Tag Archives: Sedgwick county government

With tax exemptions, what message does Wichita send to existing landlords?

As the City of Wichita prepares to grant special tax status to another new industrial building, existing landlords must be wondering why they struggle to stay in business when city hall sets up subsidized competitors with new buildings and a large cost advantage. From June 2014.

Tomorrow the Wichita City Council considers whether to grant property and sales tax exemptions to a proposed speculative industrial building in north central Wichita. If approved, this will be the second project undertaken under new economic development policies that allow for this type of tax exemption.

Those with tax abatementsCity documents estimate that the property tax savings for the first year will be $312,055. This exemption will be granted for five years, with a second five year period possible if performance goals are met.

The city documents also state that the project will also apply for a sales tax exemption, but no estimate of these tax savings are given. It’s common for a project of this type to have about half its cost in purchases subject to sales tax. With “site work and building” at $10,350,000, sales tax in Wichita on half that amount is $370,012. Undoubtedly a rough estimate, it nonetheless gives an idea of how much sales tax the developers will avoid paying.

(If city hall has its way, the sales tax in Wichita will soon increase by one cent per dollar, meaning the developers of this project would save $421,762 in sales tax. While others will hurry to make purchases before the higher sales tax rate takes effect — if it does — these developers will be in no hurry. Their sales tax is locked in at zero percent. In fact, once having a sales tax or property tax exemption, these developers are now in a position to root for higher sales and property tax rates, as that increases costs for their competitors, thereby giving these tax-exempt developers a competitive advantage.)

City documents give the benefit-cost ratios for the city and overlapping jurisdictions:

City of Wichita General Fund 1.30 to one
Sedgwick County 1.18 to one
USD 259 1.00 to one
State of Kansas 12.11 to one

It’s not known whether these ratios include the sales tax forgiveness.

Wichita City Budget Cover, 1992While the City of Wichita insists that projects show a benefit-cost ratio of 1.3 to one or better (although there are many exceptions), it doesn’t apply that standard for overlapping jurisdictions. Here, Sedgwick County experiences a benefit-cost ratio of 1.18 to one, and the Wichita school district (USD 259) 1.00 to one. These two governmental bodies have no input on the decision the city is making on their behalf. The school district’s share of the forgiven taxes is 47.4 percent.

When the city granted a similar tax exemption to a speculative warehouse in southwest Wichita, my estimates were that its landlord has a cost advantage of about 20 percent over other property owners. Existing industrial landlords in Wichita — especially those with available space to rent and those who may lose tenants to this new building — must be wondering why they struggle to stay in business when city hall sets up subsidized competitors with new buildings and a large cost advantage.

Wichita property taxes

Property taxes in Wichita are high for industrial buildings, and even higher for commercial buildings. See Wichita property taxes compared. So it’s difficult to blame developers for seeking relief. But instead of offering tax relief to those who ask and to those city hall approves of, it would be better to have lower taxes for everyone.

Targeted economic development incentives

The targeted economic development efforts of governments like Wichita fail for several reasons. First is the knowledge problem, in that government simply does not know which companies are worthy of public investment. In the case of the Wichita, do we really know which industries should be targeted? Is 1.3 to one really the benchmark we should seek, or would we be better off by insisting on 1.4 to one? Or should we relax the requirement to 1.2 to one so that more projects might qualify?

This assumes that these benefit-costs ratios have validity. This is far from certain, as follows:

1. The benefits that government claims are not really benefits. Instead, they’re in the form of higher tax revenue. This is very different from the profits companies earn in voluntary market transactions.

2. Government claims that in order to get these “benefits,” the incentives must be paid. But often the new economic activity (expansion, etc.) would have happened anyway without the incentives.

3. Why is it that most companies are able to grow without incentives, but only a few companies require incentives? What is special about these companies?

4. If the relatively small investment the city makes in incentives is solely responsible for such wonderful outcomes in terms of jobs, why doesn’t the city do this more often? If the city has such power to create economic growth, why is anyone unemployed?

Do incentives work?

The uncontroverted peer-reviewed research tells us that targeted economic development incentives don’t work, if we consider the entire economy. See: Research on economic development incentives. Some of the conclusions of the studies listed there include:

No evidence of incentive impact on manufacturing value-added or unemployment”

Small reduction in employment by businesses which received Ohio’s tax incentives”

No evidence of large firm impacts on local economy”

No permanent employment increase across a quasi-experimental panel of all Cabela’s stores”

“Employment impact of large firms is less than gross job creation (by about 70%)”

These research programs illustrate the fallacy of the seen and the unseen. It is easy to see the jobs being created by economic development incentives. It’s undeniable that jobs are created at firms that receive incentives, at least most of the time. But these jobs are easy to see. It’s easy for news reporters to find the newly-hired and grateful workers, or to show video footage of a new manufacturing plant.

But it’s very difficult to find specific instances of the harm that government intervention produces. It is, generally, dispersed. People who lose their jobs usually don’t know the root cause of why they are now unemployed. Businesses whose sales decline often can’t figure out why.

But evidence tells us this is true: These incentives, along with other forms of government interventionism, do more harm than good.

Soviet-style society seen as Wichita’s future

If local governments don’t fund arts, we risk a Soviet-style existence. This line of thought is precisely backwards.

Facing the possible loss of funds from Sedgwick County, the Wichita Arts Council paints a bleak future for Wichita, as reported in the Wichita Eagle:

The Wichita Arts Council receives approximately $14,000 from the county, which it uses to provide seed money for start-up art projects, president Arlen Hamilton said. It also receives about $6,000 from the city, he said.

“Without us being there to provide that start, many of these things would never get off the ground, and we’d end up with more of a Soviet-style society than the bright, colorful and educational environment that we get to live in instead,” Hamilton said. (Sedgwick County to warn organizations of possible funding cuts)

This line of reasoning is precisely backwards. When government taxes us and turns over the funds to a group of elitists to make decisions about which art is desirable and which is not, that is characteristic of totalitarian, socialist societies. In a civil society people don’t expect others to be forced to pay for things like this.

Defenders of government spending on arts say it’s a small amount of money. It’s just seed money. This “seed money” effect is precisely why government should not be funding arts. David Boaz explains:

Defenders of arts funding seem blithely unaware of this danger when they praise the role of the national endowments as an imprimatur or seal of approval on artists and arts groups. Jane Alexander says, “The Federal role is small but very vital. We are a stimulus for leveraging state, local and private money. We are a linchpin for the puzzle of arts funding, a remarkably efficient way of stimulating private money.” Drama critic Robert Brustein asks, “How could the [National Endowment for the Arts] be ‘privatized’ and still retain its purpose as a funding agency functioning as a stamp of approval for deserving art?” … I suggest that that is just the kind of power no government in a free society should have.

The leveraging effect of seed money means that elitists like the members of the Wichita Arts Council have great power in deciding who will succeed in the arts in Wichita. We give up a lot when we turn over this power to government bureaucrats and arts commission cronies. Contrary to the argument of the Arts Council president, arts thrive in markets where people are free to choose, and stagnate under taxation and bureaucracy.

If you don't like this statue, just don't go there, says Wichita City Council member Lavonta Williams. But, you must pay for it.
The attitude of Wichita elected officials regarding art: If you don’t like this statue, just don’t go there, says Wichita City Council member Lavonta Williams. But, you still must pay for it.

Intrust Bank Arena loss for 2014 is $5 million

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. But no one wants to talk about this.

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. What’s missing is depreciation expense.

In February the Wichita Eagle reported: “The arena’s net income for 2014 came in at $122,853, all of which will go to SMG, the company that operates the facility under contract with the county, Assistant County Manager Ron Holt said Wednesday.” A reading of the minutes for the February 11 meeting of the Sedgwick County Commission finds Holt mentioning depreciation expense not a single time. Strike one.

Last December, in a look at the first five years of the arena, its manager told the Wichita Eagle this: “‘We know from a financial standpoint, the building has been successful. Every year, it’s always been in the black, and there are a lot of buildings that don’t have that, so it’s a great achievement,’ said A.J. Boleski, the arena’s general manager.” Strike two.

I didn’t notice the Eagle opinion page editorializing this year on the release of the arena’s profitability figures. So here’s an example of incomplete editorializing from Rhonda Holman, who opined “Though great news for taxpayers, that oversize check for $255,678 presented to Sedgwick County last week reflected Intrust Bank Arena’s past, specifically the county’s share of 2013 profits.” (Earlier reporting on this topic in the Eagle in 2013 did not mention depreciation expense, either.) Strike three in the search for truthful accounting of the arena’s finances.

The problem with the reporting of Intrust Bank Arena profits

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 2103, the accounting method used in this agreement produced a profit of $705,678, to be split (not equally) between SMG and the county. The county’s share, as Holman touted in her Eagle op-ed, was $255,678. (Presumably that’s after deducting the cost of producing an oversize check for the television cameras.)

For 2014, the arena’s profit was $122,853. All that goes to SMG, based on the revenue-sharing agreement.

The Operations of Intrust Bank ArenaWhile 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 2014 Comprehensive Annual Financial Report for Sedgwick County. This document holds additional information about the finances of the Intrust Bank Arena. The CAFR, as described by the county, “… is a review of what occurred financially last year. In that respect, it is a report card of our ability to manage our financial resources.”

Regarding the arena, the CAFR states:

The Arena Fund represents the activity of the INTRUST Bank Arena. The facility is operated by a private company; the county incurs expenses only for certain capital improvements or major repairs and depreciation, and receives as revenue only a share of profits earned by the operator, if any, and naming rights fees. The Arena had an operating loss of $5.0 million. The loss can be attributed to $5.2 million in depreciation expense.

Financial statements in the same document show that $5,157,424 was charged for depreciation in 2014, bringing accumulated depreciation to a total of $26,347,705.

Depreciation expense is not something that is paid out in cash. Sedgwick County didn’t write a check for $5,157,424 to pay depreciation expense. Instead, depreciation accounting 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 not many of our public leaders recognize this. In years past, Commissioner 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.”

Earlier in this article we saw examples of the Sedgwick County Assistant Manager, the Intrust Bank Arena manager, and several Wichita Eagle writers making the same mistake.

Intrust Bank Arena commemorative monument
Intrust Bank Arena commemorative monument
The contention — witting or not — of all these people is that the capital investment of $183,625,241 (not including an operating and maintenance reserve) in the arena is merely a historical artifact, something that happened in the past, something that has no bearing today. There is no opportunity cost, according to this view. This attitude, however, disrespects the sacrifices of the people of Sedgwick County and its visitors to raise those funds. Since Kansas is one of the few states that adds sales tax to food, low-income households paid extra sales tax on their groceries to pay for the arena — an arena where they may not be able to afford tickets.

