benchmarking race by developing a strategy built on embracing dynamism. Such a strategy, far from losing opportunity, can distinguish itself by building unique capabilities that create a different mix of value that can enhance the probability of long-term economic success through enhanced opportunity. Embracing dynamism can change how Kansas plays the game.”

In making his argument, Hall cites research on the futility of chasing large employers as an economic development strategy: “Large-employer businesses have no measurable net economic effect on local economies when properly measured. To quote from the most comprehensive study: ‘The primary finding is that the location of a large firm has no measurable net economic effect on local economies when the entire dynamic of location effects is taken into account. Thus, the siting of large firms that are the target of aggressive recruitment efforts fails to create positive private sector gains and likely does not generate significant public revenue gains either.’”

There is also substantial research that is it young firms — distinguished from small business in general — that are the engine of economic growth for the future. We can’t detect which of the young firms will blossom into major success — or even small-scale successes. The only way to nurture them is through economic policies that all companies can benefit from. Reducing tax rates is an example of such a policy. Abating taxes for specific companies through programs like IRBs is an example of precisely the wrong policy.

We need to move away from economic development based on this active investor approach. We need to advocate for policies — at Wichita City Hall, at the Sedgwick County Commission, and at the Kansas Statehouse — that lead to sustainable economic development. We need political leaders who have the wisdom to realize this, and the courage to act appropriately. Which is to say, to not act in most circumstances.

Wichita Intrust Bank Arena profit, in perspective

Last week the Sedgwick County Commission heard a report from county managers regarding the financial performance of the Intrust Bank Arena. The arena, located in downtown Wichita, is owned by the county.

The main facts are that revenue and profits are down. A Wichita Eagle article holds more details about the numbers.

What citizens need to know is this: The honeymoon is over. The promised boost to downtown that arena backers promised has yet to materialize in any broad sense. When it does poke through — an example being the Ambassador Hotel — it requires many millions of taxpayer subsidy.

But perhaps most important is the realization that county leaders are not being honest with its citizens. The “profit” shown by the arena is not reckoned using anything like businesses use, or even most branches of government, for that matter. As explained in the following article from last August, Sedgwick County doesn’t recognize the large capital investment made by citizens to build the arena. Instead, it treats that sacrifice as having no relevance to the economics underlying the arena.

On top of that, the profit statement presented to commissioners is accompanied by this qualification, which the county does not explain to citizens: “[These statements are] not intended to be a complete presentation of INTRUST Bank Arena’s financial position and results of operations and are not intended to be a presentation in conformity with accounting principles generally accepted in the United States of America.”

Intrust Bank Arena depreciation expense ignored

By Bob Weeks

Reports that income earned by the Intrust Bank Arena is down sharply has brought the arena’s finances back into the news. The arena, located in downtown Wichita and owned by Sedgwick County, is deemed to be a success by the county and arena boosters based on “profit” figures generated during its first year of operations. But these numbers are not an honest assessment of the arena’s financial performance.

When the numbers were presented to Sedgwick County commissioners this week, commission chair Dave Unruh said that he is “pleased that we we still are showing black ink.”

He then made remarks that show the severe misunderstanding that he and almost everyone labor under regarding the nature of the spending on the arena: “I want to underscore the fact that the citizens of Sedgwick County voted to pay for this facility in advance. And so not having debt service on it is just a huge benefit to our government and to the citizens, so we can go forward without having to having to worry about making those payments and still show positive cash flow. So it’s still a great benefit to our community and I’m still pleased with this report.”

The contention of Unruh and other arena boosters is that the capital investment of $183,625,241 (not including an operating and maintenance reserve) on the arena is merely a historical artifact, something that happened in the past and that has no bearing today. This attitude, however, disrespects the sacrifices of the people of Sedgwick County and its visitors to raise those funds.

Since it is only one year old, presumably the arena could be sold for something near its building cost, less an allowance for wear and tear. If not, then the county has a lot of explaining to do as to why it built an asset that has no market value.

But even if the arena has no market value — and I suspect that in reality it has very little value — it still has an economic cost that must be recognized, that cost being the sales tax collected to pay for it. While arena boosters dismiss this as past history, the county recognizes this cost each year, and will continue to do so for many years.

The county, however, doesn’t go out of its way to present the complete and accurate accounting of the arena’s cost. Instead, the county and arena boosters trumpet the “profit” earned by the arena for the county according to an operating and management agreement between the county and SMG, a company that operates the arena.

This agreement specifies a revenue sharing mechanism between the county and SMG. Based on the terms of the agreement, Sedgwick County received payment of $1,116,442 for the 2010 year. While described as profit by many — and there was much crowing over the seemingly large amount — this payment does not represent any sort of “profit” or “earnings” in the usual sense. In fact, the introductory letter that accompanies these calculations warns readers that these are “not intended to be a complete presentation of INTRUST Bank Arena’s financial position and results of operations and are not intended to be a presentation in conformity with accounting principles generally accepted in the United States of America.”

That bears repeating: This is not a reckoning of profit and loss in any recognized sense. It is simply an agreement between Sedgwick County and SMG as to how SMG is to be paid.

Commissioner Karl Peterjohn has warned that these figures — and the monthly “profit” figures presented to commissioners — do not include depreciation expense. That expense is a method of recognizing and accounting for the large capital cost of the arena — the cost that arena boosters dismiss.

In April Sedgwick County released that depreciation number in its 2010 Comprehensive Annual Report. The number is pretty big: $4.4 million, some four times the purported “earnings” of the arena.

Any honest accounting or reckoning of the performance of Intrust Bank Arena must take this number into account. Unruh is correct in that this depreciation expense is not a cash expense that affects cash flow. That cash was spent during the construction phase of the arena.

But depreciation expense provides a way to recognize and account for the cost of long-lived assets like buildings over their lifespan. It recognizes and respects the investment of those who paid the sales tax. When we follow standard practices like recognizing the cost of capital assets through depreciation expense, we’re forced to recognize that there’s a $4.4 million gorilla in the room that arena boosters don’t want to talk about.

Using information about arena operations contained in the operations report, we can construct what an actual income statement for the arena would look like, following generally accepted business principles. According to the statement, total operating income for 2010 was $7,005,224. Operating expenses were $4,994,488. Subtracting gives a figure of $2,010,736. This number, however, is not labeled a profit in the report. Instead, the report calls it “Increase in Net Assets Arising from Operating Activities Managed by SMG.”

An accounting of profit would have to subtract the $4.4 million in depreciation expense. Doing that results in a loss of $2,389,264. This — or something like it — is the number we should be discussing when assessing the financial performance of Intrust Bank Arena.

Fiscal conservatives — and sometimes even liberals — often speak of “running government like a business.” But here’s an example of conservative government leaders ignoring a basic business principle in order to paint a rosy picture of a government spending project.

Without honest discussion of numbers like these, we make decisions based on incomplete and false information. This is especially important as civic leaders agitate for another sales tax or other taxes to pay for more public investment. The sales pitch is that once the tax is collected and the assets paid for, we don’t need to consider the cost. They contend, as is the attitude of Unruh and arena boosters, that we can just sweep it under the rug and pretend it doesn’t exist. This is a false line of reasoning, and citizens ought not to be fooled.

Kansas and Wichita quick takes: Thursday October 13, 2011

Wichita city leaders too cozy with developers? Yesterday I participated in a KAKE Television news story where I explained the need for pay-to-play laws in Wichita and Kansas. These laws generally restrict officeholders from participating in votes or activities that would enrich their campaign contributors. In the story I said “What I, and some of my political allies object to, is what is happening in plain sight: In that there is a relatively small group of people — and their spouses and people who work at their companies — who regularly contribute to a wide variety of city council members, both political liberals and political conservatives, because they know that they are going to be coming to the city council and asking for taxpayer money.” Officeholders and the developers who contribute deny there is a connection between contributions and votes. Curiously, these developers generally don’t make contributions to school board members, county commissioners, state legislators, or federal representatives. Actually, it’s not so curious: It’s primarily the Wichita City Council that is able to vote to give them money. I would say the contributors are acting rationally. … If there is no connection between contributions and votes or consideration, there should be no problem in getting the council to agree to some form of pay-to-pay law for Wichita. An example is a charter provision of the city of Santa Ana, in Orange County, California, which states: “A councilmember shall not participate in, nor use his or her official position to influence, a decision of the City Council if it is reasonably foreseeable that the decision will have a material financial effect, apart from its effect on the public generally or a significant portion thereof, on a recent major campaign contributor.” … KAKE correspondent Deb Farris reported that Wichita Mayor Carl Brewer doesn’t look at the list of campaign contributors. I wonder: does he send thank you letters to his contributors? … Video and story at Wichita City Leaders Too Cozy With Developers?

Obama economic strategy questioned. This year’s Nobel prize in economics went to Thomas J. Sargent of New York University and Stanford University’s Hoover Institution, and Christopher A. Sims of Princeton University. In its reporting, the Wall Street Journal explained (A Nobel for Non-Keynesians: People’s expectations about government policy make it difficult for officials to affect the economy in the ways they intend to): “The Swedish economists announcing the award emphasized, correctly, the importance of Messrs. Sargent’s and Sims’s thinking about the role people’s expectations play in economic decision making and the larger economy. But what they failed to mention is that their work has also offered empirical evidence that the school of thought known as Keynesian economics — which believes that government can turn a flagging economy around with the right combination of fiscal ‘stimulus’ (generally government spending) and monetary policy — is fallible.” In further explanation, the Journal writes: “One of Mr. Sargent’s key early contributions, along with University of Minnesota economist Neil Wallace, was the idea that people’s expectations about government fiscal and monetary policy make it difficult for government officials to affect the economy in the ways they intend to. If, for example, people get used to the Federal Reserve increasing the money supply when unemployment rises, they will expect higher inflation and will adjust their wage demands higher also. The result: The lower unemployment rate that the Fed was trying to achieve with looser monetary policy won’t happen. This conclusion was at odds with the Keynesian model, which dominated economic thinking from the late 1930s to the early 1970s. The Keynesian model posited a stable trade-off between inflation and unemployment.” The 1970s however, saw stagflation — both high unemployment and high inflation at the same time, a danger that some feel will grip us in the near future. Keynesianism, of course, is the basis of the economic policy of President Barack Obama and the reason why the economy has not recovered. … While these economists worked on national economies, does the theory of rational expectations apply to state and local governments, meaning that it is very difficult for local government officials to micro-manage their economies through intervention? I think so.

Public vs. private. One of the curious statements in Rhonda Holman’s Sunday Wichita Eagle editorial (Say ‘no’ to naysayers, October 9, 2011) was where she wrote of the “crowds increasingly assembling downtown for concerts and events.” Curious because not long ago she begrudgingly realized the cool down at the Intrust Bank Arena, writing: “Intrust Bank Arena’s strong performance during its inaugural year of 2010 couldn’t last. And it didn’t.” (Make case for arena, August 19, 2100 Wichita Eagle) I don’t know if these two editorials are at odds with each other. … I have noticed one downtown Wichita venue that seems to have a lot of concerts, that being the Orpheum Theater. That venue doesn’t suffer from government genesis and ownership as does the arena, although the arena’s management is in the hands of the private sector. As part of its restoration the Orpheum may qualify for historic preservation tax credits, a government spending program that I oppose. That subsidy, if obtained, is quite small compared to the total taxpayer funding of the arena.

Kansas tax policy. Several news outlets have reported on how hard Kansas state officials are working on crafting a new state tax policy. That worries me. The best tax policy is one that is simple and fair to all. The more tax policy is worked on, the more likely it is to contain measures designed to manage the behavior of people and business firms. This would be a continuation of the conceit that the state can manage economic growth, and contrary to the concepts of economic dynamism for Kansas, where fertile ground is created for all companies.

