Sedgwick county government

Sedgwick County commissioners vote Democratic

by Bob Weeks on January 11, 2012

This morning the Sedgwick County Commission voted to select member Tim Norton of Haysville as chairman for the upcoming year. Norton, a Democrat, received the votes of two of the board’s four Republican members: Those of outgoing Chairman Dave Unruh and .

Commissioner Karl Peterjohn nominated Richard Ranzau for the position, but he received only two votes.

It may be remarkable that a board with a four to one majority in one party elected a member of the minority party to serve as chair, or it may simply be a reflection of the actual ideological makeup of the board. Peterjohn and Ranzau consistently take stances and make votes that favor limited government and free markets, while Unruh and Skelton generally join with the politically-liberal Norton on most issues. The chairman is more than just a ceremonial position, as the chairman presides over commission meetings. On many agenda items, the commission is not obligated to hear testimony from citizens, although it must when there are items that have public hearings required by law. It was the practice of Kelly Parks and Peterjohn, when they served as chair, to allow anyone who appeared at meetings to speak. In his term as chair, Unruh was seen as less accommodating, although I think that anyone who really cared to was allowed to speak, sometimes with a gentle admonition to hurry along. It is unknown in what manner Norton will run the meetings while he is chair. A hint: He’s objected to the term “ObamaCare” as pejorative, so I wouldn’t use that word around the courthouse.

For Chairman Pro Tem, the commissioners selected Skelton. Ranzau’s name was placed into nomination by Peterjohn, and he received the same two votes as he did for chairman. The votes for Skelton by Norton and Unruh are surprising. Skelton’s recent behavior has been erratic, even bizarre at times. His recent appearance at the Wichita City Council (video here) brought laughter and guffaws from both the bench and the public. I got the sense, however, the people were laughing at Skelton, not with him.

Unruh’s selection for 2011 Chairman’s award

Chairman Unruh selected Visioneering Wichita as the recipient of the annual Chairman’s award. This organization is in favor of government intervention into the economy — and people’s lives — on a large and increasing scale. Most of the items on its legislative agenda involve more government spending. While Visioneering — its chair Jon Rolph, anyway — denies advocating for increased taxes, Milton Friedman has taught us that it is the level of spending that is the true measure of the size of government. The size of that Visioneering seeks to expand.

Tagged as: Dave Unruh, Jim Skelton, Karl Peterjohn, Kelly Parks, Richard Ranzau, Sedgwick county government, Tim Norton

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In Wichita, Southfork TIF is politics, and therefore should be rejected

by Bob Weeks on January 2, 2012

Last month the Wichita City Council approved the formation of a TIF district in south Wichita. Known as the Southfork TIF District, the developer is Wichitan Jay Maxwell. This week the matter will appear before the Sedgwick County Commission, as it may, under law, decide to veto the formation of the district.

Maxwell himself rarely appears at meetings of governmental agencies, sending his agent Tim Austin of Poe & Associates, Inc. instead.

The role of politics

Maxwell and Austin have some queer ideas regarding the nature of markets and politics. In an email message to supporters of the Southfork TIF, Austin wrote: “There are many underlying political winds working against the Southfork TIF.” In another email message, he wrote: “As I mentioned previously, there are underlying political interests at play that appear to be making this a political matter as opposed to a vote the merits of the TIF, the project, and South Wichita.”

Austin has it exactly backwards. It is he who is arguing for using the political process to enrich himself and Maxwell. Those such as myself and Americans for Prosperity who oppose government interventions such as this are arguing against using the political process — against making this a political matter, that is.

The supporters of government intervention such as TIF often make claims of “market failure.” They claim that the free market system has failed to deliver what they want, so they make appeals to government to intervene. This, of course, moves society away from markets and civil society and toward the politics that Austin seems to disdain.

In reality, markets do quite well in allocating the resources of our economy, despite the claims of many, including historians who should know better. There are those who may feel they’re not getting everything they deserve through the market process, but that’s no reason to introduce the tremendous inefficiencies and distortions that the political process brings with it. In his book How Capitalism Saved America: The Untold History of Our Country, From the Pilgrims to the Present, Thomas J. DiLorenzo explained:

Most historians also uncritically repeat the claim that government subsidies were necessary to building America’s transcontinental railroad industry, steamship industry, steel industry, and other industries. But while clinging to this “market failure” argument, they ignore (or at least are unaware of) the fact that market entrepreneurs performed quite well without government subsidies. They also ignore the fact that the subsidies themselves were a great source of inefficiency and business failure, even though they enriched the direct recipients of the subsidies and advanced the political careers of those who dished them out.

Political entrepreneurs and their governmental patrons are the real villains of American business history and should be portrayed as such. They are the real robber barons.

The idea of “market failure” is used by the promoters of this TIF district — as do supporters of TIF districts. They claim that only government — that is, politics — can make things right, at least according to their vision.