Any honest accounting or reckoning of the performance of Intrust Bank Arena must take depreciation into account. While Unruh is correct 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. The Wichita Eagle aids in promoting this deception.

We see our governmental and civic leaders telling us that we must “run government like a business.” Without frank and realistic discussion of numbers like these and the economic facts they represent, we make decisions based on incomplete and false information.

Who decides? When it comes to planning, is it the people, the politicians, or the bureaucrats?

By Karl Peterjohn, Sedgwick County Commission

The Wichita Eagle editorial page is unhappy with the county commission’s decision to terminate the county’s participation in the federal government’s “sustainability planning grant.” When this controversial grant was first voted upon by the county in 2010, it was rejected by a vote of three to two. This also led the county to withdraw from the Regional Economic Area Partnership (REAP).

Karl Peterjohn
Karl Peterjohn
In 2011, a new county commission reversed this decision and decided to participate in this joint federal grant from three often controversial national agencies: Housing and Urban Development, Environmental Protection Agency, and Department of Transportation. HUD has played a key role in federal housing mandates and failed federal urban programs going back to the odious urban renewal era. The federal housing failures led to the 2008 financial crisis.

EPA is focused on creating new and complicated federal mandates. These are having a small impact on improving environmental problems but are becoming a new power center for the leftist, statist agenda out of Washington, D.C.

President Eisenhower said, “In preparing for battle, I have always found that plans are useless but planning is indispensable.” Ike also said, “A people that values its privileges above its principles soon loses both.”

The key question for a free people who cherish their liberty is the question, who decides? Why is government planning, which up until the New Deal, was largely left to the private sector and local government becoming a federal problem?

I believe that the state government is better than the federal government in trying to project what public needs might appear in the future. I believe that the local government, county or city, is better than the state government. I believe that a great deal of the current “planning,” should be left to the people and not the government.

Today, there are over-lapping, and duplicative planning efforts underway. The new 20 year Comprehensive Plan that was presented to Sedgwick County earlier this month is one case. The city of Wichita is also involved in this effort. The members of this planning effort were appointed by the city and county managers and included a couple of elected officials as well as over 20 other private citizens.

A 25 year transportation plan is being work on by the Wichita Area Metropolitan Planning Organization (WAMPO) for a region that includes all of Sedgwick County as well as Andover, Rose Hill, and Mulvane that covers western Butler and northern Sumner counties.

A third plan was this “sustainability” planning grant that would be followed with an “implementation” grant. The fact that Sedgwick County has withdrawn from this plan does not guarantee that other cities and counties in this region could not continue to proceed in this process. The sustainability grant has continued despite the opposition to it from both Butler and Sumner county commissions. I believe the sustainability implementation grant, if it proceeds, would probably supersede the other two plans.

REAP has been closely tied to this controversial “sustainability” grant. I want to repeat my reasons for voting against participating in this grant and REAP. I have voted against participating in this grant every time it has appeared on the county agendas in 2010, 2011, and again this year. I also opposed the doubling of the county’s dues for REAP membership. REAP’s legislative agenda has been cited as a reason for supporting this organization. I believe that each local government should have their own agenda. I oppose seeing REAP’s taxpayer funds from being used for statehouse lobbying.

I firmly believe that local government’s role is to provide a firm rule of law where there is a level playing field in it with clear rules for everyone to build their future for themselves and their families. This is the very limited role of government for a free people in a liberty loving society.

Year in Review: 2014

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

January

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

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

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

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

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

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

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

February

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

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

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

Wichita’s legislative agenda favors government, not citizens
This week the Wichita City Council will consider its legislative agenda. This document contains many items that are contrary to economic freedom, capitalism, limited government, and individual liberty. Yet, Wichitans pay taxes to have someone in Topeka promote this agenda.

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

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

March

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

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

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

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

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

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

April

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

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

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

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

May

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

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

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

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

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

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

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

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

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

June

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

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

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

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

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

July

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

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

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

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

August

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

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

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

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

September

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

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

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

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

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

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

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

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

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

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

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

October

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

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

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

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

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

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

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

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

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

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

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

November

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

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

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

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

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

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

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

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

December

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

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

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

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

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

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

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

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

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

Economic development in Sedgwick County

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

At the December 17, 2014 meeting of the Sedgwick County Commission an economic development incentive was considered. The proceedings are of interest as a window into how economic development works.

The proposal was that Sedgwick County will make a loan to Figeac Aero in the amount of $250,000 as an economic development incentive in conjunction with its acquisition of a local company and a contemplated expansion. It’s likely the county will also participate in forgiving property taxes, although that decision will be made by the City of Wichita on the county’s behalf.

Sedgwick County Chief Financial Officer Chris Chronis presented the item to the commissioners, telling them “the company has been very successful in Europe.”

Chronis also presented the benefit-cost analysis from calculated by the Center for Economic Development and Business Research (CEDBR) at Wichita State University. He said the proposed county property tax abatement has a value of just over $473,000, although the award of the exemption is controlled by the city. The present value of county’s cost over ten years, considering both the property tax abatement and the $250,000 loan, is $687,793. The present value of the benefit is just over $1,000,000, so the county’s net benefit is $317,834. Therefore, the net public financial benefit ratio to the county of 1.46 to one.

The final review of the contract is still to be performed. Chronis asked the commission for authorizing him to execute an agreement “in substantially the same form as the one we have given you, subject to final review by the county counselor.”

Commissioner Richard Ranzau asked if the commission had in its possession the final form of the document. The answer was no. Chronis said that the document is substantially in final form, subject to some tweaking. Later questioning by Ranzau revealed that there are many parts of the contract that are not present. The agreement the commissioners had referenced the missing parts, such as a security agreement.

Ranzau also brought up the fact that the commission had changed its policy so that forgivable loans are no longer used. Chromos said this is not a forgivable loan. Ranzau asked “what is it?” Chronis replied it is a loan. Ranzau asked if the company had to repay the loan. Chronis said if they don’t fulfill their end of the agreement, then yes, they will have to pay it back. If the company does not repay the loan, this is because the company has met the employment targets, and the county gets its repayment in the form of economic benefit to the community and to Sedgwick County government, he added.

In the end, Chronis admitted that this agreement has the same elements of past forgivable loans, but is different because now there is better protection in case the company does not satisfy commitments.

In support of the incentive, Wichita Metro Chamber of Commerce president Gary Plummer said he is here in a “positive environment.” He told the commissioners that staff worked very hard. He mentioned how much tax the company has paid to Sedgwick County. He said this is a great moment in Sedgwick County economic development history.

Greater Wichita Economic Development Coalition Chair Gary Schmitt appeared to mention the return to the county in the form of tax revenue.

Greater Wichita Economic Development Coalition president Tim Chase promoted the security that the county is receiving in case the loan needs to be repaid. There is a lien on tangible assets, for example. But the company still must agree to specific provisions for the security of the loan. Chase said this is “not, in any way, shape, or form a done deal.”

French air parts maker Figeac has plans to grow in WichitaCommissioner Karl Peterjohn mentioned a newspaper article from May that quoted Figeac Aero’s vice president of business development as saying “the heart of Figeac North America will be Wichita.” Chase explained there had been personnel changes since then. Also, Chase said that Figeac hired a consultant that advised the company to inquire about “standard” incentives. When GWEDC did not supply an answer the company considered satisfactory, Chase said he was told “that starts the clock over. We’re going to begin looking at other locations.” The article Peterjohn referred to is French air parts maker Figeac has plans to grow in Wichita May 9, 2014 Wichita Eagle.

There was a question about state participation in incentives. Chronis did not know what, if anything, the state would be offering.

In further discussion, Ranzau said that Figeac has already bought a company here and is hiring. They have plans to be here, he said, meaning that the “but for” argument does not apply. By his calculation, if the average salary was reduced by 12 cents per hour, that would amount to the value of the incentive Sedgwick County is offering, $250,000 over five years. He expressed his concern that the contract the commission is being asked to approve is incomplete, and that the City of Wichita has yet to vote on it. Ranzau made a motion that the item be tabled until the agreement is complete. That motion failed, with only Peterjohn voting in support.

In other discussion, Ranzau repeated his concern over approving an incomplete document, telling commissioners that this would not be done in the private sector, adding that this is what it means that you can’t “run government like a business.”

In his remarks, Peterjohn quoted a government official famously who said “you have to pass the document to find out what’s in it.” Peterjohn expressed concern that the analysis provided by CEDBR is based on numbers provided by the company. This qualification is standard, he said, and always a concern.

The measure passed by a vote of three to two, with Peterjohn and Ranzau opposed.


Excerpt from the meeting

Discussion

Capacity
The labor force in the Wichita metropolitan area is about 298,000 people. The 50 jobs to be created in the first year by Figeac represents 0.017 percent of the labor force, or one job for every 5,960 people in the labor force.

Another way to place the 50 Figeac jobs in context is to look at them in comparison to jobs created, not the labor force. In Kansas in recent years, job gains in the private sector are about six percent of employment. (Figures are not available for Wichita alone.) Employment in the Wichita metropolitan area is about 284,000. Six percent of that is 17,040. So the 50 Figeac jobs are now 0.29 percent of all jobs created in a year, or one out of 341 jobs.

It’s good that 50 people will have jobs. Recall, however, that the president of the chamber of commerce told commissioners that staff worked very hard to acquire these jobs. He called this “a great moment.”

This illustrates a problem with targeted economic development incentives. Making deals takes a lot of time and effort. Three top officials attended the commission meeting, and they will likely attend the Wichita city council meeting where the incentive is presented. Much time of county staff was required.

Our economic development agencies and local governments do not have the capacity to strike enough deals to account for significant job growth. A better strategy is to create an environment where business firms can form and expand organically, without requiring or depending on government assistance.

Is the incentive necessary?
The quotation from a newspaper article seven months old that described Figeac’s commitment to grow in Wichita raises suspicions of what is commonly alleged: That companies make location and expansion plans for business reasons. Then, some may seek incentives, even though the decision has already been made. Local economic development officials are eager to accommodate the request for incentives, as they need to justify their existence and notch a few sure wins. Most politicians, of course, are more than willing to take credit for creating jobs.

Are there other incentives?
The Sedgwick County commissioners had to make a judgment on the wisdom of incentives without knowledge of all the incentives the company may receive. The City of Wichita had not acted on a similar loan request and property tax abatements. The State of Kansas would not disclose what incentives it had offered to Figeac.

We don’t know, but a program that Figeac may qualify for is PEAK, or Promoting Employment Across Kansas. This program allows companies to retain 95 percent of the payroll withholding tax of employees. This can be a substantial sum. Tables available at the Kansas Department of Revenue indicate that for a single person with no exemptions earning $40,000 annually, the withholding would be $27 per week, or $1,404 annually. For a married person with two children, withholding would be $676 annually. Under PEAK, the company retains 95 percent of these values.