Petition drive is on. Last Friday citizen activists started the petition drive to give the people of Wichita a chance to vote on crony capitalism or free markets. See Our Downtown Wichita (motto: “Limited government and free markets in Downtown Wichita benefit everyone. Centralized planning and crony capitalism benefit only a few.”) for more information.

Kansas education scores mixed. From Kansas Reporter: “Kansas students’ performance on reading and math proficiency improved for the 11th consecutive year, according to Kansas State Department of Education’s latest State Report Card for schools released Tuesday. Some 87.6 percent of the students tested turned in scores in the top three of five performance levels for reading and 84.7 percent achieved similar scores in math. But two other performance yardsticks show different results. Statewide Kansas test scores on ACT college entrance exams, which are averaging 22 points out of a perfect 36, have been flat for the past five years. … Most Kansas statewide reading, writing and math scores on the National Assessment of Educational Progress, or NAEP, tests have changed little since 2000, according to the U.S. Education Department, which counts the test results as the broadest national measure of how school systems compare state by state. ‘Fourth-grade math tests have improved significantly, but that’s about it,; said Arnold Goldstein, program director for the federal Education Department’s National Center for Education Statistics.” Complete story on Kansas Reporter at Kansas education scores proved mixed picture of schools’ success.

‘Federalists’ author to appear in Wichita. On October 25th Kansas Family Policy Council is hosting an event in Wichita featuring Joshua Charles, a recent KU graduate who has teamed up with Glenn Beck to write the book The Original Argument: The Federalists Case for the Constitution Adapted for the 21st Century. The book debuted at the top of the New York Times Bestseller List in July. … KFPC says “The event will be at Central Christian Church (2900 North Rock Road in Wichita) on Tuesday October 25th at 7:00 pm. Doors will open at 6:30 pm. This is a free event and dessert will be provided for attendees.” RSVP is requested to 316-993-3900 or contact@kansasfpc.com.

Kansas gas wells appraisals. Some Kansas counties use different methods of gas well valuation for tax purposes, writes Paul Soutar in Kansas Watchdog: “The method used to appraise the tax value of gas wells in Stevens County is ‘not correct or appropriate’ according to a report commissioned for Stevens County and released at their latest meeting. The method is or has been used for at least nine years, possibly since the early 1990s, in nine Southwest Kansas counties covering much of the Hugoton gas field, the ninth highest producing field in the U.S. in 2010.” … The complete investigate report is at Report Says Gas Well Appraisal Method ‘Not Correct or Appropriate’.

Lieutenant Governor in Wichita. This week’s meeting (October 14th) of the Wichita Pachyderm Club features Lieutenant Governor Jeff Colyer, M.D. speaking on “An update on the Brownback Administration’s ‘Roadmap for Kansas’ — Medicaid Reform” … Upcoming speakers: On October 21st: N. Trip Shawver, Attorney/Mediator, on “The magic of mediation, its uses and benefits.” … On October 28th: U.S. Representative Tim Huelskamp, who is in his first term representing the Kansas first district, speaking on “Spending battles in Washington, D.C.” … On November 4th: Chris Spencer, Vice President, Regional Sales Manager Oppenheimer Funds, speaking on “Goliath vs Goliath — The global battle of economic superpowers.” … On November 11th: Sedgwick County Commission Members Richard Ranzau and James Skelton, speaking on “What its like to be a new member of the Sedgwick County Board of County commissioners?” … On November 18th: Delores Craig-Moreland, Ph.D., Wichita State University, speaking on “Systemic reasons why our country has one of the highest jail and prison incarceration rates in the world? Are all criminals created equal?”

Urban renewal. “The goal was to replace chaotic old neighborhoods with planned communities.” Planned by government, that is, with all the negatives that accompany. The fascinating video from Reason.tv is titled The Tragedy of Urban Renewal: The destruction and survival of a New York City neighborhood. Its introduction reads: “In 1949, President Harry Truman signed the Housing Act, which gave federal, state, and local governments unprecedented power to shape residential life. One of the Housing Act’s main initiatives — “urban renewal” — destroyed about 2,000 communities in the 1950s and ’60s and forced more than 300,000 families from their homes. Overall, about half of urban renewal’s victims were black, a reality that led to James Baldwin’s famous quip that “urban renewal means Negro removal. … The city sold the land for a token sum to a group of well-connected Democratic pols to build a middle-class housing development. Then came the often repeated bulldoze-and-abandon phenomenon: With little financial skin in the game, the developers let the demolished land sit vacant for years.”

Intrust Bank Arena depreciation expense ignored

Reports that income earned by the Intrust Bank Arena is down sharply has brought the arena’s finances back into the news. The arena, located in downtown Wichita and owned by Sedgwick County, is deemed to be a success by the county and arena boosters based on “profit” figures generated during its first year of operations. But these numbers are not an honest assessment of the arena’s financial performance.

When the numbers were presented to Sedgwick County commissioners this week, commission chair Dave Unruh said that he is “pleased that we we still are showing black ink.”

He then made remarks that show the severe misunderstanding that he and almost everyone labor under regarding the nature of the spending on the arena: “I want to underscore the fact that the citizens of Sedgwick County voted to pay for this facility in advance. And so not having debt service on it is just a huge benefit to our government and to the citizens, so we can go forward without having to having to worry about making those payments and still show positive cash flow. So it’s still a great benefit to our community and I’m still pleased with this report.”

The contention of Unruh and other arena boosters is that the capital investment of $183,625,241 (not including an operating and maintenance reserve) on the arena is merely a historical artifact, something that happened in the past and that has no bearing today. This attitude, however, disrespects the sacrifices of the people of Sedgwick County and its visitors to raise those funds.

Since it is only one year old, presumably the arena could be sold for something near its building cost, less an allowance for wear and tear. If not, then the county has a lot of explaining to do as to why it built an asset that has no market value.

But even if the arena has no market value — and I suspect that in reality it has very little value — it still has an economic cost that must be recognized, that cost being the sales tax collected to pay for it. While arena boosters dismiss this as past history, the county recognizes this cost each year, and will continue to do so for many years.

The county, however, doesn’t go out of its way to present the complete and accurate accounting of the arena’s cost. Instead, the county and arena boosters trumpet the “profit” earned by the arena for the county according to an operating and management agreement between the county and SMG, a company that operates the arena.

This agreement specifies a revenue sharing mechanism between the county and SMG. Based on the terms of the agreement, Sedgwick County received payment of $1,116,442 for the 2010 year. While described as profit by many — and there was much crowing over the seemingly large amount — this payment does not represent any sort of “profit” or “earnings” in the usual sense. In fact, the introductory letter that accompanies these calculations warns readers that these are “not intended to be a complete presentation of INTRUST Bank Arena’s financial position and results of operations and are not intended to be a presentation in conformity with accounting principles generally accepted in the United States of America.”

That bears repeating: This is not a reckoning of profit and loss in any recognized sense. It is simply an agreement between Sedgwick County and SMG as to how SMG is to be paid.

Commissioner Karl Peterjohn has warned that these figures — and the monthly “profit” figures presented to commissioners — do not include depreciation expense. That expense is a method of recognizing and accounting for the large capital cost of the arena — the cost that arena boosters dismiss.

In April Sedgwick County released that depreciation number in its 2010 Comprehensive Annual Report. The number is pretty big: $4.4 million, some four times the purported “earnings” of the arena.

Any honest accounting or reckoning of the performance of Intrust Bank Arena must take this number into account. Unruh is correct in that this depreciation expense is not a cash expense that affects cash flow. That cash was spent during the construction phase of the arena.

But depreciation expense provides a way to recognize and account for the cost of long-lived assets like buildings over their lifespan. It recognizes and respects the investment of those who paid the sales tax. When we follow standard practices like recognizing the cost of capital assets through depreciation expense, we’re forced to recognize that there’s a $4.4 million gorilla in the room that arena boosters don’t want to talk about.

Using information about arena operations contained in the operations report, we can construct what an actual income statement for the arena would look like, following generally accepted business principles. According to the statement, total operating income for 2010 was $7,005,224. Operating expenses were $4,994,488. Subtracting gives a figure of $2,010,736. This number, however, is not labeled a profit in the report. Instead, the report calls it “Increase in Net Assets Arising from Operating Activities Managed by SMG.”

An accounting of profit would have to subtract the $4.4 million in depreciation expense. Doing that results in a loss of $2,389,264. This — or something like it — is the number we should be discussing when assessing the financial performance of Intrust Bank Arena.

Fiscal conservatives — and sometimes even liberals — often speak of “running government like a business.” As an example, Unruh’s campaign website from last year states “… as a business owner he works hard to apply good business principles to County government …”

But here’s an example of conservative government leaders ignoring a basic business principle in order to paint a rosy picture of a government spending project. Unruh is not alone in doing this.

Without honest discussion of numbers like these, we make decisions based on incomplete and false information. This is especially important as civic leaders agitate for another sales tax or other taxes to pay for more public investment. The sales pitch is that once the tax is collected and the assets paid for, we don’t need to consider the cost. They contend, as is the attitude of Unruh and arena boosters, that we can just sweep it under the rug and pretend it doesn’t exist. This is a false line of reasoning, and citizens ought not to be fooled.

Kansas and Wichita quick takes: Friday July 1, 2011

This Week in Kansas. On this week’s edition of the KAKE Television public affairs program This Week in Kansas, Ken Ciboski (Associate Professor of Political Science at Wichita State University), John D’Angelo (Arts & Cultural Services Manager for the City of Wichita), and myself join host Tim Brown for a discussion of arts and government funding in Kansas. This Week in Kansas airs in Wichita and western Kansas at 9:00 am Sundays on KAKE channel 10.

Kansas taxes. A short report produced by Americans for Prosperity, Kansas shows some of the reasons why economic growth in Kansas has been sluggish: “Kansas’ state and local tax burden continues to be amongst the highest in the region.” Kansas has fewer private sector jobs than it did ten years ago. And in what should be a grave cause for alarm, Kansas was the only state to have a net loss of private sector jobs over the last year. … A table of figures illustrates that although Oklahoma kept its sales tax rate low and constant while Kansas increased its rate, tax revenue increased much more in Oklahoma. Download the report at AFP-Kansas Income Tax Policy Primer.

Wichita sales tax. Speaking of sales tax and its harmful effect, Wichita seems to want to raise its rate. Proposals have been floated for a sales tax for economic development in general, for increased transit (bus) service, for drainage projects, and for downtown projects. Boosters cite the Intrust Bank Arena as an example of a successful project paid for by a sales tax that disappeared as promised. That’s despite the dreams of Sedgwick County Commissioner Tim Norton: “Then, as that tax was nearing its end, Norton ‘wondered … whether a 1 percent sales tax could help the county raise revenue.’ (‘Norton floats idea of 1 percent county sales tax,’ Wichita Eagle, April 4, 2007)” … Boosters of the arena promote it as a financial success, and there was the presentation to the county of a check for $1,116,442 as its share of the arena’s earnings. This figure, however, does not represent any sort of “profit” or “earnings” in the usual sense. In fact, the introductory letter that accompanies these calculations warns readers that these are “special-purpose financial statements” and “are not intended to be a presentation in conformity with accounting principles generally accepted in the United States of America.” In particular, Commissioner Karl Peterjohn has warned that these figures — and the monthly “profit” figures presented to commissioners — do not include depreciation expense. That expense is a method of recognizing and accounting for the large capital cost of the arena. In April the County released that number, and I believe it has not been reported by any news media. That may be because the number is pretty big — $4.4 million, some four times the purported “earnings” of the arena. … Without honest discussion of numbers like these, we make decisions based on incomplete and false information. Don’t look for many local government leaders and officials to talk about this number, and certainly not the Wichita Eagle editorial page.