The idea that there are two classes of entrepreneurs — market and political — is explained by Helen Cochran in her book review of The Myth of the Robber Barons: A New Look at the Rise of Big Business in America by Burton Folsom. Cochran wrote:

According to Folsom, “political entrepreneurs” are those that seek government/taxpayer subsidy, public private partnerships, protective tariffs, special privileges, etc. Folsom makes a sound case that economic development fueled by political intervention invariably fails and undermines the very ideology it purports to serve.

On the other hand “market entrepreneurs” are those that obtain their successes by producing a product that is better and of more value to the consumer, unbridled by the government controls and restrictions that come with subsidy. No one can argue that it is the market entrepreneurs that create the wealth in this country.

The essence of political entrepreneurship is that Austin and Maxwell find it easier to convince a majority of the Wichita City Council, and now the Sedgwick County Commission, of the superiority of their plans than it is to convince others through the market process. They want to replace the collective knowledge of free people trading voluntarily in markets with the political process — that is, with the judgments of bureaucrats and politicians.

Do TIF districts work?

In deciding whether TIF districts “work” we must come to an agreement of what “work” means. Generally, most supporters of TIF — besides the obvious motivations of the developers who are directly enriched by them — claim increased development and jobs.

But there’s plenty of evidence to the contrary.

As far as increased development: Yes, that generally happens within the TIF district. But what about the overall city? The answer is that TIF is harmful.

Regarding the effect of tax increment financing (TIF) districts on economic development, economists Richard F. Dye and David F. Merriman have studied the issue extensively. Their paper The Effects of Tax Increment Financing on Economic Development bluntly states the overall impact of TIF: “We find clear and consistent evidence that municipalities that adopt TIF grow more slowly after adoption than those that do not.”

Later in the same paper the authors conclude: “These findings suggest that TIF trades off higher growth in the TIF district for lower growth elsewhere. This hypothesis is bolstered by other empirical findings.” More on their work is at Tax increment financing (TIF) and economic growth.

Others may support TIF for its purported positive impact on employment. Sure, it’s easy to drive by a TIF district and see people at work. But that doesn’t tell the whole story.

One person who looked at the effect of TIF on employment in the entire city is economist Paul F. Byrne. He concluded this: “Results find no general impact of TIF use on employment. However, findings suggest that TIF districts supporting industrial development may have a positive effect on municipal employment, whereas TIF districts supporting retail development have a negative effect on municipal employment.”

More on his work is at Does tax increment financing (TIF) deliver on its promise of jobs?

So considering the high-minded goals of politicians and bureaucrats, we must conclude that TIF does not meet the goals of increased development and/or jobs, if we consider the impact on everyone. What we’re left with is the well-known problem that public choice economics — the economics of politics — has described: Concentrated benefits and dispersed costs. It’s the reason why those who seek enrichment at Wichita City Hall and other governments make so many political campaign contributions.

This particular TIF district

In a document prepared for Sedgwick County Commissioners by the county’s Finance Division, this TIF district is analyzed.

One startling conclusion: “The Southfork area qualifies for TIF funding because most of the land is in a flood plain, and while action is being taken to reduce the magnitude of this problem most of the land will remain in a flood plain after those actions are completed.” (emphasis added)

In other words, one of the “noble” actions of the developer — fixing a flooded area — is exposed for what it is.

Another conclusion of the analysis is that the “Proposed project is economically feasible without county funding support.” In other words, the TIF district is not financially necessary.

Then: “Proposed private equity funding is insufficient to effect default risk.”

Finally: “Costs to county government are greater than benefits to county government. If, as appears possible based on the financial projections provided for county review, the project is financially feasible without TIF funding, then a substantial cost to county government is the property tax revenue diverted unnecessarily to the project.”

This directly contradicts the claims that most TIF supporters make: That TIF is without cost. Randal O’Toole and others have shown the many ways in which TIF does have a great cost. His essay “TIF is not free money” may be read as part of my article Tax increment financing: TIF has a cost.

This particular applicant

We also need to look at the characteristics of this applicant. The Wichita Business Journal reported this regarding a company Mr. Maxwell owned:

Pixius proposes to repay, over a 10-year period, $1.3 million of a $6.4 million loan from the U.S. Department of Agriculture’s Rural Utilities Service, according to court documents. The loan was part of a 2002 Farm Bill pilot program that loaned more than $180 million to ISPs to expand Internet service to rural areas.

“To my memory … Pixius is the only one (to receive a loan) that’s had to file bankruptcy to work out of its situation,” says Claiborn Crain, USDA spokesman.

When the government helped out Maxwell in the past, it cost taxpayers $5.1 million. His company is set apart from other similar companies in that, according to the USDA spokesman, only Maxwell’s declared bankruptcy.