(Since unmarried workers have higher withholding rates than married workers, and those with fewer exemptions have more withheld than those with many, does this provide incentives for companies in the PEAK program to adjust their hiring preferences?)

Who benefits?
As is common, incentives are justified by a benefit-cost analysis that purports to show that more comes in to government coffers than goes out due to the incentive. But the “benefits” that go into this calculation are quite different from the profits that business firms attempt to earn.

Here’s a question: In his presentation, the county’s chief financial officer said the benefit to the county over ten years is $317,834. What will the county do with that money? Will it reduce taxes by that amount? That is what would benefit the taxpayers that paid to provide the incentive. But that doesn’t happen. Instead, the benefit is spent.

The entire process assumes that these benefit-cost ratios are valid. This is far from certain, as follows:

1. The benefits in the calculation are not really benefits. Instead, they’re in the form of projected higher tax revenues collected by governments. This is very different from the profits that private sector companies earn from their customers in voluntary market transactions.

2. Government claims that in order to get these “benefits,” incentives are necessary. But often the new economic activity (relocation, expansion, etc.) would have happened without the incentives.

3. Even if government collects more tax by offering incentives, it should not be the goal of government to grow just for the sake of growing.

4. Why is it that many companies are able to grow without incentives, but only a few companies require incentives? What is special about these companies? Why do some companies receive incentives year after year?

Diversification
wichita-detroit-job-industry-concentrationWe’ve been told for many years that Wichita needs to diversify its economy. The Wichita economy is highly dependent on one industry — aircraft manufacturing — and Figeac is in the aircraft industry. When citizens have told the Wichita City Council that offering incentives to aircraft companies serves to make it more difficult to diversify, the president and chair of the Wichita Metro Chamber of Commerce complained in an op-ed: “Would the anti-business voices’ diversification strategy be to send aviation jobs to other cities and states, thereby crippling our economy? Where’s the logic in that?” This says a great deal about the problems with economic development in Wichita, namely that our leaders see no difference between business and capitalism, and that the need for diversification is merely a slogan that is not followed to in any meaningful way.

The nature of the game
The explanation by Chase spotlights some of the difficulties in economic development. The negotiations are not complete, but government approval is needed. More broadly, economic development officials are not negotiating the use of their own capital or capital that has been entrusted to them. They’re spending someone else’s money, for which there is little incentive to bargain wisely.

Commissioners were told that Figeac is a successful company. Why, then, does it need incentives?

Sedgwick County meeting video, not for everyone

Trying to view video of Sedgwick County Commission meetings could be frustrating for many citizens.

Sedgwick County video 2014-12-27Viewing video of meetings of the Sedgwick County Commission could be difficult unless you use a specific web browser. Viewing the video — either live or of past meetings — requires Windows Media Player. The problem is that support for this is not built in to some web browsers. Following are results from trying to view meeting video using the three most popular browsers using a Windows PC:

Google Chrome: “Microsoft® Windows Media Player™ is required to view this video.” Clicking on the Download and Install now” button takes you to a generic page at Microsoft that doesn’t seem to be of immediate help.

Firefox: Same message as Chrome.

Internet Explorer: It worked.

Using an IPhone, the video could not be viewed using either the Safari or Chrome browsers.

It is not possible to download the video to a computer for viewing.

There are a number of ways to measure the market share for different browsers, and results vary upon methodology used. But Internet Explorer is on a downward trajectory and is not used by anywhere near a majority of internet users, especially when mobile use is counted. At Voice for Liberty, Internet Explorer is used by about 19 percent of visitors.

When should Wichita compare itself to peers?

In a Wichita Eagle article about the Intrust Bank Arena in downtown Wichita, we see Wichita public relations consultant Vera Bothner complain that Wichita is being unfairly compared to other cities in our region, in particular Oklahoma City, Tulsa, and Kansas City. Wichita is smaller than these cities, she says, and we should not hold Wichita to a standard that it can’t meet.

But in public life, we find Wichita frequently compared to these cities. These three cities are part of the four metropolitan areas that Visioneering Wichita choose as peers. (The other is Omaha.)

Intrust Bank Arena commemorative monument
Intrust Bank Arena commemorative monument
During the recent sales tax campaign, pro-tax advocates often mentioned Oklahoma City and Tulsa as cities that Wichita should emulate.

So it may be confusing for Wichita voters to determine when a comparison of Wichita to Oklahoma City and Tulsa is valid, and when it is not.

There is a trend, however. For the Wichita business establishment, represented by the Wichita Metro Chamber of Commerce (Bothner is a member of its executive committee), the trend is for more taxes and more government spending. Whenever a comparison can be made that results in the conclusion that there’s not enough taxation and government spending in Wichita, it’s likely the Wichita Metro Chamber of Commerce will do that.

(By the way, if people are worried about running government like a business, a good place to start this discipline would be Intrust Bank Arena, with treating its finances like an actual business. Proper attention given to the depreciation expense of Intrust Bank Arena in downtown Wichita would recognize and account for the sacrifices of the people of Sedgwick County and its visitors to pay for the arena. But that doesn’t happen. See Intrust Bank Arena: Not accounted for like a business.)

Here’s an excerpt from After 5 years, Intrust Bank Arena still battles image problem.

Comparing Intrust Bank Arena to Tulsa’s BOK center is a mistake, although a common one, said Vera Bothner, whom SMG hired as a local consultant. Comparing it to Kansas City’s Sprint Center or Oklahoma City’s Chesapeake Energy Arena are even bigger mistakes. But many fans do that, she found.

Tulsa’s population base, for one, is Wichita’s and a half. Wichita has about 637,000 people in its metro area. Tulsa has 960,000. Tulsa’s arena is bigger, too, with 4,000 more seats.

Oklahoma City and Kansas City are even further out of Wichita’s league. Kansas City’s population is 2.05 million, and its Sprint Center seats 19,500. Oklahoma City has 1.32 million people, and its arena holds 18,200.

In reality, Bothner said, Wichita is more comparable to Little Rock, Ark., which has a population of 725,000 and an 18,000-seat arena; Des Moines, with 600,000 people and a 17,000-seat arena; and Bossier City, La., and its 14,000-seat CenturyLink Center.

“The economics of this particular marketplace have just been hard for people to understand, I think, because geographically we compare ourselves to these other cities, and we do that a lot,” Bothner said. “But just because arenas are in our geographic region does not mean that the demographics and the size of the city are similar enough to make a good comparison.”

WichitaLiberty.TV: Election results, Kansas school employment and spending, and government planning of the economy

In this episode of WichitaLiberty.TV: In Sedgwick County, an unlikely hero emerges after the November election. Then, what is the trend in Kansas school employment and spending, and what do voters think has happened? Finally, do you know how to make a simple lead pencil? View below, or click here to view at YouTube. Episode 66, broadcast November 23, 2014.

Richard Ranzau, slayer of cronyism

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

Now that the result of the 2014 general election is official, Richard Ranzau has notched four consecutive election victories over candidates endorsed by the Wichita Eagle and often by the Wichita Metro Chamber of Commerce. It’s interesting and useful to look back at what the Wichita Eagle wrote during each campaign as it endorsed Ranzau’s opponent.

In its endorsements for the 2010 Republican Party primary, the Eagle editorial board wrote:

In a district reaching from downtown Wichita north to include Maize, Valley Center and Park City, Republican voters would do well to replace retiring Commissioner Kelly Parks with the commissioner he unseated in 2006, Lucy Burtnett. Her business experience and vast community involvement, as well as her understanding of the issues and thoughtful voting record during her two years on the commission, make her the pick in this primary. She would like to see a new life for the Kansas Coliseum site, perhaps including a year-round RV park, and favors the county’s continued role in Fair Fares and the National Center for Aviation Training.

The other candidate is Richard Ranzau , a physician assistant retired from the Army Reserves who believes government is out of control, who would submit all tax increases to voters, and who opposes the county’s investments in air service and aviation training.

The Wichita Metro Chamber of Commerce political action committee contributed to Burtnett.

In this election, Ranzau received 55 percent of the vote.

Then for the general election in November 2010, the Eagle editorial board wrote this:

State Sen. Oletha Faust-Goudeau, D-Wichita, is by far the better choice in the race to replace Republican Kelly Parks, who is stepping down after one term representing the county’s north-central district. Her legislative experience, civic engagement and constituent service have prepared her for a seat on the county commission, where she wants to help attract businesses and jobs and would support efforts such as the new National Center for Aviation Training. “That’s a must,” she said. It’s a concern that Faust-Goudeau has been slow to address code violations at a house she owns, but the fact that neighbors have stepped up to help says a lot about her as a person and public servant. The first African-American woman elected to the Kansas Senate, Faust-Goudeau would make a hardworking and effective county commissioner.

Republican Richard Ranzau, a physician assistant retired from the Army Reserves, holds inflexible anti-tax, free-market views that would be disastrous for the county’s crucial efforts to support economic development and invest in affordable air service and aviation training.

In this election, Ranzau again earned 55 percent of the vote.

In the August 2014 Republican Party primary, the Eagle editorial board wrote:

Carolyn McGinn is the clear choice to represent this district that includes part of north Wichita as well as Maize, Park City and Valley Center. McGinn served on the commission from 1998 through 2004. Since then, she has served in the Kansas Senate, including as past chairwoman of the Senate Ways and Means Committee. As a result, McGinn knows state and local issues well and understands how they intersect. She is concerned about the region’s stagnant economic growth. In order to get businesses to come and grow here, the county needs a stable government structure that provides essential services, she argues. McGinn is a productive problem solver who could have an immediate positive impact on the commission.

Her opponent is incumbent Richard Ranzau, who is completing his first term. He has been a fierce advocate for the Judge Riddel Boys Ranch and for fiscal responsibility. But he also frequently badgers county staff and delivers monologues about federal government problems. He argued that a planning grant was an attempt by President Obama “to circumvent the will of Congress, the states and the people.”

The Wichita Metro Chamber of Commerce also endorsed McGinn.

In this election, Ranzau received 54 percent of the vote.

For the 2014 general election, here’s what the Eagle editorial board had to say:

Democrat Melody McCray-Miller is the clear choice to represent District 4, which includes north Wichita, Maize, Park City and Valley Center. A former county commissioner and four-term state representative and a business owner, McCray-Miller understands government at both the state and local levels and how it affects communities, families and businesses. Her priorities include economic development and community livability and engagement. “I would like to put the public back in public policy,” she said, accusing her opponent of representing his ideological views and not the full district. McCray-Miller believes in a balanced, collaborative approach to dealing with issues and people, focusing on “what’s best for the county.” She also would not turn down federal funds, as her opponent has voted to do, and supports using economic incentives to attract and retain businesses.