Koch criticism backfires — again. For those who follow the issue, it’s no surprise that Lee Fang, a reporter for the liberal think tank Canter for American Progress has come out with another attack on Charles and David Koch. Mark Hemingway of the Weekly Standard reports on this effort: “Think Progress reporter Lee Fang has a long history of being spectacularly wrong. However, there’s a seemingly unending thirst for his breathless demonization of the Koch brothers and other rants about corporate greed among the low IQ end of the liberal spectrum.” Fang disagrees with a recent U.S. Supreme Court decision, and he lambasts the litigators who brought the suit as “heavily financed by right-wing corporate money, particularly from Koch Industries and Walmart.” He also criticizes organizations for not dislosing their donors. Hemingway notes this: “In the case of the Koch brothers, they have been outspoken philosophical libertarians for decades. Their support of free speech over onerous campaign laws is entirely consistent and should not be surprising. However, in the case of Wal-Mart Fang is also astoundingly hypocritical. Because you know who else is a ‘Walton-Funded Group’? Lee Fang’s employer.” And the secret donations that Fang rails against so passionately? Hemingway again: “You know who else accepts ‘secret donations from individuals and corporations’? That’s right — the Center for American Progress.” … For another example of Fang’s reporting, see ThinkProgress and Lee Fang: wrong again.

Tension on debt ceiling issue. In The Wall Street Journal Kimberly Strassel writes that the current debt and spending crisis may lead to an end to farm subsidies, something she described as a “sacred federal spending cow:” “For decades, the House and Senate agriculture committees have been the last redoubts of congressional bipartisanship, liberals and conservatives united in beating back any outside attempts to cut off tens of billions annually for price supports, crop insurance, weather assistance, conservation handouts and nutrition programs. The last real stab at reform was the mid-1990s Freedom to Farm bill. Most of the changes were obliterated by subsequent bailouts and new spending.” … She describes how Arizona Congressman Jeff Flake got a limit of farm subsidies through the Appropriations Committee, but House Agriculture Committee Chairman Frank Lucas used a maneuver to block Flake’s proposal. So much for that effort at reform, blocked by a Republican. Lucas’ website promotes a conservative message, with one post criticizing bailouts. But not for farmers, it seems. … Wichita’s Mike Pompeo is mentioned: “Mr. Pompeo is waiting to see what debt package emerges and says his vote will depend on whether it contains real ‘structural’ reform. But he also tells me he doesn’t intend to let parochial interests cloud his decision. ‘I came here to be a small-government guy every day, and not just when it is spending cuts in somebody else’s district,’ he says.” … Although not mentioned in this article, Tim Huelskamp, who represents the Kansas first district, has been upfront in discussing the need to reduce or eliminate farm subsides, and so far, many farmers seem to be accepting of that. Huelskamp’s district, which covers all of western Kansas (and more), is usually second on the list of congressional districts in terms of total farm subsidies received. For 2009, that figure was $369 million.

Stossel: The Money Hole. A recent episode of John Stossel’s television program is now available on the free hulu service by clicking on The Money Hole. Writes Stossel in his introduction to the show: “We will soon spend ourselves into oblivion. But finally … movement! Budget slashing proposals from Paul Ryan, the Republican Study Committee, Ron Paul, Rand Paul and even Tim Pawlenty! But politicians and real people across the spectrum still resist change. What should government do? What’s its role? What have other countries done? The Money Hole tackles that.”

Stossel on politicians’ promises

Recently John Stossel produced a television show titled Politicians’ Top 10 Promises Gone Wrong. The show features segments on government programs and why they’ve gone wrong, with a focus on the unintended consequences of the programs. Particularly illuminating are the attempts by programs’ supporters to justify their worth.

Now the program is available to view on the free hulu service by clicking on Politicians’ Top 10 Promises Gone Wrong.

One of the segments on the show explained the harm of Cash for Clunkers, in which serviceable cars were destroyed so that new cars could be sold. The program simply stole sales from the months before and after the program. The mistaken idea that destruction can be a way to create new wealth is held by many who should know better, and Stossel reminds us of the New York Times’ Paul Krugman, who wrote that the terrorist attacks of September 11, 2001 “could even do some economic good” as rebuilding will increase business spending. It’s the seen vs. unseen problem, Stossel and David Boaz of the Cato Institute explain. It’s easy to see people buying new cars. It was reported on television. But it’s more difficult to see all the dispersed economic activity that didn’t take place because of the programs.

“Living wage” laws, in which people would be paid enough to live on — whatever that means — is next. While increasing wages of low-paid workers is a noble goal, increasing the cost of labor results in an entirely predictable result: less labor is demanded. Fewer people will have jobs. The Grand Canyon National Park, for example, switched to automated ticket machines. Christian Dorsey of the Economic Policy Institute, said that elimination of minimum wage laws would leave employers free to drive down wages as low as possible. But Stossel noted businesses hire employees in a competitive market, and it is that market that sets wages. Only about five percent of workers earn the minimum wage. Why do the others earn more than that? Competitive markets force employers to pay more, not laws.

A segment on “fancy stadiums” boosting the economy holds a lesson for Wichita and the Intrust Bank Arena in its downtown. The claimed benefits of these venues rarely appear, and the unseen costs are large — “at the local bar there’s one less bartender, there was one less waitress hired at a restaurant, a movie theater that had one less theaterfull. It’s handing money from your right hand to your left and declaring I’m rich.” While Wichita’s arena seems to be doing well, it’s still well within its honeymoon period. Even then, there was a month where no events took place at the arena.

A segment on the new credit card regulations, intended to protect consumers, shows that the regulations resulted in fewer people being able to get credit cards. Now these people have to go to payday lenders or pawn shops, which are much more expensive than credit cards. Arkansas once capped credit card interest at ten percent. The result was that few people in Arkansas could get a credit card, and the state became known as the pawn shop capital of America.

Ethanol is the topic of a segment. Promised as a way to solve our energy problem, many politicians of both parties support ethanol. But we’ve come to realize the problems with government support of ethanol: rising price of food, excessive use of fertilizer and fuel to produce corn, and an awareness that ethanol is more harmful to the environment than gasoline. “But it makes us feel good,” Stossel says. In Kansas, Governor Sam Brownback is firmly in favor of government support of ethanol, which Boaz called “pound-for-pound, the dumbest program ever.”

On the role of government in causing the housing bubble, Howard Husock said “Government exaggerates, rather than minimizes, the age-old impulse to greed. The government made it harder for bankers who wanted to do the right thing.” Stossel explained that bankers who wanted to stay with safe home loans lost out on profits they could earn selling high risk loans to Fannie Mae and Freddie Mac, the government-sponsored agencies.

At the end, Stossel said: “And that’s the number one promise gone wrong. These guys say they’ll be fiscally responsible. And then we elect them, and they spend more. They’re spending us into bankruptcy. There must be 10,000 harmful programs, and yet they keep creating more. Why can’t we cut them?” Boaz explained: “Every one of those 10,000 programs has a lobbyist in Washington. … They always know when the bill is up before Congress, and they send political contributions, they send people to Washington to lobby. The rest of us don’t do that. … People should be more engaged, people should be better citizens. But the fact is we have lives, and there’s no way that any normal person can know about the 10,000 programs that make up the $3.5 trillion federal budget.”

And so the programs keep growing, Stossel said, and we must pay their costs and unintended consequences forever — “Unless, there’s a new wind blowing in America. A new attitude, a new expectation that maybe Washington should do less. I hear there is. I sure hope so.”

Perhaps an end to legislative time-wasting

Politico reports that the practice of issuing proclamations and similar matters during sessions of the U.S. House of Representatives may end. Says the story: “Republicans are moving to get rid of House votes on symbolic resolutions and are planning to post their internal conference rules online, two minor yet politically important changes to the party’s operating guidelines. … The GOP next Wednesday is set to adopt a new set of Republican Conference rules that will place tight restrictions on who and what the House can honor, a bid to cut time they consider wasted on the floor.”

This would be a great step forward. Not only do these resolutions, etc. waste time, they serve as taxpayer-funded, continual advertisements for the glory of government and all its trappings. It happens not only in Washington, but in Topeka and other state capitals across the country. It happens at county commission meetings. It happens at city council meetings and school board meetings.

At Wichita City Council meetings, there have been cases where the meaningful business of the council has not started until nearly one hour after the start of the meeting. The hour has been consumed by proclamations, awards, remarks by council members, etc.

While this happens, citizens with business before the council wait. And wait. They’re wasting their time and money. Their attorneys, representatives, or employees may be there with them, racking up legal bills and wasting time and money while listening to the mayor or other official read proclamations.

Sometimes this period before the start of the meeting’s meaningful business is given over to business-like activities that government owns and that compete with private sector business. For example, Sedgwick County Commission meetings feature promotion of events upcoming at the Intrust Bank Arena, which the county owns. Can you imagine being the owner of a business that competes with the arena — and almost any business involved in entertainment, sports, or leisure competes for consumers’ disposable entertainment dollars — and having to listen to these advertisements, paid for by taxpayer dollars?

We need to dedicate these public meetings to public business. Members of Congress, legislators, council members, and school board members, and commissioners need to be respectful of citizens’ time, and of their own and that of the government staff that must attend these meetings.

Kansas and Wichita quick takes: Saturday October 9, 2010

This Week in Kansas: Tomorrow on KAKE Television‘s “This Week in Kansas” Kansas Policy Institute President Dave Trabert will be a guest speaking about economic development in Kansas. This is an important topic as Kansas is in “whack-a-mole” mode as we — case by case — defend our industry from poaching by other states. This Week in Kansas airs at 9:00 am on KAKE channel 10. The Winfield Daily Courier has other notes on this upcoming episode.

Sue Schlapp: Wichita Eagle Opinion Line Extra today: “At a past Wichita City Council meeting, council member Sue Schlapp got on her soapbox about needing less government in our lives. Then last week she turned around and voted for the community improvement district tax for the Broadview Hotel. Is this talking out of both sides of her mouth?” I’m glad someone other than I has noticed this.

Dave Unruh campaign billboardDave Unruh campaign billboard

Unruh’s record on taxes: A reader sent in this photograph of a Dave Unruh billboard supporting his run for reelection to the Sedgwick County Commission, noting the irony of the “Lower Taxes” message. The reader may have been referring to Unruh’s support of a solid waste management fee (a tax by another name), his vote in August 2006 to increase the county mill levy, and his enthusiastic support of the tax for the downtown arena, now known as the Intrust Bank Arena. The vote for a tax increase in 2006 was in part to build the National Center for Aviation Training, said to be necessary to keep Wichita aviation companies in Wichita. Nonetheless, Cessna, Bombardier Learjet, and recently Hawker Beechcraft have found it necessary to shake down the state and local government for even more corporate welfare. Still, I don’t recommend voting for Unruh’s opponent Betty Arnold, who recently wondered where was the government stimulus for USD 259, the Wichita public school district, on which board she serves. Evidently Arnold doesn’t realize that nearly every dollar the Wichita schools spend is government money.

Arnold’s website missing: By the way, Google can’t find a website supporting Betty Arnold’s campaign, which says a lot right there.

Goyle and Pompeo: Tomorrow Kansas fourth Congressional district candidates Democrat Raj Goyle and Republican Mike Pompeo debate at Congregation Emanu-El at 7011 E. Central in Wichita. State of the State KS reports: “The debate will be moderated by KAKE-TV’s Tim Brown from This Week In Kansas and will focus on both local economic, political and foreign policy issues facing the U.S. The debate is free and begins at 10:40 am. A brunch will be served before the debate for $7.” It appears that Reform party candidate Susan Ducey and Libertarian Shawn Smith will not appear. The two minor party candidates made credible appearances on a recent KWCH televised forum.