I suggest that Maxwell has had his turn at the government funding trough. Taxpayers can’t afford to give him another.

Tagged as: Economic development, Economics, Entrepreneurship, Sedgwick county government, Subsidy, Tax increment financing, TIF districts, Wichita city council

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Sustainable planning: The agenda and details

by Bob Weeks on December 16, 2011

Sedgwick County Commissioner Richard Ranzau has produced a document that explains the dangers contained with the “sustainable development” movement that is spreading across the country. Recently both the City of Wichita and Sedgwick County voted to participate in a planning grant devoted to starting the implementation of this ideology that government can plan better than markets can.

In the document Ranzau writes: “Proponents of these grants often speak in general terms that make it difficult to disagree. But as they say, the devil is in the details. It is very important for you to know what they are not telling you. We all need to look beyond the fancy talk and find out what the agenda is really about. … The intent of this paper is to share information and insight about ‘sustainable development’ so that citizens and elected officials can have a more complete understanding of what the planning grants will entail and what possible consequences our communities may face if these policies are implemented.”

One of the concerns Ranzau identifies is the attack on the automobile-based suburban lifestyle that many in Wichita and the surrounding area prefer, based on their revealed choices: “One of the most important reasons to be concerned about the agenda behind these grants is the effect it could have on housing costs and property rights. Smart Growth supporters decry suburban development (single family home with a yard) as unsustainable and work to push people into high density housing (and government transportation).”

This attitude is creeping into Wichita. At a January 2010 presentation by Goody Clancy, the planning firm that developed the plan for downtown Wichita, I reported on the attitudes expressed by planners and how they believe they know what people should want, if only the people were as smart as the planners:

At a presentation in January, some speakers from Goody Clancy revealed condescending attitudes towards those who hold values different from this group of planners. One presenter said “Outside of Manhattan and Chicago, the traditional family household generally looks for a single family detached house with yard, where they think their kids might play, and they never do.”

David Dixon, who leads Goody Clancy’s Planning and Urban Design division and was the principal for this project, revealed his elitist world view when he told how that in the future, Wichitans will be able to “enjoy the kind of social and cultural richness” that is only found at the core.

The document holds many links to valuable resources, a timeline of sustainable planning activities, and contact information for local officials.

Sustainable Planning Grants and UN Agenda 21

Tagged as: Environment, Free markets, Liberty, Property rights, Regulation, Richard Ranzau, Sedgwick county government, Wichita city government

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Kansas and Wichita quick takes: Friday December 2, 2011

by Bob Weeks on December 2, 2011

Wichita trip to Ghana. KAKE Television reports that Wichita Mayor Carl Brewer believes the recent trip to Africa by him and others may result in sales of beef and airplanes. I wonder, though: don’t marketers of beef and airplanes know about Africa already? And who has the greater motive to sell, not to mention knowledge about the products that might meet African customers’ needs: sales reps for these companies, or politicians? … The most telling indication that this trip is more junket than anything else is that Brewer and Vice Mayor Lavonta Williams (district 1, northeast and east Wichita) paid for their own airfare. If this trip was truly good for the city, the city should pay all expenses for those who go, just as companies pay legitimate travel expenses for their employees.

Register of Deeds returns funds. At this week’s meeting of the Sedgwick County Commission Register of Deeds Bill Meek returned $200,000 in unspent funds from his office. These unspent funds may be used by other county offices for “equipment or technological services relating to the land or property records filed or maintained by Sedgwick County,” according to the resolution passed by commissioners.

Transaction fee, or interest? At the same commission meeting, there was discussion on the topic of the county charging extra fees for paying money to the county using credit cards. During the discussion, Commissioner Jim Skelton speculated that, depending on the card you have, there will be “$50 to $250 or more on interest” each month. The commissioner may not have heard that if you pay the entire statement balance each month, there won’t be any interest charges.

This is a cut? In Republicans Take an Ax to Government, David Boaz writes: “Sort of. Two million dollars. Two million dollars. That’s what the Washington Post sees as ‘shrinking government.’ I’m guessing the Post doesn’t often run a story when a governor does something that “expands government” by $2 million. But Virginia has a reputation for fiscal conservatism. Maybe $2 million is actually a big chunk of the state’s budget. Let’s check the numbers. As it turns out, this week the National Governors Association and the National Association of State Budget Officers put out a report on state finances, and it showed that Virginia’s general fund spending is up 7.1 percent in 2012. And according to Virginia’s own budget, that’s an increase of $1.1 billion in FY2012. That’s not the whole budget, by the way. In addition to the $16 billion in General Fund spending, Virginia will also spend $23 billion in FY2012. ”