Republican incumbent Richard Ranzau is completing his first term, which has not been productive. Though he has done some good work watchdogging county spending, Ranzau frequently badgers county staff and other presenters at commission meetings. He also has used his position as an ideological platform to rant about the federal government, including by claiming that a federal planning grant was an attempt by President Obama “to circumvent the will of Congress, the states and the people.” McCray-Miller would be a better, more-constructive commissioner.

The Wichita Metro Chamber of Commerce also endorsed McCray-Miller.

This election was closer, with Ranzau gathering 51 percent of the vote to McCray-Miller’s 49 percent.

As a private entity, the Wichita Eagle is free to print whatever it wants. So too is the Wichita Metro Chamber of Commerce free to contribute to and endorse anyone.

But these two institutions appear to be out of touch with voters.

Do you sense a pattern? Ranzau’s opponents are thoughtful, would make hardworking and effective county commissioners, are productive problem solvers, understand government at both the state and local levels, and have a balanced, collaborative approach to dealing with issues and people.

Ranzau, according to the Eagle, believes government is out of control and holds inflexible anti-tax, free-market views. He frequently badgers county staff. (Believe me, they deserve scrutiny, which the Eagle calls “badgering.”) Oh, and he’s ideological, too. That simply means he has “a system of ideas and ideals, especially one that forms the basis of economic or political theory and policy.” As long as those ideals are oriented in favor of capitalism, economic freedom, and personal liberty, this is good. And that’s the way it is with Richard Ranzau. Would that the Wichita Eagle shared the same ideology.

I know what it is like to be on the losing side of issues year after year. Advocating for free markets and capitalism against the likes of the Wichita Eagle, the Wichita Metro Chamber of Commerce, most members of the Sedgwick County Commission, and all current members of the Wichita city council is a lonely job.

This makes it all the more remarkable that Richard Ranzau has won four consecutive elections running against not only his opponent, but also against the city’s entrenched establishment. Running against the crony establishment, that is, the establishment that campaigns against capitalism in favor of a “business-friendly” environment. The establishment that has presided over decades of sub-standard economic performance. The establishment that insisted on a sales tax that it hoped would gloss over the miserable results produced over the last two decades.

Thank goodness that defenders of capitalism are able to win an election now and then — or four in a row.

Sedgwick County Commission precinct map, November 4, 2014

Here’s a map I created of the vote percentage received by Republican candidates by precinct in the two Sedgwick County Commission districts that were contested. In district 4 (the northern district) the Republican Candidate was Richard Ranzau, with Melody McRae-Miller the Democratic Candidate. In district 5 (the southern district) the Republican and Democrat were Jim Howell and Richard Young, respectively.

To use an interactive version of this map, click here. On the interactive map you may zoom and scroll, and you may click on a precinct for more information about the votes for that precinct.

Precinct Map, Sedgwick County Commission 4 and 5 2014-11-04

Should Wichita expand a water system that is still in commissioning stage?

In this script from the next episode of WichitaLiberty.TV, I report my concerns about rushing a decision to expand a water production system that has not yet proven itself.

Wichita plans and background sales tax coverFor the proposed Wichita sales tax, the largest share will go towards a new water supply. 63 percent of the tax revenue — that’s $250 million over five years — will go towards what the city has decided will satisfy our water needs. This is expansion of the Aquifer Storage and Recovery program, or ASR.

People have told me that I should take a look at the production of the ASR system. Many people have told me that. So I took a look. Now, I realize that I am not a geologist. I am not a civil engineer with experience in public utilities like water systems. But what I found is more than a little alarming.

As a result of my research, I’m concerned that we don’t have a track record of success for the ASR program, but we’re thinking about putting all our eggs in that basket. Here is some history. ASR is a system north of Wichita. It draws water from the Little Arkansas River, treats it, and injects it into the Equus Beds aquifer. That’s the recharge process. That water is then available for use in the future. (Wichita already gets 40 percent of its water from the Equus beds.) There was ASR Phase 1, and now there is Phase 2. Cost so far is $247 million.

In April, Wichita Public Works Director Alan King told the city council that based on experience, we now believe we will get half the production from ASR as we originally thought. By production, we mean the amount of water that is treated and injected into the aquifer. So I did the research and I found that the ASR program has not come close to meeting this goal. This is the goal that was cut in half from the original goal.

I understand that ASR phase 2 came online during a drought. I understand that there was a learning curve. But since July 2013 — remember that’s when it started raining so much it flooded — ASR has not been performing anywhere near expectations.

Gallons of Water Recharged Through Recharge Basins and Wells during Wichita ASR phase 2, cumulative from July 2013. Click for larger version.
Gallons of Water Recharged Through Recharge Basins and Wells during Wichita ASR phase 2, cumulative from July 2013. Click for larger version.
In this chart, I start the horizontal axis with July 2013. The red line on top is what production was originally planned to be. Production will not necessarily be smooth, as production happens only on days when there is sufficient water in the river. But over time, this should be the trend.

The blue line is the expectations for production after being revised downwards.

In purple is actual production. Considering the 12 month stretch starting with July 2013, ASR produced 431 million gallons of recharged water. That is 23 percent of expectations, even after expectations were cut in half.

When I presented this information to the Wichita City Council this week, Alan King, the public works director, said “The information Mr. Weeks presented is accurate.” But he said my conclusions are not correct.

King told the council that during the timeframe of this chart, we weren’t looking to run the ASR system at maximum production levels. We were operating the facility in the most efficient manner possible. We were testing the individual components. We are still in a commissioning phase.

So based on this — we are still in a commissioning phase, we have not been running at maximum production levels — I believe we do not have enough experience to conclude that ASR is working. Couldn’t we wait until the ASR project is working at even half its design goal before making a decision to proceed with its expansion? This is too big a decision to make based on the scant evidence we have. Especially when we are asking low income and fixed income households to pay more sales tax on groceries to fund this project. Especially when Cheney Reservoir is full and there is no immediate crisis.

Additional cost of proposed Wichita sales tax as percent of after-tax income, by income quintile. Click for larger version.
Additional cost of proposed Wichita sales tax as percent of after-tax income, by income quintile. Click for larger version.
I did research on how an increase in sales tax affects households of different levels of income. Later the Wichita Eagle produced similar results. I showed that as a percentage of after-tax income, the proposed sales tax increase is four times as costly for low-income households as it is for high-income households. Remember, regarding a new water supply, we’re not worried about running out of drinking water, or even running out of water for industry and commercial users. We’re talking about restricting the watering of golf courses and lawns during an extended drought. We’re talking about not washing cars during a drought. Stripped to its essence, the city is asking low-income households to pay more sales tax on food so that lawns in wealthy neighborhoods may remain green at reasonable cost during a drought.

Here’s something else that troubles me regarding the water portion of the proposed sales tax. In the city’s informational material — the material that is meant to educate us on the issues — it’s said that if the sales tax does not pass, the city will use long-term debt to pay for ASR expansion, and that will cost an extra $221 million in interest expense. That course of action — using debt to pay for ASR expansion — is presented as a bad choice.

I want to remind you that the city borrowed over $200 million in long-term debt to pay for the present ASR system. That’s almost as much as the cost of the proposed ASR expansion.

City of Wichita information on proposed sales tax
City of Wichita information on proposed sales tax
Let me emphasize that. The city’s informational material says if voters don’t pass the sales tax, the city will do something unwise. But the city did that very same bad thing to pay for the current ASR project, that is, borrow money and pay interest. But now the city says pass the sales tax or we will do something bad to you. Pass the sales tax or the city will issue long-term debt and you will pay a lot of interest. Pass the sales tax, or we will do again what we did to pay for the current ASR project. And that would be bad for you and the city.

These are the choices the city gives voters. But others alternatives are available. If the city is concerned about the cost of debt financing, why not raise the money for ASR through a period of higher water bills for five years? This has the obvious benefit of having the people who actually use water pay for it. The cost of ASR expansion could be a separate line item on water bills so that we are acutely aware of how much this system costs. It’s important that we be aware of these costs. When paid through a sales tax, it’s difficult to track the money and know the total cost of the system to you. That’s something the city and the “Yes Wichita” group counts on. In fact, they say the sales tax is just one cent. Just one penny for every dollar you spend. You won’t even notice its impact.

Paying for a new water supply through water bills would let commercial and industrial users participate in paying the cost of the project. These water users generally don’t pay a lot of sales tax. A restaurant, for example, does not pay sales tax on the food ingredients it purchases. An aircraft manufacturer does not pay sales tax on the raw materials and component parts it buys. But these companies do have a water bill. Yet, the city recommends that low income households pay more sales tax on their groceries. The city says this is the best way to pay for a new water supply to protect our lawns and golf courses during a drought.

Here’s a thought. Sedgwick County Government is in a beneficial position regarding the water supply issue. The city is too wrapped up, too invested in advancing the ASR project. There are some big egos and political careers involved. There is an engineering firm that sees a big contract in its future.

Since county government is not in the business of providing water, it does not have these distractions and distortions. I think this places the county in the position of a referee, as an unbiased observer. The county is a governmental body that sincerely wants a secure water future for its largest city and for many of the smaller cities and residents that get their water from the Wichita system. Remember, many cities like Derby rely on the Wichita water system for their water. Collecting funds through water bills lets these customers help pay for the cost of a new water supply.

If city voters decide against the sales tax, which I hope is the outcome of the election, then the county commission could take the lead. It could commission a study of water issues. Since the county is not in the business of providing water, the study could be free of the biases and ambitions that infect whatever Wichita does. It could be conducted by an engineering firm that is not advocating for its own interests, as I fear is happening with Wichita.

I realize this would cost money and take time. But the city is on the verge of rushing into what I fear will be a costly mistake. Remember, Cheney Lake is full. There is no immediate water crisis. We do not have to rush to make a decision about expanding a system that has not yet entered full production, a system that is still in the commissioning stage. Wichita voters should not accept the false choices our city government is giving us.

For Wichita, another economic development plan

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

This week the Wichita City Council will consider funding “the formulation of a new economic development strategy.” Here’s a summary provided by the city:

Wichita State University approached STARNet about developing a proposal to assist WSU, the Wichita Metro Chamber of Commerce and the community with the formulation of a new economic development strategy. Over a period of almost ten months STARNet will manage a four phase process that will lead to an integrated economic development strategy that will prioritize how and where to deploy resources. The process will include a comprehensive review of the region’s assets and issues, development of a common vision, identification of priorties [sic] and egagement [sic] of stakeholders committed to strategy implementation.