Goyle video, polls: Speaking of Goyle, video of Goyle endorsing presidential candidate Barack Obama in Texas has surfaced. And, more bad polls for Goyle.

Kansas sales tax increase starts today

Today Kansans will face an added tax burden on retail purchases, as the statewide sales tax rate goes up by one cent per dollar. Touted by its backers like Kansas Governor Mark Parkinson as a “one percent” increase in the tax, it is actually an increase of (6.3 – 5.3) / 5.3 = 18.9 percent.

In some parts of the state, the combined rate will soar to over ten percent. The City of Lawrence is considering whether to require businesses to post signs advising — or warning– shoppers of the sales tax they’ll pay in stores.

The debate over the sales tax and the harm it causes was fueled by two studies that were often viewed as competing with each other, but really didn’t. One looked at the harmful effects of the tax for just one year and concluded that while the sales tax would destroy private sector jobs, a reduction in state spending would cause even more harm. Naturally, tax and spending advocates latched on to this study.

The other looked at a longer period of time and considered actual consumer response to increased taxes. It, not surprisingly, found that the sales tax would be very harmful.

The first study, besides looking at just one year, also shows evidence of faulty thinking. This study, produced by Wichita State University professor John D. Wong, contains this paragraph in its conclusion:

Second, the revenue enhancement scenario spreads the negative effects throughout the state, both geographically and across all 2.8 million residents. The effect on any individual and on any business is minor. In contrast, the spending reduction scenario severely affects a small number of state residents and businesses — state employees and those private-sector businesses that serve state employees and state government directly. The likelihood of a business failing under this scenario is much greater than in the tax increase scenario. A business failure will have a ripple effect across the economy.

In this paragraph we can find several examples of faulty economic thinking.

For example, as Kansas consumers will now have less discretionary income and may dine at restaurants less often, it’s possible that restaurants might close. More likely, however, the restaurant manager will find he doesn’t need as many employees to serve the diminished customer base, so a waiter loses his job.

These job losses, affecting just one or two people at a time and spread across the state, won’t create a business failure, as Wong mentions. There won’t be newspaper or television stories. But for the people directly harmed, I’m sure they won’t view the effect as “minor,” as Wong writes.

And Wong may have forgotten that each lost job produces a little ripple of its own.

Furthermore, when these job losses are aggregated over the state, there will be an impact. How much? Well, the sales tax is estimated by Wong to bring in $350 million, so we can use that as an estimate of the amount of money Kansans don’t have to spend at their own direction and discretion anymore.

(Wong notes that some of the sales tax will be paid by visitors to our state. Welcome to Kansas!)

We also see in the paragraph one of the primary problems with government taxation and spending. John Stossel explains:

The Public Choice school of economics calls this the problem of concentrated benefits and dispersed costs. Individual members of relatively small interest groups stand to gain huge rewards when they lobby for government favors, but each taxpayer will pay only a tiny portion of the cost of any particular program, making opposition pointless.

In this case the special interest groups include school spending advocates and state government employees. They believed they were fighting for their jobs. School spending advocates believed they were fighting for the children, too. But we ought to step back and consider the value of some of these jobs, and whether the services provided — education, for example — couldn’t be better provided in the marketplace rather than by government.

Also, we should note that school teachers and state government employees are represented by unions that spend millions advocating for their members each year. Waiters and others who will lose their jobs one at a time don’t have such representation.

So we had the powerfully-motivated special interests on one side. Then we had Governor Parkinson telling us not to worry, that in Wichita people didn’t even notice the one cent per dollar sales tax used to pay for the Intrust Bank Arena.

When you add in newspaper editorial writers like the Wichita Eagle’s Rhonda Holman, who today wrote that “No one relished raising sales taxes right now” and praised the arena sales tax, there you have the entire argument made.

Despite Holman’s claim, many people salivated at the idea of an increased sales tax, or any other tax. The governor viewed the tax increase as his legacy.

We also need to dismiss the claims of massive cuts to the Kansas budget. Recently Kansas Senate President Stephen Morris mentioned these, writing “… very difficult decisions were made to cut or reduce the $6 billion state budget by roughly $1.5 billion …”

For most people, a cut of $1.5 billion from a $6 billion budget means the state will spend $4.5 billion. But the spending bill passed by the legislature calls for spending $5.6 billion in fiscal year 2011, which starts on July 1, 2010.

Today the Eagle’s Holman makes a similar claim, mentioning “$1 billion in recent cuts to state services.”

These “budget cut” numbers make sense only when you look at planned spending, not actual spending. Even then you have to add up these phantom cuts over a period of years to get to the claims of Parkinson, Morris, Holman and other big-government spending advocates.

As the chart shows, actual spending has declined slightly, but is projected to rise during the fiscal year that starts today.

Kansas general fund spending

Over the years, we see that state spending in Kansas has risen rapidly, while at the same time our population in Kansas grows very slowly.

For the sales tax and spending increases to make economic sense, you have to believe that state government can spend money more wisely than its people can. Given the special interest group fingerprints all over this budget, that’s not going to happen.

What is the future of this sales tax? It’s scheduled to decline by 0.6 cents per dollar in three years, the remaining 0.4 cents per dollar to be used for transportation. But these taxes have a habit of failing to disappear on schedule. The supplemental note for the bill that last increased Kansas sales tax contains this: “The state sales and compensating (use) tax rate would be increased from 4.9 to 5.3 percent, effective June 1, 2002. The rates would then be reduced to 5.2 percent on June 1, 2004; and to 5.0 percent on June 1, 2005.”

As of yesterday the sales tax was was still 5.3 percent. The two scheduled reductions never took place. Sometimes promises from the Legislature don’t mean very much.

Wichita’s Intrust Bank Arena shrouded in mystery

Okay, maybe that’s a little over-hyped, but when arena cheerleader Rhonda Holman of the Wichita Eagle starts to question the operations of Intrust Bank Arena in downtown Wichita, there must be something going on.

Holman’s column of yesterday complained of lack of transparency in the arena’s operations: “But with hindsight, and with the Intrust Bank Arena open three months and generating revenue, it’s more clear all the time that county leaders gave away too much oversight authority to SMG, leaving citizens in the strange and frustrating position of having too little hard information about how their $206 million investment is doing.”

The sudden departure of arena manager Chris Presson under circumstances that can only be described as alarming will add to the concern of citizens. Well, not all citizens. Some arena boosters simply don’t care how much of a burden the arena may become to county taxpayers, as long as they have their arena.

The lack of transparency at the arena and some county commissioner’s lack of concern about this important issue has been the subject of articles on this site. See Wichita downtown arena open records failure, Wichita downtown arena contract seems to require Sedgwick County approval, and Sedgwick County keeps lease agreement secret.

In Sedgwick County, is there slack time?

As reported in the Wichita Eagle, the Sedgwick County Commission decided to reimburse the county for time its employees spent working on arena-related matters. The money will come from the sales tax that was collected to build the Intrust Bank Arena in downtown Wichita. The amount of money the commission decided to transfer is $1.6 million, although according to the Eagle, the total cost could reach $2.6 million.

Here’s something of concern to me in the story: “But he [Sedgwick County chief financial officer Chris Chronis] pushed for the money to remain in the arena and pavilions’ operating and maintenance reserve fund, which last month had just less than $14 million, because taking money out of the fund would drain it four years earlier than expected — in 2024.”

Evidently the county has financial projections for the arena all the way out to 2018, and possibly beyond. That is a very long time into the future, and any projections about the performance of the arena over this period would be based on assumptions that can’t be estimated with anything approaching certainty.

Projections with this precision made about events so far in the future surrounded by so much uncertainty remind me of the saying that economists use a decimal point to show they have a sense of humor.

Back to the present: Commissioner Dave Unruh told the Eagle that the county did not hire any new staff to perform work that has an estimated value of $2.6 million. My question is this: Is this evidence that there was $2.6 million of slack time in county employee’s schedules? How were they able to get this vast amount of work accomplished? Perhaps after the arena work that has occupied $2.6 million of staff time is complete, we could hire out this staff to earn revenue for the county, as it seems they will have time on their hands.

Regarding the contention that voters in 2004 were promised that no property tax money would be used on the arena, Unruh was quoted by the Eagle as saying: “I do think that we made a very strong commitment that all the sales tax money would be used for the arena and pavilions.”

It seems that now Sedgwick County voters have a new concern: When politicians make a promise, do we have to ask them if this is a regular commitment or a very strong commitment? Or are there other types of commitments that we don’t know about?

Tax increases will cost Kansas jobs, economic freedom

As Kansas struggles to deal with a budget deficit, Democrats and some Republicans are proposing tax increases, particularly an increase — temporary, they say — in the sales tax. A common argument advanced is that an extra one cent tax on every dollar spent will hardly be noticed. The one cent tax used to build the Intrust Bank Arena in downtown Wichita is cited as an example of a sales tax used for the common good of the people.

Besides the fact that it’s way too early to judge the success (or not) of the arena, sales taxes do hurt.

My post from 2004 Prepare for sales tax-induced job effects now described job losses in Little Rock due to the sales tax that paid for that city’s arena. In this example, the job losses were smaller than the number of jobs created by construction. This is partly because the sales tax lasted just one year, and more importantly, the state of Arkansas paid for 40% of the arena’s cost. In other words, the entire state subsidized the construction job gains in Little Rock. Still, jobs in retail and service industries were lost.

If the state of Kansas raises its sales tax, we won’t have the luxury of a huge inflow of out-of-state money to duplicate the effect observed in Little Rock from the inflow of out-of-city money. Instead, it’s certain that a sales tax increase will negatively affect private sector jobs and our state’s economic growth and future.

As evidence, a 1996 study by the Federal Reserve Bank of Atlanta found that state and local taxes negatively affect a state’s growth rate, and that this effect of taxation is sizable. This study looked at all taxes.

Specifically considering sales taxes, a 1998 study by the Beacon Hill Group looked at the effect of a half-cent increase in Ohio’s sales tax. The study “found that an increase in the state sales tax rate from 5% to 5.5% would result in the loss of at least 49,000 jobs and would leave Ohio’s stock of capital at least $4.4 billion smaller.” The authors concluded there was a 90% certainty that this result would occur.

More recently, a 2009 proposal to increase Washington’s sales tax from 6.5% to 6.8% was analyzed by the Evergreen Freedom Foundation. Its conclusion was that the tax increase “would cost the private sector approximately 6,800 jobs and result in less disposable income for Washington residents.

A sales tax increase will provide funding for more public sector jobs at the expense of private sector jobs. The result is a loss of economic freedom as individual choice is replace by spending controlled by the legislature and government bureaucrats. Does anyone believe that government spends as wisely as people spend their own funds? I don’t.

Assessment of Wichita’s Intrust Bank Arena’s success premature

Any rational assessment of the success of the Intrust Bank Arena in downtown Wichita must realize that the arena is in its honeymoon period. Will the parade of big-name stars playing to a packed arena continue for long? Will the Wichita Eagle and local television stations continue to breathlessly announce every upcoming event?

Until initial enthusiasm dies down and the arena has a track record of a year or more, we simply have no idea what the financial performance of the arena will be. That’s what’s important.