Tax incentives questioned. In a commentary in Site Selection Magazine, Daniel Levine lays out the case that tax incentives that states use to lure or keep jobs are harmful, and the practice should end. In Incentives and the Interstate Competition for Jobs he writes: “Despite overwhelming evidence that state and local tax incentives are having little to no positive effect on promoting real economic growth anywhere in the country, states continue to up the ante with richer and richer incentive programs. … there are real questions as to whether the interstate competition for jobs is a wise use of anyone’s tax dollars and, if not, then what can be done to at least slow down this zero sum game?” As a solution, Levine proposes that the Internal Revenue Service classify some types of incentives as taxable income to the recipient, which would reduce the value and the attractiveness of the offer. Levine also correctly classifies tax credits — like the historical preservation tax credits in Kansas — as spending programs in disguise: “Similarly, when a ‘tax credit’ can be sold or transferred if unutilized it ceases to have a meaningful connection to state tax liability. Instead, in such circumstances the award of tax credit is merely a delivery mechanism for state subsidy.” In the end, the problem — when recognized as such — always lies with the other guy: “Most state policy makers welcome an opportunity to offer large cash incentives to out-of-state companies considering a move to their state but fume with indignation when a neighboring state uses the same techniques against them.”

Golden geese on the move. Thomas Sowell: “The latest published data from the 2010 census show how people are moving from place to place within the United States. In general, people are voting with their feet against places where the liberal, welfare-state policies favored by the intelligentsia are most deeply entrenched.” Sowell notes that blacks, especially those young and educated, are moving to the South and suburbs. “Among blacks who moved, the proportions who were in their prime — from 20 to 40 years of age — were greater than in the black population at large, and college degrees were more common among them than in the black population at large. In short, with blacks, as with other racial or ethnic groups, those with better prospects are leaving the states that are repelling their most productive citizens in general with liberal policies.” Detroit, he writes is “the most striking example of a once-thriving city ruined by years of liberal social policies.” Finally, a lesson for all states, including Kansas: “Treating businesses and affluent people as prey, rather than assets, often pays off politically in the short run — and elections are held in the short run. Killing the goose that lays the golden egg is a viable political strategy.” (Mass Migration Of America’s Golden Geese.) The migration statistics concerning Kansas are not favorable, although some are trending in a better direction.

Rep. Hedke, author of new book, to speak. This Friday (December 2nd) the Wichita Pachyderm Club features Kansas Representative Dennis Hedke speaking on “Energy and environmental policy.” Hedke is the author of the just-published book The Audacity of Freedom, described as an “unequivocal challenge to the Socialist-Marxist-Communist principles being pushed upon freedom loving Americans by entities and individuals both within and outside the United States.” In his forward to the book, Speaker of the Kansas House of Representatives Mike O’Neal writes: “Dennis Hedke’s The Audacity of Freedom is a timely and welcome “from the heart” wake-up call for those who value freedom and America. Unapologetically, Hedke does not mince words in describing the combination of crises that threaten our country. His irrefutable and precise recitation of compelling facts and refreshingly candid faith and patriotism are infectious. He exhorts us not to stand by and suffer any longer the fools who have been insulting our collective intelligence and bringing us dangerously close to a socialistic irrelevance in the world. His book, in short, is important.” The public is welcome and encouraged to attend Wichita Pachyderm meetings. For more information click on Wichita Pachyderm Club. … Upcoming speakers: On December 9: Beccy Tanner, Kansas history writer and reporter for The Wichita Eagle, speaking on “The Kansas Sesquicentennial (150th) Anniversary.” … On December 16: David Kensinger, Chief of Staff to Kansas Governor Sam Brownback. … On December 23 there will be no meeting. The status of the December 30th meeting is undetermined at this time. … On January 6: Kansas Senator Garrett Love. … On January 13: Speaker of the Kansas House of Representatives Mike O’Neal, speaking on “The untold school finance story.” … on January 20: Sedgwick County Commissioner Karl Peterjohn.

Economic freedom in America: The decline, and what it means. “The U.S.’s gains in economic freedom made over 20 years have been completely erased in just nine.” Furthermore, our economic freedom is still dropping, to the point where we now rank below Canada. The result is slow growth in the private sector economy and persistent high unemployment. This is perhaps the most important takeaway from a short new video from Economic Freedom Project, which is a project of the Charles Koch Institute. The video explains that faster growth in government spending causes slower growth in the private economy. This in turn has lead to the persistent high unemployment that we are experiencing today. … To view the video at the Economic Freedom Project site, click on Episode Two: Economic Freedom in America Today. Or, click on the YouTube video below.

Tagged as: Economic freedom, Government spending, Jim Skelton, Sedgwick county government, Subsidy, Taxation, Wichita city government

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Kansas PEAK program: corporate welfare wrapped in obfuscation

by Bob Weeks on November 28, 2011

Whether one agrees with the effectiveness and wisdom of government involvement in local economic development, there’s one thing that’s certain: facts and understanding are in short supply.