Starnet proposal to Wichita City CouncilIt sounds from this as though the city has not been engaging in economic development and strategizing. This reminds me of the $658 million in tax abatements Boeing received over several decades. Wasn’t that economic development? The answer from pro-sales tax forces was no, that wasn’t paid in cash. Also, even though Boeing has left Wichita, the facilities still generate $6 million in property taxes. So, it really worked after all, they say.

(The tax abatements Boeing received were more valuable to the company than equivalent grants of cash. See What Boeing received from Wichita was better than cash.)

Here’s something else from the proposal summary: “Project Objective: Support formulation of a Wichita Economic Development Strategy that integrates existing initiatives (e.g. GWEDC and WSU); is supported by the majority of regional stakeholders and can be used to guide policy discussions for use of new City/County revenues for job formation.” (emphasis added)

I thought we already had a plan for the sales tax revenue, according to the city and the “Yes Wichita” group. Now we are told we need to start an expensive and lengthy planning process?

What about the cost and funding? “The total estimated cost of the project is $234,929. Funding partners include WSU, Wichita Metro Chamber of Commerce, Greater Wichita Economic Development Coalition, Wichita Downtown Development Corporation, the City of Wichita and Sedgwick County. The City of Wichita is being asked to contribute an amount not to exceed $42,986. The funding partners will have an agreement with WSU who, in turn, will hold the contract with STARNet.”

Here is the first thing that will be done, according to the proposal: “Secure Co-chairs to Lead Initiative: This regional initiative begins with the designation of at least two or more high level, objective, economic leaders agreeing to co–chair the on–going initiative. The co-chairs are often effective when chosen from an existing regional development group.”

Wichita Chamber Leadership CouncilThis is written as through Wichita has been doing nothing in this regard. I wonder what the leaders of the Wichita Metro Chamber Leadership Council thinks of this? Here’s what the Chamber says about this council:

The Leadership Council is a think tank comprised of 100 top business, non-profit and public-sector CEO’s for the purpose of discussing and pursuing resolutions of major issues or projects to make the Wichita area competitive for job creation, talent attraction, capital investment and therefore long-term economic prosperity. Created by the Wichita Metro Chamber of Commerce, the Council is co-chaired by Charlie Chandler (Intrust Bank Chairman and CEO) and Jeff Turner (retired CEO of Spirit AeroSystems). The Council was formed in 2012 and held its first meeting in September of the same year.

So we’ve had two prominent Wichita business leaders shepherding an initiative for two years. Is this effort now discarded?

Here’s something to watch for. Proposals like this contain buzzwords — something new and exciting, something that leaders can use to show they’re on the cutting edge. So note this language in the proposal:

Moreover, economies don’t stop at municipal or county boundaries; they go where their residents drive to work—the “comutershed”. (Misused punctuation in the original.)

I wonder when city leaders start using this neologism — comutershed — if they will correct the spelling of one of its base words.

I urge taking a look at the proposal. The agenda packet is here: Wichita City Council, October 14, 2014.

WichitaLiberty.TV: Wichita’s blatant waste, Transforming Wichita, and how you can help

In this episode of WichitaLiberty.TV: Let’s ask that Wichita trim its blatant waste of tax dollars before asking for more. We’ll look back at a program called Transforming Wichita. Then: We need to hold campaigns accountable. I’ll give you examples why, and tell how you can help. View below, or click here to view at YouTube. Episode 57, broadcast September 7, 2014.

Wichita arena sales tax not a model of success

Supporters of a new sales tax in Wichita use the Intrust Bank Arena as an example of successful application of a sales tax.

As Wichita debates the desirability of a sales tax, a former sales tax is used as a model of success. Let’s take a look at a few of the issues.

Ongoing vs. capital expenses

A portion of the proposed sales tax will be used for operational expenses, and the demand for this spending will not end when the sales tax ends.

The sales tax for the Intrust Bank Arena was used to build a capital asset and establish a small reserve fund. Spending on capital assets is characterized by a large expense in a short period of time as the asset is constructed. Then, the spending is over — sort of.

For the proposed Wichita sales tax, 63 percent is scheduled for capital asset spending on an enhanced water supply. The remainder, 37 percent, is for operation of the bus transit system, street repair, and economic development. These three items are operational in nature, meaning they are ongoing expenses. It’s not likely that after five years the bus system will be self-sustaining, or that streets will no longer need repair, or that there will be no more clamoring for economic development.

There is a large difference, then, between the arena sales tax and the proposed Wichita sales tax. While sales tax boosters say the tax will end in five years, the likelihood is that because much of it will have been paying for operational expenses, there will be great pressure to continue the tax and the spending it supports. That’s because the appetite for tax revenue by government and its cronies is insatiable. An example: As the arena sales 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)

Intrust Bank Arena economics

Having promoted a false and incomplete picture of the economics of the Intrust Bank Arena, civic leaders now use it as a model of success.

The building of a new arena in downtown Wichita was promoted as an economic driver. So far, that hasn’t happened. There have been spurts of development near the arena. But the arena is also surrounded by empty lots and empty retail space, and there have been months where no events took place at the arena.

Regarding the accounting of the profits earned by the arena, we need to realize that civic leaders are not telling citizens the entire truth. If proper attention was given to the depreciation expense of Intrust Bank Arena, that would recognize and account for the sacrifices of the people of Sedgwick County and its visitors to pay for the arena. This would be a business-like way of managing government — something we’re promised. But that hasn’t happened.

Civic leaders and 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 it hides the true economics of the arena. An example of the incomplete editorializing comes from Rhonda Holman of the Wichita Eagle, who earlier this year wrote “Though great news for taxpayers, that oversize check for $255,678 presented to Sedgwick County last week reflected Intrust Bank Arena’s past, specifically the county’s share of 2013 profits.”

There are at least two ways of looking at the finances 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 2103, the accounting method used in this agreement produced a profit of $705,678, to be split (not equally) between SMG and the county. The county’s share, as Holman touted, was $255,678. (Presumably that’s after deducting the cost of producing an oversize check for television cameras.)

The Operations of Intrust Bank ArenaWhile 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 2013 Comprehensive Annual Financial Report for Sedgwick County. The CAFR, as described by the county, “… is a review of what occurred financially at Sedgwick County in 2013. In that respect, it is a report card of our ability to manage our financial resources.” Regarding the arena, the CAFR states:

The Arena Fund represents the activity of the INTRUST Bank Arena that opened on January 9, 2010. The facility is operated by a private company; the county incurs expenses only for certain capital improvements or major repairs and depreciation, and receives as revenue only a share of profits earned by the operator, if any. The Arena had an operating loss of $4.7 million. The loss can be attributed to $5.3 million in depreciation expense.

Financial statements in the same document show that $5,295,414 was charged for depreciation in 2013, bringing accumulated depreciation to a total of $21,190,280.

Depreciation expense is not something that is paid out in cash. Sedgwick County didn’t write a check for $5,295,414 in depreciation expense. Instead, depreciation accounting provides a way to recognize 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.

Any honest reckoning of the economic performance of Intrust Bank Arena must include depreciation expense. We see our governmental and civic leaders telling us that we must “run government like a business.” Without frank and realistic discussion of numbers like these and the economic facts they represent, we make decisions based on incomplete and false information.

Effect on sales and jobs

Taxes have an impact. Definitely.

Boosters of the proposed Wichita sales tax say that since it is so small — “just one cent,” they say — its effect won’t be noticed. I wonder: If increasing prices by one percent has no effect, why don’t merchants raise their prices by one percent right now and pocket the profit?

Taxes have an impact. The problem with assessing the impact is that the results of the tax are usually concentrated and easy to see — a new arena, water supply, repaved streets, more buses, etc. But the consequences of the tax are usually spread out over a large number of people and collected in small amounts. The costs are dispersed, and therefore more difficult to detect. But there has been an analysis performed of a situation parallel to the Intrust bank Arena tax.

A paper titled “An Assessment of the Economic Impact of a Multipurpose Arena” by Ronald John Hy and R. Lawson Veasey, both of the University of Central Arkansas, (Public Administration & Management: An Interactive Journal 5, 2, 2000, pp. 86-98) looked at the effect of jobs and economic activity during the construction of the Alltel Arena in Pulaski County, Arkansas. This arena cost $50 million. It was funded in part by a one percent increase in the county sales tax for one year (1998). The sales tax generated $20 million.

In the net, considering both jobs lost and jobs gained due to sales tax and construction effects, workers in the wholesale and retail trades lost 60 jobs, and service workers lost 52 jobs. There was a net increase of 198 jobs in construction.

The fact that jobs were lost in retail should not be a surprise. When a sales tax makes nearly everything sold at retail more expensive, less is demanded. It may be difficult to estimate the magnitude of the change in demand, but it is certain that it does change.

The population of Pulaski County in 2000 was 361,474, while Sedgwick County’s population at the same time was 452,869, so Sedgwick County is somewhat larger. The sales tax for the arena lasted 2.5 times as long, and our arena was about three times as expensive. How these factors affected the number of jobs is unknown, but it’s likely that the number of jobs lost in Sedgwick County in retail and services was larger that what Pulaski County experienced.

Accounting for government like business

In this excerpt from WichitaLiberty.TV: Government leaders tell us they want to run government like a business. But does government actually do this, even when accounting for its money? View below, or click here to view at YouTube.

For more on this issue, see Accounting for government like business.

WichitaLiberty.TV: Primary election results, and a look forward

In this episode of WichitaLiberty.TV: We’ll take a look at some of the primary elections results this week. What did voters say, and what should we look for in the November general election and the future past that? View below, or click here to view at YouTube. Episode 54, broadcast August 10, 2014.

Sedgwick County elections: Commissioners

In Sedgwick County, two fiscally conservative commission candidates prevailed.

This year three of the five positions on the Sedgwick County Board of Commissioners are up for election. Unlike the Wichita city Council, Sedgwick County commissioners run as members of a party, and compete in both primary and general elections. There can be independent and third-party candidates too. This year for one of the Sedgwick County commission districts the incumbent Republican ran unopposed. But in two other districts, there were spirited contests.

Sedgwick County Commission, district 4In district four, which covers north-central and northwest Wichita, Maize, Valley Center, and Park City, incumbent Richard Ranzau was challenged by Carolyn McGinn. She had held this position in the past, and then served in the Kansas Senate, an office she still holds. Ranzau is well known — notorious, we might say — for his tough line on spending taxpayer dollars. The McGinn campaign had about twice as much money to spend. A lot of that came from the people we know as Wichita’s crony capitalists, that is, people and companies who actively seek handouts from government. The Wichita Metro Chamber of Commerce endorsed McGinn. Now, you may think of your local chamber of commerce as pro-business. And, the chamber is pro-business, no doubt about it. But pro-business is not the same as pro-capitalism. Being pro-business is not the same as being in favor of economic freedom. Being pro-business is not the same as supporting a limited, constitutional, government that protects our freedoms and property rights.