This premature glowing assessment of the arena’s success is dangerous in that it leads us to believe that there is a positive role for large government projects in Wichita. Worse, people are lead to think that taxation is a good way to pay for such things. As an example, the one cent sales tax used to pay for the arena is presently touted as a model for funding other government spending, ranging from Governor Parkinson’s proposal for a sales tax to fund state government to what surely will be a proposal for a sales tax to fund the revitalization of downtown Wichita.

Proponents say that the sales tax was painless, so why not do it again? Some were sorry to see it expire. As the sales tax that funded the arena was nearing its end, Sedgwick County Commissioner Tim Norton “wondered … whether a 1 percent sales tax could help the county raise revenue.” (“Norton floats idea of 1 percent county sales tax,” Wichita Eagle, April 4, 2007)

But the tax was not painless. Undoubtedly, the employment landscape was shifted in Sedgwick County because of the tax, and that caused some people to be unemployed. My post Prepare for sales tax-induced job effects now reports on what happened in Little Rock when that city’s arena was built. It would be reasonable to think that similar effects happened here.

Last year in Portland, a proposal to build a new minor league baseball stadium was found to produce a net job loss. An economics consulting firm reported: “Thus, the Lent’s project would have a net impact of a 182 job-year loss on the City’s economy (a gain of 175 from the construction less a loss of 357 due to reduced spending by households and businesses because of higher taxes).”

It also concluded that “If those individuals who put their money into baseball via taxes are allowed to put that money into the private market, that same amount of money would actually yield more jobs.” Reportedly, Portland’s mayor “appears to have sat on” the study and was not eager to release it.

This effect — a shiny, highly touted public works project being much more visible than private dispersed economic activity — was known long ago and explained by Henry Hazlitt in his classic work Economics in One Lesson:

Therefore for every public job created by the bridge project a private job has been destroyed somewhere else. We can see the men employed on the bridge. We can watch them at work. The employment argument of the government spenders becomes vivid, and probably for most people convincing. But there are other things that we do not see, because, alas, they have never been permitted to come into existence. They are the jobs destroyed by the $1,000,000 taken from the taxpayers. All that has happened, at best, is that there has been a diversion of jobs because of the project.

We were also told that the arena would be a driver of downtown development. But in its first test, the Wichita City Council evidently didn’t believe what arena boosters told them, as it voted to grant several million dollars in subsidy to the developer of a hotel just a few blocks from the arena. Will all future development around the arena — if it happens — require similar subsidy?

Intrust Bank Arena’s missing name

A note to readers: I served as co-manager of Peterjohn’s campaign in 2008.

The commemorative plaque on the Intrust Bank Arena in downtown Wichita, Kansas.The commemorative plaque on the Intrust Bank Arena in downtown Wichita, Kansas.

On the commemorative plaque outside the Intrust Bank Arena in downtown Wichita, there’s a missing name.

The names of eight Sedgwick County commissioners appear, including all who were members of the Commission when the arena sales tax passed in November 2004, all who have served since then, and all present commissioners.

Except for one: current third district commissioner Karl Peterjohn.

In 2004 Peterjohn led opposition to the sales tax ballot measure that funded the arena. When he decided early in 2008 that he would run for the commission against long-time Republican incumbent Tom Winters, Peterjohn told Winters that the next commissioner would have their name on a plaque on the arena. On primary election night, when Peterjohn defeated Winters, Peterjohn told me “I told him [Winters] he could have that spot, and I’m keeping my word.”

It was a gracious gesture.

There’s been a small controversy surrounding Peterjohn in his new role as arena supporter. He participated in the arena’s recent ribbon-cutting ceremony. More importantly, he voted last February for a $1.7 million seating upgrade. That upgrade would reduce the cost of transition between events, and also improve seating and viewing.

That vote, along with participation in the ribbon-cutting, is central to Peterjohn’s goal of seeing that the arena is a success and doesn’t become a fiscal burden on taxpayers. Although the contract with SMG, the arena’s management firm, shields Sedgwick County from losses, that contract comes to an end someday. It’s also full of loopholes that, in my opinion, would allow SMG to make an early exit if arena finances are not favorable.

Working for the success of the arena, therefore, is a logical continuation of Peterjohn’s concern for the taxpayer, the same concern as when he opposed the arena in 2004, he said.

There’s also been grumbling that county commissioners and bureaucrats will receive perks such as tickets and premium parking passes to arena events. Peterjohn said he’s received no tickets or parking perks.

A Wichita Eagle blog post by Deb Gruver on this topic is Karl Peterjohn’s name not on Intrust Bank Arena sign.

Ticket scalping is a market function, not a criminal activity

Yesterday’s Wichita Eagle carried an article about ticket scalping for events at the Intrust Bank Arena in downtown Wichita. Some concerts are very popular, which leads to people frustrated at two things: the inability to buy tickets when they go on sale, and then the high prices that ticket scalpers ask for tickets on the aftermarket.

I understand the frustration of the stymied ticket buyers. Who wants to pay $300 for a ticket that was sold by the arena’s box office for $50? It would be great if everyone who wanted to attend could do so for $50 — or for $5, for that matter. And that gets to the heart of the problem and why it isn’t likely to be solved: human behavior and economics.

Walter Block has a chapter in his book Defending the Undefendable that defends the ticket scalper. (A reading of the chapter may be listened to here. The book in pdf form is here.)

As it turns out, scalping is a beneficial economic activity. But even if you don’t believe this, scalping could be avoided if venues like the arena would sell tickets in a different manner.

According to Block, scalping requires “a fixed, invariable supply of tickets.” After all , if the supply of tickets was unlimited, everyone could buy all they wanted at list price (the price printed on the ticket, and what the venue sells them for).

Also, scalping requires “the ticket price chosen by management be lower than the ‘market clearing price.’” Markets clear when people want to buy the same number of tickets that are for sale. This balance is achieved by allowing the price of the tickets to freely adjust. When the list price of the ticket is less than what some people are willing to pay, that’s when scalpers have an opportunity to earn profits.

This points to one way that scalping could be eliminated, if concert promoters wanted to: They could sell tickets like shares of stock or bushels of wheat are sold. These items don’t have a list price. Instead, their price is whatever people are willing to pay.

Why would concert promoters price tickets at less than some people are willing to pay? If a scalper can get say, $300 for a ticket that the box office sells for $50, why doesn’t the box office price the ticket at $300? Or maybe $200? Here’s what Block writes:

For one thing, lower prices invite a large audience. Long lines of people waiting to enter a theater or ballpark constitutes free publicity. In other words, management forgoes higher prices in order to save money it might have had to spend on advertising. In addition, managers are loath to raise ticket prices — even though they would have little difficulty selling them for a big event or special movie — for fear of a backlash. Many people feel that there is a “fair” price for a movie ticket, and managers are responsive to this feeling.

There are several other motivations, less compelling, for keeping prices fixed at below equilibrium levels. Taken together they ensure that this pricing policy — the third condition necessary for scalping — will continue.

In other words, better for scalpers to bear the brunt of public ire for setting market-clearing prices. Can you imagine the public backslash at the Intrust Bank Arena and Sedgwick County if ticket prices for very popular concerts were set at market-clearing prices?

The chapter goes on to explain the two ways that scarce goods — concert tickets in this care — are rationed: price rationing, and non-price rationing. Price rationing, as you might imagine, relies on the price mechanism to determine a market-clearing price so that supply equals demand.

Non-price rationing, on the other hand, relies on something else. Block mentions “first-come, first served” (camping out the night before at the box office window) and favoritism (those connected to or favored in some way by arena management get special privileges) as two methods of non-price rationing. The Intrust Bank Arena has used another method — a lottery — for some concerts.

So which is “fair?” Does price rationing favor those with the ability to pay high prices? Certainly scalping makes it easier for rich people to obtain scarce tickets. But Block says that scalping provides entrepreneurial opportunities. Someone with a small amount of capital (just enough to buy one or more tickets) but a lot of spare time (someone without a job) can camp out in line and earn profits by selling the tickets. Or, they could simply wait in line and be paid a wage.

By the way, scalpers are not guaranteed profits. If there is not much demand for tickets for an event, scalpers will have to sell the tickets at a loss — or they may not be able to sell them at any price.

Back to Wichita: According to the Eagle article, a group named Taxpayers for Tickets has been formed to take action against scalping. Reading the website, it seems that the group’s focus is on more laws and enforcement of them to effect the goal of getting tickets in the hands of the taxpayers who paid for the construction of the Intrust Bank Arena.

I don’t favor this approach. First, as we’ve seen, scalping is a socially beneficial activity that provides market-clearing prices for tickets.

Second, there is plenty of actual crime on our community that causes death, injury, and loss of property. We don’t need to squander law enforcement resources on victimless crimes like people willingly and voluntarily engaging in market transactions.

In a letter published in the Wichita Eagle, Todd Allen, head of Taxpayers for Tickets, wrote “I figured that since the taxpayers paid for the arena, that makes us the owners.” I hate to disappoint Mr. Allen, but that’s far from the case. Try requesting a contract, as in Sedgwick County keeps lease agreement secret. Not even Sedgwick County Commissioners are able to see the lease of the arena’s flagship tenant.

Another article on ticket scalping is Ticket Scalpers Are Hidden Heroes.

Wichita arena lands a whopper

The Intrust Bank Arena in downtown Wichita has landed NCAA women’s basketball first- and second-round tournament games in 2011.

Recently, the NCAA bypassed the Wichita arena when selecting sites for men’s NCAA games. On KAKE TV, arena manager Chris Presson said women’s games are a testing ground for something “perceived to be bigger. … Certainly the women’s to us is as big as the men’s and is as big a deal to us as the men’s would be. We’re more than content, more than happy with what we’ve got.”

According to Associated Press reporting from earlier this year, “The first two rounds drew an average of 4,100 people.” The Wichita Eagle reports 4,915 averages attendance for all tournament games.

Is Presson being reasonable: women’s games, at 4,100 per game, are equivalent to men’s games, which are likely to sell out the arena? It’s his job to promote the arena, but statements like this are not reasonable.

The publicly-supported arena in downtown Wichita remains a contentious issue. Comments left to a recent post of mine about the arena provide some insight into the thinking of arena tax supporters.

One comment writer said that instead of complaining, I should be supporting the arena. He may have forgotten the extra sales tax that I contributed to pay for the arena. Doesn’t that count?

Another wrote: “My question to you is since the arena has been built, do you want it to succeed or fail?” I guess this writer didn’t read the final sentence of the post, which is: “Ultimately, it is the Sedgwick County taxpayer who is financially responsible for the arena, and it is they who must hope for success.”

So yes, I do hope that the arena is a success. As someone who is opposed to taxation — that’s why I opposed the arena sales tax ballot measure — I sincerely hope that tax revenues are not required to support the arena. Arena tax supporters have already shown that they’re willing to tax one person to build a playhouse for themselves, so I don’t suspect they’ll be opposed to future tax support of the arena, should it become necessary.

Low NBA attendance in Wichita danger sign for Intrust Bank Arena

The Intrust Bank Arena management firm SMG must be wondering what it bit off in Wichita. Last night NBA professional basketball players put sneaker to floor in Wichita for the first time in 14 years, and only an estimated 8,000 fans showed up. (Estimate is by the Wichita Eagle.)

The game was held at the Charles Koch arena on the campus of Wichita State University. That arena has a capacity, according to the goshockers website, of 10,400.

Wichita downtown arena boosters told voters that if we passed the tax, we’d have lots of events like this, and lots of fans would attend. But in this trial run of big-time professional sports in Wichita, the fans that did attend would fill barely more than half of the new downtown Wichita arena.

Arena apologists are likely to come up with a variety of excuses for this embarrassingly poor turnout: It was only an exhibition game. It wasn’t at the downtown arena. It wasn’t the right teams. It was drizzling rain. There will always be excuses.