An illustration of how confusing things can get was provided last Wednesday at a meeting of the Sedgwick County Commission. Aviation manufacturer Bombardier LearJet was seeking a small part of a larger incentive package from the county. The county was being asked to contribute $1 million, but the overall package Bombardier is seeking is worth $52.7 million. That’s the entire cost of the Wichita portion of the project.

A large part of the package Bombardier is seeking is based on the Promoting Employment Across Kansas (PEAK) program. Administered by the Kansas Department of Commerce, the program allows qualifying companies to retain 95 percent of the state income withholding taxes their employees pay.

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

In the present case, Bombardier LearJet plans to obtain $27.0 million throuogh this program. It’s described in a company presentation as “Initial State of Kansas Bond Issuance.” They call it that because the State of Kansas will issue bonds that LearJet will buy. That makes it seem that Bombardier LearJet is actually contributing something of their own.

This misconception might be reinforced in a dialog between John Dieker, vice president of strategic projects for Bombardier Learjet, and Sedgwick County Commissioner Jim Skelton. Skelton was perhaps trying to counter my testimony earlier in the meeting. I had wondered if Bombardier LearJet was contributing even one dollar of their own funds to the project.

Skelton asked Dieker “Where is this money coming from?”

Dieker replied “We have the incentives we got from the state at $27 million. We have the interest that throws off since corporate bought the bonds, that’s corporate money that’s going back into the project, so that’s $6 million.

Skelton asked “So the corporation did buy the bonds?”

The answer was “Yes, corporation bought the bonds.”

Skelton concluded: “Well that’s your … I would consider that your money, sir.”

Dieker didn’t dispute Skelton’s conclusion. He should have.

Here’s how this financing works, in this case: The state issues $27 million in bonds and sells them to Bombardier Learjet. At this moment, LearJet holds bonds (both an asset and a liability) worth $27 million. The state’s balance sheet hasn’t changed.

Going forward is where Bombardier LearJet benefits. In the normal course of affairs, the bonds would be repaid out of the company’s cash flow. But under the PEAK program, the bonds are repaid by its employees, through the tax withheld on their paychecks.

The benefit to LearJet is that it has to pay these taxes, but it manages to be the exclusive beneficiary. Normally these taxes go to fund the operations of Kansas state government. But under the PEAK program, these tax payments go right back to Learjet and are used to pay off the liability of the bonds. The tax payments never benefit the state, as do tax payments from almost all other companies in Kansas. (Bombardier is not the only company benefiting from PEAK.)

Bombardier is even counting the interest on these bonds as part of their capital contribution to the project. The interest, however, is also being paid by employee withholding taxes, at no cost to the company.

So did Bombardier LearJet contribute $27 million of its own money, as Skelton claims? When the entire economic transaction is considered, the answer is absolutely not.

If you’re not convinced by this argument, simply ask: why would Bombardier LearJet engage in such a transaction if it didn’t benefit them?

Schemes like this call into question one of the the fundamental principles of taxation: that the proceeds be used to fund the operations of government, not to enrich one particular person or company. But continually, chasing economic development dreams, states and local government concoct schemes like PEAK — and others like tax increment financing (TIF) districts, Community Improvement Districts (CIDs), rebates of hotel guest taxes, revenue bonds of various forms, and other monstrosities — that turn over a public function to benefit private interests.

Tagged as: Corporate welfare, Economic development, Jim Skelton, Kansas state government, Sedgwick county government

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Kansas and Wichita quick takes: Wednesday November 23, 2011

by Bob Weeks on November 23, 2011

Standing up for fundamental liberties. A particularly troubling objection that those who advocate for liberty face is that we want to deny freedom and liberty to others — as if the quantity of liberty is fixed, and I can have more only if you have less. This is the type of false accusation that leftists make against Wichita-based Koch Industries. In this excerpt from the company’s Koch Facts page, the work that Koch does to advance liberty for everyone is explained: “Throughout Koch’s long-standing record of public advocacy, we have been strong and steadfast supporters of individual liberties and freedoms. These values permeate all that we do as a company and every part of our public outreach. We help fund public and school-based educational programs across the country in an effort to increase citizens’ understanding of the relationship between economic liberty and democracy. We support voter registration efforts in the communities where we live and work, and for our tens of thousands of employees. We support civil rights programs through numerous organizations. We also help build entrepreneurial initiatives that foster the fundamental reality that economic freedom creates prosperity for everyone, especially the poor, in our society. … For many years, we have directly contributed to Urban League, Andrew Young Foundation, Martin Luther King Center, Latin American Association, 100 Black Men, Morehouse College, United Negro College Fund, and dozens of other worthy organizations pursuing similar civic missions. We founded and continue to support Youth Entrepreneurs in schools throughout Kansas, Missouri and Atlanta. This year-long course teaches high school students from all walks of life the business and entrepreneurial skills needed to help them prosper and become contributing members of society. … Many of the attacks against Koch in recent months are cynical posturing at best and deliberate falsehoods divorced from reality at worst. For proof, look no further than the false claim from groups like SEIU that we are somehow trying to suppress the right to vote. … Our freedom as individual Americans relies on the ability to hold the government accountable through the direct exercise of voting rights and the exercise of other individual liberties. We are unwavering in our commitment to these rights and we stand firmly behind our track record in defending them.”