I want to stress this point. Just this week Wichita’s own Charles Koch wrote an op-ed for USA Today. After expressing concern for the weak economy and its effect on workers, he offered a plan forward. He wrote “First, we need to encourage principled entrepreneurship. Companies should earn profits by creating value for customers and acting with integrity, the opposite of today’s rampant cronyism.”

Concluding his article, Koch wrote: “Our government’s decades-long, top-down approach to job creation has failed. Its policies have made our problems worse, leaving tens of millions chronically un- or underemployed, millions of whom have given up ever finding meaningful work. In doing so, our government has not only thwarted real job creation, it also has reduced the supply and quality of goods and services that make people’s lives better and undermined the culture required to sustain a free society. When it comes to creating opportunities for all, we can do much better. It’s time to let people seek opportunities that best suit their talents, for businesses to forsake cronyism, and for government to get out of the way.”

While Charles Koch was writing primarily about the United States government, the same principles apply to local government. And Wichita’s cronies — those who seek profits through politicians and bureaucrats rather than customers — they lined up behind Carolyn McGinn in a big way. By using their generous funding, she ran a negative campaign against Richard Ranzau. He forcefully and truthfully responded to her negative ads, and I’m pleased to say that I helped in that effort.

What was the result of the election? Ranzau won with 54 percent of the vote. He now moves on to face Democrat Melody McRae-Miller in the November general election. She held this county commission seat before McGinn, and she also served in the Kansas legislature, in the House of Representatives.

Sedgwick County Commission, district 5There was also a contest in district 5, which is Derby and parts of southeast Wichita. The one-term incumbent Jim Skelton declined to run for re-election. The two Republican candidates were Jim Howell and Dion Avello. Howell has represented parts of Derby in the Kansas House of Representatives for four years. Avello has been mayor of Derby for many years. The Wichita Chamber endorsed Howell in this race. Campaign funds were close in this race, with Howell having a small edge. The result of the election was Howell winning with 63 percent of the vote. He moves on to face the Democrat in the general election, former Rose Hill Mayor Richard Young.

22-CommissionWhat do the results of these elections mean? First, there may be a shift of power on the Sedgwick County commission. Currently, commissioners Ranzau and Karl Peterjohn are often in a minority of two against the other three commissioners. It’s thought that it Howell is elected, he would often join Ranzau and Peterjohn to form a working majority of three. That could cause a change in policy at the County commission, and that’s something that the Wichita chamber and Wichita’s cronies don’t want. It will be interesting to see who the chamber and the cronies support in the general election, Ranzau or the Democrat. In 2008, when Peterjohn ran for his first term, the Wichita chamber campaigned against him, making it their most important priority in that election.

For this shift to materialize, both Ranzau and Howell must win their November elections.

Wichita Chamber of Commerce 2013-07-09 004Ranzau’s victory is a defeat for the Wichita Chamber of Commerce. Besides endorsing McGinn, it made independent expenditures in her favor. This has broader implications than just one county commission district. This week the Wichita City Council voted in favor of placing a sales tax issue on the November ballot. The Wichita Chamber is strongly behind the sales tax in Wichita, and I would expect to see the chamber devote a lot of resources campaigning for its passage. Richard Ranzau is opposed to the sales tax increase. While his county commission district encompasses a lot of territory that is outside the City of Wichita, and it is only Wichita voters who will decide the sales tax issue, I think we can safely conclude that his victory paints a gloomy forecast for approval of a sales tax.

Looking even farther to the future. Ranzau’s county commission district overlaps part of Wichita city council district 5. That is currently represented by Jeff Longwell. He can’t run again because of term limits. Longwell is firmly in the grasp of Wichita’s cronies. Could Ranzau’s victory pave the way for a fiscally conservative city council candidate in district 5? That election will be next spring.

Also next spring Wichita will elect a new mayor. There are many names mentioned as candidates, including Longwell. What do the victories of Ranzau and Howell mean? What impact will the sales tax campaign and election result have on the spring elections?

24-Carolyn McGinn Key Construction 2014-07-02 01bThe Wichita Chamber and the Wichita cronies campaigned hard for Carolyn McGinn against Richard Ranzau. Well, I should clarify: They spent a lot of money on the campaign. Richard himself, his family, and his volunteers worked hard. The desire for economic freedom by Richard Ranzau and his volunteers was a more powerful force than the greed of the Wichita Chamber of Commerce, Key Construction, David Burk, and Bill Warren.

Keep this in mind. The Sedgwick County Commission has very little power to initiate the type of economic development incentives that the Wichita Chamber and the cronies want. That power rests almost totally at the Wichita City Council and the Kansas Department of Commerce. Also, the county commission has limited power to stop or object to incentives. Their main voice is the ability to cancel the formation of a tax increment financing district.

So if the Wichita Chamber and the cronies are willing to intervene to such extent in the campaign for county commissioner, think what they will be willing to do in city council or mayoral contests, if they see that their grip on the really big cookie jar might be in doubt. Since the departure of Michael O’Donnell for the Kansas Senate there has been no one on the Wichita city council who questions anything the Chamber and the cronies want. Not in any serious manner, that is. We see council members making false displays of pretense now and then, but that’s all they do.

For McGinn, a liberal voting record is a tradition

Based on votes made in the Kansas Senate, the advertising claims of Sedgwick County Commission candidate Carolyn McGinn don’t match her record.

Kansas CapitolIn a radio advertisement, Carolyn McGinn says she is conservative. In a mailer, she touts her “fiscal conservative leadership” in the Kansas Senate.

But voting records don’t match these claims.

Several voting scorecards in recent years show Senator McGinn ranking low in terms of voting for economic freedom issues. These issues generally concern taxation, wasteful spending, and unnecessary regulation. In recent years, a freedom index has been produced by Kansas Policy Institute. In 2012 the Kansas Economic Freedom Index was a joint product of Americans for Prosperity-Kansas, Kansas Policy Institute, and myself. In 2010 I produced an index by myself. All tabulations show McGinn rarely voting in favor of economic freedom.

In the 2014 formulation, McGinn scored 25.8 percent. Four senators (Kansas has 40 senators) had lower scores. Some Wichita-area legislators that had higher scores than McGinn include Senator Oletha Faust-Goudeau and Representatives Ponka-We Victors, Gail Finney, Jim Ward, Tom Sawyer, and Brandon Whipple. All these are Democrats, by the way, and they voted more in favor of economic freedom than did Carolyn McGinn.

In 2013, McGinn scored 40 percent. Eight senators had lower scores.

In 2012 the scores were calculated in a different manner. McGinn scored -6, with 16 senators scoring lower.

There was no index for 2011.

In 2010, on an index that I produced, McGinn scored seven percent. Three other senators had the same score, and one had a lower score.

At a recent forum, McGinn criticized the concept of a vote index, telling the audience: “The economic freedom index, I just find that interesting. Because it’s based on amendments after we’re out of session, so you can pick and choose what you want for who.”

She’s right, in a way. I don’t know what she meant by “amendments,” but the organizations that construct voting scorecards choose votes that they believe distinguish candidates along some axis. Usually the votes are chosen after they’re made, although sometimes organizations “key vote” an issue. That means they alert legislators in advance of a vote that the vote will be included on their scorecard.

There are organizations that are in favor of more spending, less accountability, and fewer choices for Kansas parents and schoolchildren. They produce scorecards, too. In particular, Kansas Association of School Boards found that McGinn never voted against their position from 2009 to 2012. Kansas National Education Association, while not making a scorecard public, recommended that its members vote for McGinn.

Voice for Liberty Radio: Sedgwick County Commission Candidates

In this episode of Voice for Liberty Radio: Candidates for Republican party nominations in two districts for Sedgwick County Commission spoke at the Wichita Pachyderm Club on June 20, 2014.

In district 4, which is parts of northeast, north and northwest Wichita and the towns of Park City, Valley Center, and Maize, Kansas Senator Carolyn McGinn is challenging the incumbent Richard Ranzau. In district 5, which is parts of south and southeast Wichita and the town of Derby and surrounding area, Derby Mayor Dion Avello is facing Kansas Representative Jim Howell. The format of the meeting was an opening statement by each candidate followed by questions from the audience and a brief closing statement.

Here are candidates for Republican party nominations for Sedgwick County Commission at the Wichita Pachyderm Club on June 20, 2014.

Shownotes

Candidates in district 4:
Carolyn McGinn | Working For Kansas
Vote Richard Ranzau for County Commission

Candidates in district 5:
Dion Avello
State Representative Jim Howell for Sedgwick County Commissioner

With new tax exemptions, what is the message Wichita sends to existing landlords?

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

Tomorrow the Wichita City Council considers whether to grant property and sales tax exemptions to a proposed speculative industrial building in north central Wichita. If approved, this will be the second project undertaken under new economic development policies that allow for this type of tax exemption.

Those with tax abatementsCity documents estimate that the property tax savings for the first year will be $312,055. This exemption will be granted for five years, with a second five year period possible if performance goals are met.

The city documents also state that the project will also apply for a sales tax exemption, but no estimate of these tax savings are given. It’s common for a project of this type to have about half its cost in purchases subject to sales tax. With “site work and building” at $10,350,000, sales tax in Wichita on half that amount is $370,012. Undoubtedly a rough estimate, it nonetheless gives an idea of how much sales tax the developers will avoid paying.

(If city hall has its way, the sales tax in Wichita will soon increase by one cent per dollar, meaning the developers of this project would save $421,762 in sales tax. While others will hurry to make purchases before the higher sales tax rate takes effect — if it does — these developers will be in no hurry. Their sales tax is locked in at zero percent. In fact, once having a sales tax or property tax exemption, these developers are now in a position to root for higher sales and property tax rates, as that increases costs for their competitors, thereby giving these tax-exempt developers a competitive advantage.)

City documents give the benefit-cost ratios for the city and overlapping jurisdictions:

City of Wichita General Fund 1.30 to one
Sedgwick County 1.18 to one
USD 259 1.00 to one
State of Kansas 12.11 to one

It’s not known whether these ratios include the sales tax forgiveness.

Wichita City Budget Cover, 1992While the City of Wichita insists that projects show a benefit-cost ratio of 1.3 to one or better (although there are many exceptions), it doesn’t apply that standard for overlapping jurisdictions. Here, Sedgwick County experiences a benefit-cost ratio of 1.18 to one, and the Wichita school district (USD 259) 1.00 to one. These two governmental bodies have no input on the decision the city is making on their behalf. The school district’s share of the forgiven taxes is 47.4 percent.