The citizens of Sedgwick County are going to have to hope that the Intrust Bank Arena can do a better job drawing fans. Even though the SMG contract puts that firm on the hook for losses, that contract has a lot of ways for SMG to wiggle out, even before its five year management term expires. Ultimately, it is the Sedgwick County taxpayer who is financially responsible for the arena, and it is they who must hope for success.

Downtown Wichita parking plan at odds with revitalization goals

Currently, Wichita is struggling to find enough parking spots downtown to meet the demand expected to be created by the new Intrust Bank Arena. It’s been a contentious issue, with many Wichitans skeptical of the city’s ability to supply enough parking at prices that people are willing to pay for.

But did you know that there is likely to be fewer parking spots in downtown Wichita if the firm likely to lead downtown revitalization planning has its way?

Here are a few excerpts from the proposal submitted by Goody Clancy, the firm the city is likely to choose to lead the planning process:

Because transit, walking and biking will be viable options, less parking will be needed. … Parking policy will also unlock opportunity to redevelop parking lots … The effects of visionary choices such as increasing downtown residential development, expanding transit service, and constraining parking supplies will be investigated. … A sound and coordinated approach, encompassing economics, engineering and urban design, is needed to free up existing parking lots for redevelopment. (emphasis added)

I wonder: do city leaders know that their herculean effort to develop more parking downtown is an obstacle to downtown Wichita revitalization?

Welshimer files for re-election to Sedgwick County Commission

Gwen Welshimer campaign announcement 2009-10-09Sedgwick county commissioner Gwen Welshimer files for re-election.

Today, Sedgwick County Commissioner Gwen Welshimer filed for re-election to her position as a member of the commission. Her statement is below.

Welshimer, a Democrat, is so far the only candidate in that party. There are three Republicans who have either filed or are considering filing.

Welshimer campaigned and has voted as a fiscal conservative. I asked her given your fiscal conservatism, how will these Republicans differentiate themselves from you? Welshimer said that she’s not heard their campaign platforms. They are all city people, she said, likely to support funding of downtown Wichita.

Responding to my question about the downtown Wichita revitalization planning and the likelihood of a tax to fund it, she said that we’ve given the city a $210 million economic development tool called the downtown Wichita arena. The county has also given many years of property tax incentives, both in the past and in the future. The other 19 cities in the county have not enjoyed this treatment, she said.

In 2006, Welshimer signed a pledge to not raise taxes if elected, and she has fulfilled that pledge so far. Her opponent in that election, incumbent Ben Sciortino, received the endorsement of the Wichita Eagle. Welshimer narrowly won that election, 10,081 votes to 9,941.

Analysis

Given Welshimer’s fiscal conservatism, Republican candidates will find it difficult to run to her right. Her stand against tax increment financing (TIF) districts and subsidies to downtown developers means she’s not likely to get the support of those downtown developers who thrive on taxpayer subsidy. Those people contribute heavily to political campaigns. Additionally, her support for the dismissal of Sedgwick County Manager Bill Buchanan — a position I support — puts her at odds with the Chamber of Commerce crowd. They make political contributions, too.

In this district (district 5), my analysis of a recent voter file shows voter registration runs 29% Democratic, 40% Republican, and 31% unaffiliated. (The remainder are Libertarian and Reform party registrants.)

Considering recent voters (those who voted in an election in 2008), the numbers change a bit. In this case, 30% are Democratic, 44% Republican, and 26% unaffiliated.

Welshimer’s statement

I have filed as a candidate for re-election to the 5th District Seat on the Sedgwick County Commission. I want to continue holding the line for Sedgwick County taxpayers.

At this time, center Downtown redevelopment is the number one issue for this race. I want the tax dollars paid by Southeast Wichita, Derby, and Mulvane to be used for paving roads, drainage, infrastructure, traffic controls, township assistance, and business district enhancements in District #5. The $210 million sales tax arena and decades of property tax incentives for center Downtown have been a weight around the neck of my district. I will support redevelopment of Downtown through private investment only in the future.

I want more property tax reduction. I want to pay for it with new revenues and more efficient policies.

If re-elected, I will continue to work for safe, sensible, and reasonable alternatives to a costly new jail.

The Coliseum site has the potential for 1,000 new jobs and $10 million in new revenue over the next five years. I want to work to make this happen.

I want to continue to work for the success of the National Center for Aviation Training at Jabara Airport. This is evolving into a job training destination center for employers around the world and it offers an incredible new future for Sedgwick County.

I believe in the power of progressive new ideas. I have not been a commissioner who gives in to the out-of-touch “good old boy” network.

I am ready for a rigorous campaign.

Wichita sales tax likely to be proposed

Two recent events have led me to suspect that as part of the plan for the revitalization of downtown Wichita, we’re going to see a sales tax proposed.

The first is Phillip Brownlee’s editorial in last Friday’s Wichita Eagle, which carried the title Taxes are lower than many think. While this editorial focused on property taxes, it’s easy to see this as an argument that Wichitans can bear the burden of more taxation. Softening up the electorate, so to speak.

Then, there’s this email sent to the Wichita city council and Sedgwick county commission members:

I recently received the attached information on Oklahoma City’s next plan for their downtown area. This is their MAPS program that spurred their downtown developed. I thought you might find this of interest.

http://www.okc.gov/maps3/

Sincerely,

John Rolfe
President and CEO
Go Wichita Convention & Visitors Bureau

MAPS — that’s the program that funded Oklahoma City’s downtown improvements through a sales tax, with a second version funding school projects — will be voted on in December. If approved, a 1% sales tax will raise funds for more downtown projects. This email, without saying so directly, endorses the idea of a sales tax for downtown development.

What’s the sales tax in Oklahoma City, you may be wondering? It’s 8.375%. It won’t change if the new MAPS plan is approved by the voters, as a current 1% tax will expire.

That sales tax was billed as “temporary,” and it does appear that it will expire as planned. But, city leaders are recommending approval of the new sales tax. This is similar to the sales tax for the downtown Wichita arena, when as that tax was nearing its end, Sedgwick County Commissioner Tim Norton “wondered … whether a 1 percent sales tax could help the county raise revenue.” (“Norton floats idea of 1 percent county sales tax,” Wichita Eagle, April 4, 2007)

The sales tax for Wichita is 6.3%.

City leaders are likely to use the the Intrust Bank Arena in downtown Wichita as an example of a successful project funded through a sales tax. But any assessment of the success of this project is about two years away. The fact that the arena exists is evidence of a minimum level of competence. It will be some time before we know whether the arena can support itself without being a drain on taxpayers, despite the provisions of the SMG management contract.

In Wichita, we’re going to have to be watchful. The drumbeats of new taxation have started.

Wichita downtown arena parking promises not fulfilled

In 2004, as residents of Sedgwick County were considering whether to vote for a sales tax to fund the downtown Wichita arena (now known as the Intrust Bank Arena and nearly ready to open), people wondered about parking.

So on a campaign literature piece, the arena supporters made this claim: “With the proposed garage structures, more than 10,000 parking spaces will be available within a three-block radius of the Arena (compared with the Coliseum’s 4,500 spaces.)”

Today, on the eve of the arena’s opening, these parking garages don’t exist.

What about surface parking spaces? According to the draft version of the parking plan submitted to the city council last week, there is “available weekday parking supply at peak of approximately 3,040 spaces within the Arena District.” That district is, approximately, a three-block radius around the arena.

The parking structures promised by arena boosters might be built. The city has approved a TIF district that surrounds the arena, and there is the potential, by my reckoning, to spend around $9 million on parking structures. But at a cost of $20,000 to $25,000 per space, this money buys 450 parking spots at most.

By the way, I learned that the number of parking spaces around the arena is likely to decrease. At least that’s the goal of one of the firms who pitched their planning services to Wichita last week. That’s because if there is development of the area immediately surrounding the arena, there won’t be room for so much parking. Travel by automobile is something to be reduced, according to most of the planners, and we should rely on transit and bicycles instead.

I realize that the arena boosters who put out this information weren’t government officials (although some may have been involved). They put out a few other whoppers, too. It’s too bad that so many citizens believed them.

Goody Clancy proposal for Downtown Wichita revitalization master plan

Last Friday a selection committee selected one company from four finalists to lead the planning effort for the revitalization of downtown Wichita. If some city leaders and a few citizen elites had their way, citizens of Wichita wouldn’t be able to see the company’s proposal document until after the city council makes a decision to follow — or not — the recommendation of the selection committee. But thanks to city manager Robert Layton’s decision, this document is now available for all to read. (Thanks also go to council member Jim Skelton, for his unsuccessful effort to release the documents.)

This proposal is available because I requested it (and paid for it) under the provisions of the Kansas Open Records Act. The Wichita Eagle requested it too, and as of the time I received my copy, only that newspaper and I had requested it (along with the other three proposals from the finalists).

I didn’t scan all the pages, leaving out a section about the personnel involved and an appendix of related articles. Still, there’s 109 pages to read — but there are a lot of pictures. Click on
Goody Clancy Proposal for Downtown Wichita Revitalization Master Plan
to view or print the document.

(Update: The Wichita Eagle has obtained and posted a much better version of the proposal. It’s complete and in color. Click here and here.)

There are danger signs all over this document. Under the heading “Fiscal Responsibility,” for example, we see “Know the full range of effective public-private finance tools at hand.” Which means, of course, that developers will have their hands in the pockets of taxpayers through devices such as TIF districts, grants, tax credits, abatements, and other forms of subsidy.

Another sign: as a challenge to downtown, the document cites “The impact of relatively low development costs (inexpensive land, tenant-borne special assessment districts for infrastructure) at Wichita’s perimeter have a direct impact on Downtown land value and infrastructure economics.” (emphasis added)

What’s wrong with this statement? First, inexpensive land is a good thing. It means more people can afford what they want.

Second, note that people developing on the perimeter pay their own infrastructure costs. This statement hints that downtown developments won’t be expected to pay theirs.

There are just a few hopeful signs: “Indeed, WaterWalk might be struggling to fill its space because it has, simply put, hit a ceiling: it is focusing on food and fun, and perhaps there is room for only one such district (Old Town) in Downtown Wichita. The Arena could help in this regard, but until the publicly subsidized WaterWalk is a rousing success, it might not make sense to split the pie still further.”

Indeed. While we’re at it, let’s etch the names of the developers of WaterWalk on a large monument somewhere downtown, so that they are properly excluded from any further consideration as beneficiaries of the taxpayer. (Here’s the list, in case this monument isn’t built.)

But if there’s not demand for another food and fun district in Wichita, what about the promise of all the food and fun surrounding the Intrust Bank Arena? (A campaign piece from that election reads “It [the arena] will enrich our quality of life as new restaurants, shops and clubs spring up in the area …”)

It’s unknown how seriously the city council will take the steering committee’s recommendation. The council plans to vote on October 13.

Lutz, Hanson, Fahnestock owe Wichita an apology

In the campaign for the sales tax to build the downtown Wichita arena (Intrust Bank Arena), the idea of hosting NCAA men’s basketball games was promoted as something that would happen if voters approved the arena.

This week we learned that for this event, our arena has been rejected for the next three years.

Three arena boosters in particular — Bob Hanson of the Greater Wichita Area Sports Commission, businessman George Fahnestock, and Wichita Eagle sports columnist Bob Lutz — owe Wichita and Sedgwick County voters an apology.

As it turns out, Lutz was quite the visionary in a June 18, 2004 Wichita Eagle column, in which he wrote: “Imagine our city bidding for an NCAA Tournament subregional or the Big 12 Tournament.”

We don’t have to imagine anymore.