Private property saved the Pilgrims. At Thanksgiving time, the Economic Freedom Project reminds us how an early American experiment with socialism failed miserably, and how private property rights and free enterprise saved the day. See So, Is That My Corn or Yours?

Did Grover Norquist derail the Supercommittee? To hear some analysts, you’d think that Grover Norquist of Americans for Tax Reform is responsible for no deal emerging from the United States Congress Joint Select Committee on Deficit Reduction (the “Supercommittee”). It’s ATR’s pledge to not increase taxes that is blamed, so they say. All members of the Kansas Congressional Delegation except Kevin Yoder signed the pledge. Paul Jacob is thankful for Norquist and that a tax increase was averted.

Drive-through petition signing. From Americans for Prosperity, Kansas: The Wichita area chapter of the free-market grassroots group Americans for Prosperity (AFP) and other local groups have been working to collect signatures for a petition to put the hotel guest tax ordinance to a public vote. Volunteers will be collecting signatures this weekend during a “drive-thru” petition signing Friday, Saturday and Sunday at two Wichita hotels. Wichita activists are continuing their efforts to collect signatures for a petition to put the hotel guest tax ordinance to a public vote. Registered voters simply drive up to the listed locations and volunteers will bring a petition out to them. The times are from 9:00 am to 5:00 pm Friday and Saturday (Nov. 25 and 26), and 12:00 noon to 5:00 pm Sunday (Nov. 27). The locations are Wichita Inn East (8220 E. Kellogg Dr.) and Best Western Airport Inn (6815 W. Kellogg/US-54).

Job creation. Governments often fall prey to the job creation trap — that the goal of economic development is to create jobs. We say this today in Wichita where several labor union leaders appeared before the Sedgwick County Commission to encourage the county to grant a subsidy to Bombardier Learjet. The labor leaders, naturally, pleaded for jobs. To them, and to most of our political and bureaucratic leaders, the more jobs created, the better. Our business leaders don’t do any better understanding the difference between capitalism and business. In his introduction to the recently-published book The Morality of Capitalism, Tom G. Palmer writes: “Capitalism is not just about building stuff , in the way that socialist dictators used to exhort their slaves to ‘Build the Future!’ Capitalism is about creating value, not merely working hard or making sacrifices or being busy. Those who fail to understand capitalism are quick to support ‘job creation’ programs to create work. They have misunderstood the point of work, much less the point of capitalism. In a much-quoted story, the economist Milton Friedman was shown the construction on a massive new canal in Asia. When he noted that it was odd that the workers were moving huge amounts of earth and rock with small shovels, rather than earth moving equipment, he was told ‘You don’t understand; this is a jobs program.’ His response: ‘Oh, I thought you were trying to build a canal. If you’re seeking to create jobs, why didn’t you issue them spoons, rather than shovels?” … After describing crony capitalism — the type practiced in Wichita, Sedgwick County, and Kansas, with deals like the complete funding by taxpayers of the Bombardier LearJet facility, Palmer explains: “Such corrupt cronyism shouldn’t be confused with ‘free-market capitalism,’ which refers to a system of production and exchange that is based on the rule of law, on equality of rights for all, on the freedom to choose, on the freedom to trade, on the freedom to innovate, on the guiding discipline of profits and losses, and on the right to enjoy the fruits of one’s labors, of one’s savings, of one’s investments, without fearing confiscation or restriction from those who have invested, not in production of wealth, but in political power.”

Experts. David Freedman and John Stossel discuss experts, our reliance on them, the political advocacy that’s often involved, and how often experts are wrong.

Tagged as: Americans For Prosperity, Capitalism, Economic development, Economic freedom, Free markets, Interventionism, Koch Industries, Property rights, Sedgwick county government, Subsidy, United States Congress

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Bombardier Learjet should pay just a little

by Bob Weeks on November 23, 2011

In a presentation made to economic development officials, aviation manufacturer Bombardier LearJet speaks with pride of its investment in Kansas. But for the present project before the Sedgwick County Commission today, it appears that the company is planning to make no investment at all.

Bombardier LearJet financing plan. Later the document states “Requesting State of Kansas support to help find gap of $16M.”

Taking the total project cost of $52.7 million and subtracting the government funding already secured, there is a gap of $16.1 million. Instead of being grateful for the $36.6 million in subsidy already (or about to be) secured, the company is asking for more: Bombardier LearJet is asking the State of Kansas to fund this gap.