When the city granted a similar tax exemption to a speculative warehouse in southwest Wichita, my estimates were that its landlord has a cost advantage of about 20 percent over other property owners. Existing industrial landlords in Wichita — especially those with available space to rent and those who may lose tenants to this new building — must be wondering why they struggle to stay in business when city hall sets up subsidized competitors with new buildings and a large cost advantage.

Wichita property taxes

Property taxes in Wichita are high for industrial buildings, and even higher for commercial buildings. See Wichita property taxes compared. So it’s difficult to blame developers for seeking relief. But instead of offering tax relief to those who ask and to those city hall approves of, it would be better to have lower taxes for everyone.

Targeted economic development incentives

The targeted economic development efforts of governments like Wichita fail for several reasons. First is the knowledge problem, in that government simply does not know which companies are worthy of public investment. In the case of the Wichita, do we really know which industries should be targeted? Is 1.3 to one really the benchmark we should seek, or would we be better off by insisting on 1.4 to one? Or should we relax the requirement to 1.2 to one so that more projects might qualify?

This assumes that these benefit-costs ratios have validity. This is far from certain, as follows:

1. The benefits that government claims are not really benefits. Instead, they’re in the form of higher tax revenue. This is very different from the profits companies earn in voluntary market transactions.

2. Government claims that in order to get these “benefits,” the incentives must be paid. But often the new economic activity (expansion, etc.) would have happened anyway without the incentives.

3. Why is it that most companies are able to grow without incentives, but only a few companies require incentives? What is special about these companies?

4. If the relatively small investment the city makes in incentives is solely responsible for such wonderful outcomes in terms of jobs, why doesn’t the city do this more often? If the city has such power to create economic growth, why is anyone unemployed?

Do incentives work?

The uncontroverted peer-reviewed research tells us that targeted economic development incentives don’t work, if we consider the entire economy. See: Research on economic development incentives. Some of the conclusions of the studies listed there include:

No evidence of incentive impact on manufacturing value-added or unemployment”

Small reduction in employment by businesses which received Ohio’s tax incentives”

No evidence of large firm impacts on local economy”

No permanent employment increase across a quasi-experimental panel of all Cabela’s stores”

“Employment impact of large firms is less than gross job creation (by about 70%)”

These research programs illustrate the fallacy of the seen and the unseen. It is easy to see the jobs being created by economic development incentives. It’s undeniable that jobs are created at firms that receive incentives, at least most of the time. But these jobs are easy to see. It’s easy for news reporters to find the newly-hired and grateful workers, or to show video footage of a new manufacturing plant.

But it’s very difficult to find specific instances of the harm that government intervention produces. It is, generally, dispersed. People who lose their jobs usually don’t know the root cause of why they are now unemployed. Businesses whose sales decline often can’t figure out why.

But evidence tells us this is true: These incentives, along with other forms of government interventionism, do more harm than good.

Let’s create something special and unique

Following, Sedgwick County Commissioner Karl Peterjohn explains something that the county could do to boost economic growth that doesn’t require government intervention, doesn’t need fleets of bureaucrats, reduces cronyism and corruption, increases economic freedom, respects property rights, reduces the power of government to control its subjects, and doesn’t give politicians opportunities to inflate their egos and boost their electoral prospects by being photographed at ground-breaking and ribbon-cutting ceremonies taking credit for spending your money on something you don’t want and which does not work to create jobs and prosperity. For these reasons — especially the latter — this won’t be popular with the political class.

I’ve gathered data from the property tax study that Peterjohn mentions and presented data specific to Wichita at Wichita property taxes compared. A version of this commentary appeared in the Wichtia Eagle.

Let’s create something special and unique

By Karl Peterjohn

This community as well as our country is still in an economic crisis. Our community needs a boost, or a comparative growth advantage. Creating a one (1) cent city sales tax in Wichita won’t create economic growth.

In fact, raising taxes would put our community on the same path trail blazed by many other communities across our country. That is the path to fiscal perdition: Detroit.

Sedgwick County Courthouse 2014-03-23This community can create a special and unique comparative advantage by eliminating one of the major disadvantages that this state in general, and Wichita and Sedgwick County face: high property taxes. The high property tax problem for Wichita was once again identified in a national study by the Lincoln Institute on Land Policy and the Minnesota Center for Fiscal Excellence’s, “50 State Property Tax Comparison Study,” issued in March. In this study it identified the fact that Wichita’s property tax on commercial property was 38% above the national average.

High taxes mean less economic growth. This is particularly true for property taxes.

The unique and special approach this community needs is instead of raising the sales tax to expand city spending, the focus should be on eliminating the county’s property tax. Currently the county imposes a 29.3 mill property tax county wide. This mill levy could be eliminated with about a 1.5 cent increase in the sales tax on a revenue neutral basis.

This type of property tax competitiveness would be beneficial on several levels. First, it would provide a unique selling proposition to help attract business to this county and Wichita.

Eliminating the county property tax would provide benefits to all property taxpayers and not just a select few getting special subsidies contained within the city’s sales tax hike plan. Eliminating the county’s property taxes would reduce most county taxpayers’ property tax bills by roughly 25 percent.

Let’s move away from the subsidy model whose odious examples include the failed Solyndra national subsidy boondoggle.

Instead of dangling subsides, which everyone else in the eco-devo game is doing, let’s try a unique incentive: Sedgwick County just eliminated its property tax! We should try this because it can work.

In 1995 Kansas eliminated its state unemployment tax because the fund had developed a large cash balance. This five year tax moratorium created a unique economic advantage for Kansas business. Within a couple of years, the Kansas economy enjoyed a substantial surge in economic growth. Kansas became a leader enjoying some of the fastest economic growth between 1997 to 1999. Eventually, the unemployment fund’s cash balance shrank. By 1999 the unemployment tax was restored. This unique tax advantage was eliminated.

As a county commissioner I am focused on creating a special advantage for everyone in Sedgwick County. Eliminating the county’s property tax is an idea whose time has come.

WichitaLiberty.TV: Government accounting, Government ownership of infrastructure, and Wichita commercial property taxes

In this episode of WichitaLiberty.TV: Government leaders tell us they want to run government like a business. But does government actually do this, even when accounting for its money? Then, is it best for government to own all the infrastructure? Finally, taxes on Wichita commercial property are high, compared to the rest of the nation. Episode 46, broadcast June 8, 2014. View below, or click here to view at YouTube.

What is the record of economic development incentives?

On the three major questions — Do economic development incentives create new jobs? Are those jobs taken by targeted populations in targeted places? Are incentives, at worst, only moderately revenue negative? — traditional economic development incentives do not fare well.

Money GrabberJudging the effectiveness of economic development incentives requires looking for the unseen effects as well as what is easily seen. It’s easy to see the groundbreaking and ribbon cutting ceremonies that commemorate government intervention — politicians and bureaucrats are drawn to them, and will spend taxpayer funds to make sure you’re aware. It’s more difficult to see that the harm that government intervention causes.

That’s assuming that the incentives even work as advertised in the first place. Alan Peters and Peter Fisher, in their paper titled The Failures of Economic Development Incentives published in Journal of the American Planning Association, wrote on the effects of incentives. A few quotes from the study, with emphasis added:

Given the weak effects of incentives on the location choices of businesses at the interstate level, state governments and their local governments in the aggregate probably lose far more revenue, by cutting taxes to firms that would have located in that state anyway than they gain from the few firms induced to change location.

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

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

Following is the full paper, or click here.

Intrust Bank Arena: Not accounted for like a business

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. It’s a business-like way of accounting, but a well-hidden secret.

Sedgwick County Working for YouThe 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. What’s missing is depreciation expense.

An example of the incomplete editorializing comes from Rhonda Holman of the Wichita Eagle, who opined “Though great news for taxpayers, that oversize check for $255,678 presented to Sedgwick County last week reflected Intrust Bank Arena’s past, specifically the county’s share of 2013 profits.”

Earlier reporting on this topic in the Eagle did not mention depreciation expense, either.

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 2103, the accounting method used in this agreement produced a profit of $705,678, to be split (not equally) between SMG and the county. The county’s share, as Holman touted, was $255,678. Presumably that’s after deducting the cost of producing an oversize check for the television cameras.

The Operations of Intrust Bank ArenaWhile 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 2013 Comprehensive Annual Financial Report for Sedgwick County. This document holds additional information about the finances of the Intrust Bank Arena. The CAFR, as described by the county, “… is a review of what occurred financially at Sedgwick County in 2013. In that respect, it is a report card of our ability to manage our financial resources.”

Regarding the arena, the CAFR states:

The Arena Fund represents the activity of the INTRUST Bank Arena that opened on January 9, 2010. The facility is operated by a private company; the county incurs expenses only for certain capital improvements or major repairs and depreciation, and receives as revenue only a share of profits earned by the operator, if any. The Arena had an operating loss of $4.7 million. The loss can be attributed to $5.3 million in depreciation expense.

Financial statements in the same document show that $5,295,414 was charged for depreciation in 2013, bringing accumulated depreciation to a total of $21,190,280.

Depreciation expense is not something that is paid out in cash. Sedgwick County didn’t write a check for $5,295,414 in depreciation expense. Instead, depreciation accounting 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, Commissioner 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.”

Intrust Bank Arena commemorative monument
Intrust Bank Arena commemorative monument
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. There is no opportunity cost, according to his view. 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.

We see our governmental and civic leaders telling us that we must “run government like a business.” Without frank and realistic discussion of numbers like these and the economic facts they represent, we make decisions based on incomplete and false information.

WichitaLiberty.TV: Old Town, Economic development incentives, and waste in Wichita

In this episode of WichitaLiberty.TV: A look at a special district proposed for Old Town, the process of granting economic development incentives and a cataloging of the available tools and amounts, and an example of waste in Wichita. Episode 43, broadcast May 18, 2014. View below, or click here to view on YouTube.

In Wichita, citizens want more transparency in city government

Wichita city hallIn a videographed meeting that is part of a comprehensive planning process, Wichitans openly question the process, repeatedly asking for an end to cronyism and secrecy at city hall.

As part of the Wichita-Sedgwick County Comprehensive Plan, the City of Wichita held a number of focus groups meetings. Their purpose, according to city documents, was to provide “information on the components of the Plan and provide input on a draft survey.”

(Some indication of the reverence given to the plan to city planners may be inferred by the city’s use of capitalization when referring to it.)

The community meetings were structured in a way reminiscent of the Delphi method, described in Wikipedia as “a structured communication technique, originally developed as a systematic, interactive forecasting method which relies on a panel of experts.” Others have a more skeptical view, believing that the Delphi technique leads citizens to believe they have participated in community democratic decision-making when in reality, that is not the goal of the process.

In October Americans for Prosperity-Kansas invited the city to hold a focus group meeting. Video from the meeting is below, or click here to view at YouTube.