DeBoer plan for Wichita downtown redevelopment largely realized

The following is a lightly edited version of an insightful comment left on this site by an unknown writer, the “Wichitator.” Since many readers don’t read comments, I’ve promoted this to a post.

Hundreds of millions have already been spent for downtown redevelopment and what do we have to show for it? In contrast, look at the benign neglect the city has had on the thriving east and west sides of town where projects on Maize and Webb roads have prospered despite heavy property taxes.

Over 20 years ago the current downtown developer of the languishing East Bank (WaterWalk) project, Jack DeBoer, provided his vision for revitalizing downtown. There was a lot of public discussion about DeBoer’s proposal including front page Wichita Eagle articles at that time. No one in the local news media wants to talk about this now apparently.

Ironically enough, at that time, DeBoer’s plan did not include the struggling East Bank (Waterwalk) project that he is currently involved in. DeBoer’s vision of downtown projects were largely implemented by taxpayers over time.

The largest and most expensive of these projects will be the Intrust Arena with its $200+ million price tag. The only one that has been partially rejected was turning the Keeper of the Plains into a 500 foot community version of a Seattle Sky Needle that one might argue was at least partially implemented when this statue was placed on a much higher pedestal at a more prominent point where the two rivers meet at high cost to city taxpayers.

Lesser downtown projects that were part of DeBoer’s plan and were a lot less expensive than the new arena, were completed years ago. This public infrastructure is now in place at a very expensive cost to taxpayers of the past few decades. Another example, Exploration Place, still has years before its mortgage will be paid off, I believe.

Where has been the return for this community? It is invisible to this taxpayer. Look at the downtown taxing district. It takes in about the same level of property tax revenues as it has always received. It is clear that there is no private sector growth downtown. So tax revenues are stagnant. This publicly funded but privately selected downtown board operates with almost no media oversight. There is some taxpayer subsidized remodeling going on but outside of that, I can only think of the Garvey Center where significant private funds are being spent on a partial remodel of their downtown property.

The philosopher George Santayana said, “Those who do not remember the past are condemned to repeat it.” Since the downtown development plans are NOT being made public it looks like we’ll soon have another, 21st century version of the 1980s DeBoer plan that the taxpayers in our community will be expected to fund. In Washington, nothing fails like excess (see GSE’s Fannie & Freddie) and in Wichita we are trying to follow in our federal masters’ footsteps. Since local government can’t print money like the political fools in Washington can through the Federal Reserve Bank, the fiscal chickens will come home to roost a lot more quickly here. Mr. Weeks is right in trying to see the details of these proposals. If we did, the price tag would probably take our collective breaths away. The downtown development folks who want to be the 21st century reincarnation of Mr. DeBoer are just as right in wanting to keep this information hidden.

Light rail not good for Wichita

A recent letter in the Wichita Eagle by Alden Wilner of Bel Aire worries that “flat, dusty and hot” parking lots in the neighborhood of the Intrust Bank Arena (formerly known as the downtown Wichita arena) in downtown Wichita will hamper downtown revitalization.

I don’t know if this claim is true or not, but I do know that the solution Wilner proposes — “an area wide light-rail system” — would be an absolute disaster for Wichita. These systems are costly to build and operate, suffer from low ridership almost everywhere they are built, and have many other problems.

In a recent article, Randal O’Toole presented the costs of light rail versus highways:

The average mile of light-rail line costs two to five times as much as an urban freeway lane-mile. Yet in 2007 the average light-rail line carried less than one-seventh as many people as the average freeway lane-mile in cities with light rail.

Do the math: Light rail costs 14 to 35 times as much to move people as highways.

The Government Accountability Office found that bus-rapid transit—frequent buses with limited stops—provided faster, better service at 2 percent of the capital cost and lower operating costs than light rail.

Light rail is the mantra of those who hate cars. They must love waste and failure in its place. Portland is an example of an area that’s built a lot of light rail in recent years. O’Toole points out that in 1980 — before the light rail building boom — 9.8 percent of the region’s commuters took transit to work. Now that number, despite the light rail building boom, has declined to 7.6 percent.

Another article by O’Toole (Light Rail Doesn’t Work) tells of the huge costs, inconvenience, congestion, misallocation of economic development, and increased energy consumption and greenhouse gas output that light rail projects produce.

O’Toole is the author of The Best-Laid Plans: How Government Planning Harms Your Quality of Life, Your Pocketbook, and Your Future. As Wichita prepares to undertake large-scale planning for the revitalization of downtown, I would urge our leaders to read this book.

Wichita downtown arena parking problem

This week the Wichita Eagle printed a letter submitted by Sedgwick County Commissioner Karl Peterjohn. The printed letter is quite a bit shorter than what Peterjohn submitted. The unabridged letter follows.

The Wichita Eagle editorial written by Rhonda Holman on June 29, 2009 now claims that the new Intrust Bank Arena in downtown Wichita lacks adequate parking. This is a major change by the Eagle editorial board’s position. I have repeatedly asked county staff about the available parking in and around this soon-to-open facility since I became a commissioner in January. I have been repeatedly told by county staff that adequate parking will be available when the Intrust Arena opens next year. The most recent public assurance I have received was only a few days ago.

In 2004, while I led the opposition to the proposed downtown arena in my role as the executive director of the Kansas Taxpayers Network, I repeatedly raised the parking availability issue. In 2004 the arena advocates claimed that arena parking would not become a problem and that the critics were wrong.

Voters were repeatedly assured that there was plenty of parking that would be available downtown for the arena. The Wichita Eagle editorial page was among the leading advocates for this project and ignored opponents arguments concerning this $206 million (back then it was described as a $185 million) project. At that time there was only a general area for this new facility’s location so this argument lacked specificity. The exact location was unknown when voters cast their ballots.

The Friday before the 2004 election I held a news conference pointing out the dimensions of the parking problem downtown in particular and the related location and capacity issues in great detail. At this news conference I provided a map of the Kansas Coliseum’s Britt Brown Arena and adjacent parking area available for comparison purposes with the existing 3,500 parking spaces for this 12,000 seat facility along I-135. I still have a few extra copies of this Britt Brown Arena aerial view. Arena proponents attended this 2004 news conference and claimed that the arena opponents concerns were invalid because of existing downtown parking. The Eagle editorial page repeatedly backed these arena proponents’ claims.

The 2004 election is now political history. I want the Intrust Arena to be a success because this project has now become very important to the entire community. The reservations I expressed in 2004 have not disappeared just because of time. The decision to eliminate some of the one-way streets with two-way streets will not be an improvement in traffic flow in my opinion. There will be challenges for people to become comfortable with access into and out of this new facility while participating in high attendance events when the arena opens in a few months. To get beyond this challenge for any new facility, the county staff and parking consultant need to be correct about the adequacy of parking for the Intrust Arena and I believe are working to accomplish this objective.

The empty arena

Kansas City’s Sprint Center (that’s their new downtown arena) is suffering from underuse.

The Atlantic article The Empty Arena tells the story. Its subtitle is “If you build it, they might not come.” Despite being managed by a well-connected and experienced management group, no professional basketball or hockey team has moved in. Here’s bit more:

For now, Kansas City remains cautiously optimistic that the decision to build the Sprint Center was an enlightened one. The taxes that fund it are largely being paid by visitors, after all, and the concerts and NCAA games it has already attracted would have bypassed the old, outdated Kemper Arena. Mayor Mark Funkhouser, formerly the city auditor, had struggled to understand how spending $222 million on an arena made economic sense. “Now that I’ve inherited it,” he says, “I tell people it’s a shotgun wedding, but I have to make the marriage work. And if you look at it just in terms of the performance of the facility itself, it has exceeded expectations. It’s shiny and new. People like it.”

Who paid for the arena? As the snippit above approvingly states, someone else besides the people of Kansas City did. $222 million from hotel and car-rental taxes funded the arena.

In Wichita, the Intrust Bank Arena (formerly known as the downtown Wichita arena), set to open next year, was paid for largely by its own hometown, as it was funded through a sales tax.

The Wichita arena, unlike Kansas City’s, has a tenant, a minor league hockey team. Even though the arena is owned by the citizens of Sedgwick County, details are kept secret from the people.

Sedgwick County keeps lease agreement secret

A few months ago in March, SMG, the company that is managing the Intrust Bank Arena (formerly known as the downtown Wichita arena) signed a lease with the Wichita Thunder Hockey team.

Details of that lease weren’t made available to the public. Not to Sedgwick County Commissioners, either. So the public and even elected government officials don’t know anything about this contract, except for its term of five years.

This strikes me as bad government. The county has a deal with SMG that gives the management company broad latitude in operating the arena, including some profit-and-loss responsibility.

The arena, however, is still taxpayer-owned property. Furthermore, reading the management contract between SMG and Sedgwick County, I can see several ways in which SMG can wrangle free of its obligations. Believe me, the taxpayer is still on the hook.

So I believe we need to know the details of this lease made to the arena’s signature tenant. I made my case, based on my reading of the contract, in my post Wichita downtown arena contract seems to require Sedgwick County approval.

An inquiry sent to Assistant Sedgwick County Manager Ron Holt, the county’s point man for the arena, produced a response (see below) that indicates that the county has no intention of disclosing the terms of this lease agreement. Citizens must simply trust the county.

Part of the problem is that the arena has a competitor in the private sector, the newly-opened Hartman Arena. SMG is justifiably concerned about its contracts with tenants, which it considers proprietary information.

That’s fair enough — if SMG was a private company. But it’s one-half of a public-private partnership. It gets to use an asset valued at roughly $200 million, provided at no charge by the taxpayers of Sedgwick County, to see if it can earn a profit for itself. Our stake in this means we should get a look. The fact that SMG and the county will not disclose means that citizens will always wonder about the details of the deal.

This is especially true when government competes with private industry. Holt is already on record as being opposed to the privately-held Hartman Arena, remarking “overall, it would not be in the best interest of the community.”

Without disclosure, there will always be questions. It would be in the best public relations interest of SMG to agree for public disclosure of the terms of the Wichita Thunder lease.