What happened to capitalism?

What happened to companies funding even a portion of their capital requirements?

The proponents of economic development incentives often make their case that the incentives are just a “sweetener” to secure the deal. But in the present case with Bombardier LearJet, local governments — the City of Wichita, Sedgwick County, and the State of Kansas — are being asked to pay for the entire meal.

We in Kansas and Sedgwick County are already doing much for Bombardier LearJet. It is likely that we will agree to let LearJet forgo paying any property tax at all — the same property taxes that other business struggle to pay. These businesses compete with LearJet for labor and other things they need.

The State of Kansas is allowing the income taxes of Lear Jet employees to be used for the exclusive benefit of that company.

Both of these actions call into question the fundamental question of fairness in taxation: that all pay their fair share. When companies like the applicant company ask to be excused from the burden of taxation, others have to pay.

If you are not persuaded by this appeal to principle, there is evidence that chasing the big catch is often counterproductive, and that the net economic effect of these deals is overestimated. One study finds: “Large-employer businesses have no measurable net economic effect on local economies when properly measured.”

Perhaps the worst thing we take away from this episode is that our state is making no progress towards a concept developed by Professor Art Hall of the Center for Applied Economics at the Kansas University School of Business. He has made a convincing case that Kansas needs to move away from the “active investor” approach to economic development. This is where government decides which companies will receive special treatment, be it in the form of tax abatements, tax credits, grants, and other forms of subsidy. This is what we are doing with the present applicant, Bombardier LearJet.

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

Later, Hall writes this regarding “benchmarking” — the bidding wars for large employers we are considering today: “Kansas can break out of the benchmarking race by developing a strategy built on embracing dynamism. Such a strategy, far from losing opportunity, can distinguish itself by building unique capabilities that create a different mix of value that can enhance the probability of long-term economic success through enhanced opportunity. Embracing dynamism can change how Kansas plays the game.”

We need to move away from economic development based on this active investor approach. This commission needs to advocate for policies — in this chamber, at Wichita City Hall, and at the Kansas Statehouse — that lead to sustainable economic development. What we’re doing today is not sustainable.

A small and reasonable step towards this goal is to ask Bombardier LearJet to consider paying just $1 million themselves on a project with a cost of $52.7 million.

Tagged as: Capitalism, Economic development, Economics, Kansas state government, Sedgwick county government, Subsidy, Tax abatements

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Wichita property taxes are high, leading to other problems

by Bob Weeks on November 21, 2011

An ongoing study by the Minnesota Taxpayers Association tells us that Wichita has high business property taxes. This may be a reason why the Wichita City Council feels it is necessary to offer relief from these taxes, but it is not an effective economic development strategy.

The MTA study (50-State Property Tax Comparison Study) finds that for a business consisting of property and fixtures, the effective tax rate of business property in Wichita is 2.914 percent. The average nationwide is 1.940 percent. This means that these taxes in Wichita are 50.2 percent higher than the nationwide average.

The situation isn’t so bad when we consider a different business with machinery and equipment as part of its mix of assets, as Kansas has exempted that property from taxation. In one scenario, the effective tax rate is 1.598 percent, which is still 12.1 percent above the nationwide average of 1.426 percent. In another scenario where the proportion of business property that is machinery and equipment is very high, the effective tax rate for Wichita is only slightly above the national average.

The study finds that Wichita is out-of-step with the rest of the nation when it comes to the ratio of effective tax rates between business and home tax rates. The U.S. average for this value is 1.724, meaning that the effective tax rate for business property is 1.724 times that of residential property. For Wichita, the value is higher at 2.316.

Wichita as active investor

Last week’s grant by the Wichita City Council of tax relief to Pulse Systems in the amount of about $87,000 per year illustrates how the city’s high business property tax rates inhibit business investment. It’s either that, or the city succumbs to simple greed by those who are willing to ask the government for money and make empty threats in pleading their case.

That day the city also started down a path that will lead it to exempting Bombardier LearJet from paying $1,217,000 per year in property taxes.

I can understand that people such as these applicant companies want to escape paying high business property taxes. But the solution is not to do what the Wichita City Council does week after week: grant exemptions on a case-by-case basis. These exemptions amount to the council asking the people of Wichita to make specific investments in these companies. That’s because when the city grants exemptions from paying taxes, others have to pay. This may be a reason why our effective tax rate is so high — for those companies that do pay taxes.

The notion that the City of Wichita can decide which companies are worthy of tax exemptions and investment is an illustration of what economist Frederich Hayek called a “conceit.” It’s so dangerous that his book on the topic is titled “The Fatal Conceit.” The failure of government planning throughout the world has taught that it is through markets and their coordination of dispersed knowledge that we learn where to direct capital investment. It is simply impossible for this city government to effectively decide which companies Wichitans should invest their tax dollars in.