Dave Barber, who is Advanced Plans Manager at Wichita-Sedgwick County Metropolitan Area Planning Department, facilitated the meeting. Susan Estes of AFP was the meeting organizer and host. Mike Shatz is the videographer. His description of the meeting is “The City of Wichita is holding a series of meetings to gain input from the public on future spending plans. The meetings are based off a survey the city conducted, which, by all accounts, was full of loaded questions geared towards promoting the programs that city officials want to see. In this meeting, one of the first in the series, citizens openly question the process and repeatedly ask for an end to cronyism and secrecy at city hall.”

Sedgwick County illustrates inefficiency of tax credit mechanism

Sedgwick County Kansas sealTax credits can be an inefficient way for government to distribute benefits, as illustrated by action the Sedgwick County Commission will consider today.

A tax credit is, conceptually, a certificate with a dollar amount written on it. That certificate can be used instead of cash for payment of taxes. So when the State of Kansas issues a tax credit for $100, the state gives up that same amount in tax revenue, as someone will submit that certificate instead of a hundred dollar bill in payment of taxes. The certificate, of course, has no value to the state.

Sedgwick County received Kansas income tax credits under the state’s historic preservation program. Since the county doesn’t pay income tax, it can’t use them as payment for taxes. But since the credits are transferable, the county can sell them to someone who does need to pay taxes. And if that person can buy the tax credits for less than face value, such as paying $90 for a tax credit that’s worth $100, there’s motivation for buyers and sellers to make a deal.

This is what the county is doing. In an auction it sold three tax credits for a total of $507,066.74. This is described by county documents as representing $0.9025 per dollar of value. Working backwards, this means that the tax credits have a face value of $507,066.74/.9025 = $561,847 in face value. Someone will submit these credits to the state instead of a check for that amount when they pay their taxes.

This means that the State of Kansas gives up $561,847 in order to grant a benefit worth $507,067 to Sedgwick County. This is the inefficiency of using tax credits as a mechanism for distributing benefits.

You may be wondering: Why does this state use this inefficient method? One reason is that tax credits operate more or less on autopilot. Once the program is authorized and put in place, people or organizations that qualify for the credits receive them without action by the legislature. This has happened in downtown Wichita on a number of projects such as the renovation of the Broadview and Ambassador Hotels. Both received millions under historic preservation tax credit programs. (See In Wichita, historic preservation tax credits an inefficient form of developer welfare.)

Can you imagine the legislature having to vote to give millions of dollars to specific hotel developers? That probably wouldn’t be popular. But the tax credit program accomplishes the same result, and mostly under the radar without scrutiny.

Tax credits are a direct transfer of money from taxpayers to private parties. But being accomplished through the tax system shrouds the process in mystery. And, no direct action is required by any legislative body. The legislature creates the tax credit program. The developer applies, and if accepted, the credits are granted. No one — at least no one elected by and accountable to voters — votes to grant the specific credits.

The Kansas historic preservation tax credit program, in a short time, has grown from a program designed to help spruce up a few old buildings here and there to a developer welfare program on steroids.

Commissioner’s questions halt county’s plan to remove trees on private land

Sedgwick County Kansas seal

Good job, Sedgwick County Commissioner Richard Ranzau. It’s always good to put the kibosh on unneeded government spending.

At stake was about $47,000, just less than the annual median household income in Sedgwick County.

County Manager William Buchanan had signed off on spending $46,685 to clear out trees on private property along Central Avenue from the entrance of housing development St. Andrew’s Place east to 143rd Street. Work was to start next week.

But questioning by County Commissioner Richard Ranzau put the kibosh on the project, and the Minneha Township now will have to pay the tab if it wants the trees gone.

“We got out in front of ourselves without doing much critical thinking, and I take full responsibility for that,” Buchanan said.

Continue reading at the Wichita Eagle.

Readers may remember my op-ed in that same newspaper from 2009:

Last year a political science professor who is a keen observer of Kansas politics told me that city or county managers shouldn’t be in their jobs more than four or five years. After that, he said, they gain too much power.

If managers are to serve their councils or commissions — instead of the other way around — sometimes a change needs to be made, just for the sake of change.

This alone is enough reason for change in the Sedgwick County manager’s office after 18 years of County Manager William Buchanan.

Continue reading this at Commission has cause to want a new manager.

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.

WichitaLiberty.TV September 1, 2013

WichitaLiberty.TV logo

In this episode of WichitaLiberty.TV, host Bob Weeks presents an analysis of the delinquent real estate tax list and wonders why our institutions don’t provide this simple enhancement. Then, a review of the first two chapters of “Economics in One Lesson” with application to situations in Wichita. Finally, Amanda BillyRock illustrates Chapter 3: Blessings Of Destruction, and examples in Wichita are noted. Episode 11, broadcast September 1, 2013. View below, or click here to view on YouTube.

Sedgwick County delinquent taxes, the useful version

The Wichita Eagle has devoted newsprint to deliver the data, and you can obtain it as pdf on your computer, too. Neither of these options for delivering the Sedgwick County delinquent tax list for 2012 is very useful.

I’ve created a Google Docs sheet that holds this data. You can access it below, but it’s probably best to open it in a new window by clicking here. There are three tabs: an introduction, the data, and a pivot table that summarizes the data. Have fun.

Do economic development incentives work?

Government takes and gives

Judging the effectiveness of economic development incentives requires looking for the unseen effects as well as what is easily seen. It’s easy to see the groundbreaking and ribbon cutting ceremonies that commemorate government intervention — politicians and bureaucrats are drawn to them, and will spend taxpayer funds to make sure you’re aware. It’s more difficult to see that the harm that government intervention causes.

That’s assuming that the incentives even work as advertised in the first place. Alan Peters and Peter Fisher, in their paper titled The Failures of Economic Development Incentives published in Journal of the American Planning Association, wrote on the effects of incentives. A few quotes from the study, with emphasis added:

Given the weak effects of incentives on the location choices of businesses at the interstate level, state governments and their local governments in the aggregate probably lose far more revenue, by cutting taxes to firms that would have located in that state anyway than they gain from the few firms induced to change location.

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

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

Following is the full paper, or click here.

Change in needed in Wichita

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

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

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

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

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

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

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

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

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

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

John Todd
Wichita

More illumination of Wichita City Council ethics

Today on the Joseph Ashby Show, the host shines additional light on problems with the Wichita City Council.

Some background material:

Joseph Ashby on Wichita City Council

Kansas Affordable Airfares program: Benefits and consequences

Wichita airport statistics: The visualization

Wichita Airport statistics: The video

Wichita Eagle: Wichita City Council rejects conservative blogger for airport advisory board

WE Blog: Peterjohn’s comment was inappropriate

Joseph Ashby Show: Upcoming Wichita City Council meeting

It will be a busy Tuesday in Wichita

Fish, sauce, and the law: You make the call

The harm of business welfare

What is the effect of the issuance of business welfare in Wichita, of the intervention in the economy by politicians? Based on an article by Bob Weeks, Amanda BillyRock illustrates — literally — the harm caused when government intervenes in the economy. Thanks also to Henry Hazlitt for the insights in his simple but imposing book Economics in One Lesson.

Wichita airfares, on the rise

Airplane

A survey by travel website CheapFlights.com shows that airfares in Wichita have both fallen and risen in recent years, even though the City of Wichita, Sedgwick County, and the State of Kansas collectively spend millions each year to keep airfares low.

The survey, according to a news release, ranks airports by “averaging the prices our users found during the month of June when searching for flights to popular domestic and international destinations like Miami, Honolulu, London and Cancun.”

The news release warns that “These rankings can shift dramatically from year to year and prices fluctuate frequently on specific routes.”

Since this is the fourth year for this survey, I thought it would be interesting to see how airfares in Wichita have fared over the timeframe of this survey. An interactive visualization is presented below.

wichita-airfares-compared-2013-07

Here is an illustration of Wichita airfares compared to the other airports included in the survey, which for 2013 included the 101 most popular airports. You can see that based on the data gathered for this study, the average airfare declined, but then rose. Wichita’s rank among airports rose, accordingly. (In the airfare rankings in this survey, a higher rank means higher airfares, relative to other airports.)

This data should inspire us to re-examine whether the taxpayer-funded effort to reduce airfares in Wichita has produced the desired result.

There have been other audits or studies which have questioned the efficacy of Wichita’s airport subsidy program. See Affordable Airfares audit embarrassing to Wichita for an example.

I’ve created an interactive visualization from this data. Use the visualization below, or click here to open the visualization in a new window, which may work better for some users. Click on an airport name to highlight its fares against other airports. Use Ctrl+click to add other airports.

Data is from CheapClights.com. Visualization created by myself using Tableau Public.

Local economic development incentives: The economic perspective

Recently Russell S. Sobel, Ph.D., who is Visiting Scholar in Entrepreneurship in the School of Business Administration at The Citadel spoke in Wichita on the topic “Economic Development Incentives: A Necessary Evil?” A video presentation of his talk follows.

Sobel is the author of many books and publications, including Unleashing Capitalism and the popular university textbook Economics: Private and Public Choice, 14th edition. Video production is by Paul Soutar.

Sedgwick is a red county in a pink state

Translation: Sedgwick County is bleeding income.

This is according to IRS and U.S. Census Bureau data examined by Travis Brown and presented online at HowMoneyWalks.com. This is a website that is companion to the book How Money Walks — How $2 Trillion Moved Between the States, and Why It Matters.

According to the publisher:

Between 1995 and 2010, millions of Americans moved between the states, taking with them over $2 trillion in adjusted gross incomes. Two trillion dollars is equivalent to the GDP of California, the ninth largest in the world. It’s a lot of money. Some states, like Florida, saw tremendous gains ($86.4 billion), while others, like New York, experienced massive losses ($58.6 billion). People moved, and they took their working wealth with them. The question is, why? Why did Americans move so much of their income from state to state? Which states benefited and which states suffered? And why does it matter? Using official statistics from the IRS, How Money Walks explores the hows, whys, and impact of this massive movement of American working wealth.

sedgwick-county-money walks-2013-07

Kansas, as a state, lost $3.15 billion in income during the period covered by the book. That colors Kansas a moderate shade of pink on a map of all states. Pink, or red, in this case, means like it does in accounting: A loss of money.

Looking at a map of Kansas counties, we see that Sedgwick County is a bright shade of red. From 1992 to 2010, Sedgwick County lost $1.12 billion in annual AGI (adjusted gross income).

To put these numbers in perspective, in 2009 AGI in Kansas was $61.7 billion, and in Sedgwick County, $10.6 billion. So Sedgwick County has lost some ten percent of its income. And that’s on an annual basis.