Thunder – SMG Lease Inquiry

Bob Weeks Inquiry The Thunder – SMG Lease May, 2009 Issue # 1: Since SMG has committed to a contract/lease agreement with the Thunder in which there is a major revenue stream for the facility and with terms greater than one year, does the County have to approve the Thunder contract/lease agreement? Response: No, the County does not have to approve the Thunder contract/lease agreement because it is in the sole discretion of the Contract Administrator whether or not to approve the agreement, and even then such approval cannot be unreasonably withheld. It is important to understand that there are two types of contracts covered by section 2.3 (c) of the agreement—contracts that involve paying money out (Section 2.3 (c) i), and contracts involving a revenue stream for SMG (Section 2.3 (c) ii). Contracts that involve paying money out, such as a contract to provide security for the facility, must be approved in writing by the County if it involves a term beyond the management term of SMG. As will be discussed later, this approval can be a simple letter from the Contract Administrator and such approval cannot be unreasonably withheld. The Thunder agreement involves a revenue stream and Section 2.3 (c) ii provides that “SMG and the County will have joint approval rights (which approval right shall be at each party’s sole discretion, not to be unreasonably withheld) for all major revenue streams that can impact the profitability of any Facility …with terms of greater than one year.” Section 2.1 (d) provides that “to the extent that the approval of the County is required under the terms of this Agreement, the written approval of the Contract Administrator shall constitute the approval of the County,” Under the definitions in Section 1, the “Contract Administrator” is defined as – the senior administrative official of the County as from time to time appointed by the County Manager, or such individual person as may from time to time be authorized in writing by such administrative official to act fro him/her with respect to any or all matters pertaining to this Agreement. So to address the first issue, it is in the discretion of the Contract Administrator whether or not to approve the agreement with the Thunder. This approval could take many forms and could be established by policies within the County Manager’s Office. While the initial review of the Thunder contract/lease agreement was limited to a discussion between the Contract Administrator and the SMG’s General Manager, subsequently a more thorough review by the Contract Administrator and an Assistant County Counselor with the SMG General Manager revealed the following notable provisions of the agreement: 1.) The term of the agreement is for 10 ½ years with provisions to terminate in the event of default by either party. 2.) There is a provision for a base rental that we agree is standard in the market with accelerators for future years based upon established indicators. 3.) There are other provisions in the agreement for revenue to be derived by SMG to cover staffing costs and other maintenance considerations. 4.) There is appropriate insurance coverage to protect the operator of the facility. After such subsequent review it is our opinion that the agreement provides adequate protection for the County for the entire term of the agreement and there is no reasonable basis for exercising our discretion to disapprove the agreement. For future contracts/lease agreements that fall under the conditions of the SMG Agreement as identified above, the Contract Administrator will meet with the SMG General Manager of the INTRUST Bank Arena and review any agreement in order to understand the terms and conditions of the agreement and how this might affect the County’s interest. Issue # 2: How can Sedgwick County give its approval to a contract/lease agreement that SMG will not let the county see (wouldn’t approval in a meaningful way mean that the commissioners and the public can read the contract/lease agreement)? Response: Obviously the County can’t give meaningful approval to a contract that we can’t see, but our agreement with SMG specifically allows us to review any agreement in order to understand the terms and conditions of the agreement and how this might affect the County’s interest. See Section 2.6 (a) (i) which provides:. (i) To the extent that SMG has any confidential or proprietary information that it reasonably believes is a privileged trade secret and/or should not be disclosed to a third party to protect the privileged, confidential and/or proprietary nature of such information, and upon the approval of the Contract Administrator, which shall not be unreasonably withheld, SMG shall not be required hereunder to deliver such information to the County, but instead, will afford the County an opportunity to review such information at the Facility during reasonable business hours and upon reasonable advance notice, or on terms mutually agreed upon by the parties in order to protect the privileged, confidential and/or proprietary nature of such information. As mentioned above, we have had the opportunity to review this agreement with SMG in a meeting with the General Manager of the Intrust Bank Arena. In our negotiations with SMG, we intended to give SMG significant authority to run the business of the new arena as they deem necessary as a means for them to sign off on an agreement that puts the risk of losses solely on them. The only reason we wanted the authority to review/approve long term agreements was for the purpose of making sure that SMG wasn’t putting the County in a bad financial position for years that they might not be operating the arena. While initially this is a five year agreement, we have provisions in the agreement that will automatically extend the agreement for an additional five years if they meet certain performance criteria. In other words, there is no reason at this point in our business dealings to think that SMG is operating in anything but the best interest of SMG and the County and such there would be little reason to formally approve the Thunder agreement – let alone have a reasonable basis to withhold approval. With Hartman Arena and Sprint Center (non SMG operated facilities) as competitors in this market, it is of high importance to SMG of keeping their proprietary information from being disclosed publicly. In addition, the County’s financial interest is protected with a provision in the agreement requiring SMG to maintain a system of bookkeeping adequate for its operations and for the use of our auditors. SMG is furthermore required to give the County’s authorized representative access to such books and records. The County has the right at any time, and from time to time, to audit and/or cause nationally recognized independent auditors to audit all the books of SMG relating to the operating revenues and operating expenses of the arena.

More money to Wichita government

A letter in today’s Wichita Eagle places a lot of faith on things not yet seen, and in things we know don’t work.

“I think it is dumb that people are complaining about the new Intrust Bank Arena. It will bring money and tourists to Wichita, not to mention great entertainment. That means more money brought to our government, and that’s a good thing. — Caleb Beeson, Wichita”

First, since the Intrust Bank Arena is not yet open, it has no track record. We have absolutely no idea how well it will do, financially or otherwise. A lot of people think it’s “dumb” to count chickens before eggs have hatched.

Then, there’s this letter writer’s idea that more money in the hands of government is a “good thing.”

To believe that paying taxes to the government is good requires believing that government spends wisely. There’s little evidence of that.

Perhaps the writer means that when tourists from out of town travel to Wichita and spend money, our local government will be gathering tax revenue from out of our area. Better to tax someone else than ourselves — that’s the underlying message.

These taxes serve to suppress travel to cities that levy them. How does it feel to have a city add 13% to the cost of your hotel room, as I have paid in some cities? Or how do you think travelers feel when a city levies fees and charges that add 26% to the cost of renting a car, as some places do?

Since demand falls with rising prices, these high taxes reduce demand for travel to high-tax cities. Probably worse than that, they leave a bitter aftertaste for those who pay them. Do we want travelers to Wichita to feel that they’ve been soaked by our local taxes? They won’t feel good about coming back again.

Articles of Interest

Education reform, downtown Wichita arena, Kansas smoking ban, downtown developers

Education’s Ground Zero (Nicholas D. Kristof in The New York Times) Describes the efforts of Washington D.C. public schools chancellor Michelle Rhee to reform the system. She’s fired one-third of the principals. Kristof reminds us of the importance of teachers: “The reform camp is driven partly by research suggesting that great teachers are far more important to student learning than class size, school resources or anything else. One study suggests that if black kids could get teachers from the profession’s most effective quartile for four years in a row, the achievement gap would disappear.” In Wichita, however, USD 259 is taking the opposite approach.

Intrust Bank Arena management contract unusual, but not necessarily bad (Bill Wilson in the Wichita Eagle) Explores the nature of the arrangement between Sedgwick County and SMG as compared to other arenas. “The bottom line for these officials: Sedgwick County has a good deal with SMG, but has a responsibility to closely monitor the arena’s performance for taxpayers who paid for the building with a sales tax increase.” More coverage of related issues is Wichita downtown arena contract seems to require Sedgwick County approval.

Details of Intrust Bank Arena contract with Thunder are a secret (Bill Wilson in the Wichita Eagle) This is an earlier story, interesting for the confusion it raises or exposes, I’m not sure which. Reported in the story: “The arena’s financial performance would be monitored by the county through what [Sedgwick County assistant manager Ron] Holt characterized as limited records access. But [Sedgwick County Commissioner Gwen] Welshimer said she didn’t know how the county would track the arena’s financial performance. ‘We don’t have any access to their books that I know of,’ she said.” Read the county’s contract with SMG, however, and you learn that SMG will maintain accounting records, have them audited, and give Sedgwick County access to them “upon reasonable advance notice.” Also, the county has the right to audit the records at any time.

Why state smoking ban seems inevitable Rhonda Holman in the Wichita Eagle Editorial Blog) In this post, Wichita Eagle editorialist Rhonda Holman makes explicit the connection between state-paid health care and the state’s interest in controlling behavior: “That’s [passing the statewide smoking ban] the only responsible action the Legislature can take, given the increasing cost burden of smoking-related illnesses on the state …” If the state (that includes the U.S. Federal government) starts taking responsibility for more health care, smoking bans are just the start of state meddling in behavior.

Minnesota Guys ready to start face-lifts of downtown Wichita buildings (Bill Wilson in Wichita Eagle) Real Development starts work on the improvement of facades of some of its buildings. In the article developer Michael Elzufon manages to use the word “iconic” twice. This article doesn’t tell how these improvements are paid for: a confusing arrangement where the city loans money and recoups it in special assessment taxes. A hefty development fee is being paid to the developers, which allows them to profit for fixing up their own buildings. But they’ll pay that back in the form of the special taxes — or will they? It’s hard to tell where the money is going in these agreements. This benefits developers like Elzufon and politicians on the Wichita city council, as if citizens knew what was really going on, they wouldn’t be happy.

Wichita downtown arena contract seems to require Sedgwick County approval

Sedgwick County, owner of the Intrust Bank Arena (the downtown Wichita arena), has a five-year contract with SMG that outsources the management of the arena.

Yesterday, SMG announced a 10.5 year lease with the Wichita Thunder hockey team. Terms of the deal weren’t disclosed, and SMG is resisting their release, as explained in Wichita Eagle reporting referred to in my post Wichita downtown arena open records failure.

But this much is clear: SMG has committed to a contract that lasts longer than their contract with the county.

Sedgwick County could choose to renew SMG’s contract, of course. The contract also contains a provision where if the county receives at least $1,700,000 from the profit sharing agreement with SMG, the contract automatically renews.

But it seems like SMG is getting a little ahead of itself.

It also appears that the lease contract SMG made with the Thunder requires approval by Sedgwick County.

The management agreement between Sedgwick County and SMG grants authority to SMG to negotiate contracts without county approval, but there is an exception: “… if any such license, agreement, commitment or contract other than those involving the license, lease or rental of the Facility in the ordinary course has a term that extends beyond the remaining Management Term or, if this Agreement has been renewed, the Renewal Term, such license, agreement, commitment or contract must prior thereto be approved in writing by the County (which approval shall be at the County’s sole discretion, not to be unreasonably withheld) …”

(The management term referred to is five years.)

So it seems that this contract, extending beyond the management term as it does, is subject to Sedgwick County approval.

There’s more from the SMG-Sedgwick County agreement: “SMG and the County will have joint approval rights (which approval right shall be at each party’s sole discretion, not to be unreasonably withheld) for all major revenue streams that can impact the profitability of any Facility, including ticketing, sponsorships, food and beverage, and tenant leases with terms of one year or greater.”

The Thunder is certainly a major revenue stream for the arena. In fact, they’re the anchor tenant. The lease, at 10.5 years, is much longer than the one year mentioned.

So there’s another clause of the contract that seems to indicate that Sedgwick County has approval rights for this lease agreement.

Here’s a question: can Sedgwick County give its approval to a contract that SMG will not let the county see?

Wichita downtown arena open records failure

Yesterday, the company that manages the Intrust Bank Arena (the downtown Wichita arena) announced a lease with the arena’s flagship tenant, the Wichita Thunder hockey team. But we don’t know the details of the lease. Unbelievably, some Sedgwick County Commissioners and managers are okay with that.

The Wichita Eagle article Details of Intrust Bank Arena contract with Thunder are a secret reports the details.

I believe that the Eagle will be successful in pursuing a copy of the lease agreement from SMG (the company managing the arena for Sedgwick County) under the Kansas Open Records Act. Here’s why:

The KORA states that “‘Public agency’ means the state or any political or taxing subdivision of the state or any office, officer, agency or instrumentality thereof, or any other entity receiving or expending and supported in whole or in part by the public funds appropriated by the state or by public funds of any political or taxing subdivision of the state.”

Although immediately next comes an exception, excluding “Any entity solely by reason of payment from public funds for property, goods or services of such entity.”

I believe the exception is meant to prevent a company who, say, sells pencils to the county from being subject to KORA.

But the relationship between SMG and the county is different. Sedgwick County has outsourced the management of the arena to SMG. The county is paying SMG, too. According to the contract, $8,000 per month at this time.

The county and SMG have a broad nondisclosure agreement in their contract, although this can’t override the KORA.

Besides the legalities of this, SMG and Sedgwick County need to find a way where this lease agreement can be made available to the public. I recently obtained a copy of the existing lease agreement between the Thunder and the county in anticipation of comparing it with the new agreement, the one shrouded in secrecy.

If SMG decides to keep this contract secret, it will be a public relations disaster for them.

It’s also a strike against the Sedgwick County managers who negotiated the contract with SMG that contains this provision, and against the commissioners who voted for it. Sedgwick County Commissioner Tim Norton seems to be the prime apologist for the secret contract.

Let’s hope that SMG changes their mind soon and releases the contract.