Locally, Professor Art Hall of the Center for Applied Economics at the Kansas University School of Business has made a convincing case that Kansas needs to move away from the “active investor” approach to economic development. This is where government decides which companies will receive special treatment, be it in the form of tax abatements, tax credits, grants, and other forms of subsidy.

While many feel that Wichita and Kansas must offer incentives to be competitive with our cities and states, our leaders, most recently Lynn Nichols, president of the Wichita Metro Chamber of Commerce, routinely complain that Wichita doesn’t have as much incentives and cash to offer as do other locations. The “embracing dynamism” approach advocated by Hall and others provides a way to break out of this rat race and provide a sustainable foundation for economic growth in Wichita and Kansas.

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

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

While it’s easy to see people going to work at a new large company, or an existing company that has expanded, we need to look at the effect on everyone in the city, county, or state. And when we do that, the research is not encouraging.

Echoing the findings of Hayek regarding the impossibility of government picking winning companies through its active investor approach, Hall writes: “Embracing dynamism starts with a change in vision. Simply stated, the state government of Kansas should abandon its prevailing policy vision of the State as an active investor in businesses or industries and instead adopt the policy vision of the State as a caretaker of a competitive ‘platform’ — a platform that seeks to induce as much commercial experimentation as possible. By way of analogy, the platform-caretaker vision says: The State of Kansas runs tournaments; it does not field players. Creating a platform to host world-class tournaments will attract world-class players. The platform will endure but players will come and go. The platform-caretaker vision implies that the state government need not commit scarce resources to the enormously difficult task of predicting the outcome of competition if it focuses on the much more manageable task of creating the platform on which competition takes place.”

We need business and political leaders in Wichita and Kansas who can see beyond the simple imagery of a groundbreaking ceremony and can assess the effect of our failing economic development policies on the entire community. Unfortunately, we don’t have many of these.

Paying for incentives

Something the Wichita City Council should consider implementing is a form of “pay-go.” This is where the city would reduce spending by the cost of economic development incentive.

The city, however, believes it has cost-benefit studies that purport that incentives pay for themselves. These studies, provided by Wichita State University Center for Economic Development and Business Research are not of the same type that a business makes, or that people make in their personal lives. There are not legitimate business investments that have a return of what the city council routinely accepts over any reasonable period of time, at least not without accepting huge risks.

The “benefit” that goes into these equations is in the form of future anticipated tax revenues. It simply recognizes that economic activity is good, and since government levies taxes based on economic activity, its tax revenues go up. This happens whether or not government claims responsibility for creating the economic activity.

More taxes being paid to the city doesn’t benefit the people of Wichita, and it’s they who have to pay in order so that the city can have increased tax revenues. It’s not beneficial to take more money out of the productive private sector for the purpose of feeding government.

Tagged as: Economic development, Economics, Kansas state government, Sedgwick county government, Subsidy, Tax abatements, Taxation, Wichita city council, Wichita city government

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Kansas and Wichita quick takes: Thursday November 3, 2011

by Bob Weeks on November 2, 2011

Energy bill to be introduced today. According to a press release, U.S. Representative Mike Pompeo of Wichita will introduce the “Energy Freedom and Economic Prosperity Act.” This bill would eliminate all tax credits related to energy production. For more, see Pompeo to introduce ‘Energy Freedom and Economic Prosperity Act.’

Crony capitalism disputed. At yesterday’s meeting of the Sedgwick County Commission, chair Dave Unruh objected to my use of the term “crony capitalism” on the basis of the term having a pejorative connotation. A dictionary definition of “crony” is a “close friend especially of long standing.” Applied to government, the implication is that jobs or favoritism is given based on friendship or patronage. But when talking about capitalism, the term “crony capitalism” the definition is “Government spending on business only aggravates the problem. Too many businesses have successfully lobbied for special favors and treatment by seeking mandates for their products, subsidies (in the form of cash payments from the government), and regulations or tariffs to keep more efficient competitors at bay.” This is the description given by Charles G. Koch in his Wall Street Journal piece Why Koch Industries Is Speaking Out: Crony capitalism and bloated government prevent entrepreneurs from producing the products and services that make people’s lives better. It precisely describes what happened when the county granted a forgivable loan to Johnson Controls. More about this issue is available here.

Kansans For No Income Tax. The new group Kansans for No Income Tax is, according to its website, “a nonprofit working to educate Kansas taxpayers about the benefits of eliminating the state income tax.” The problem, as the group sees it: “Kansas has the 19th highest state and local tax burden in the country and our economic outlook is ranked 37th in the nation. With this economic environment, it is no surprise that Kansas continues to lose businesses, revenue and its citizens. We cannot continue down the path of reckless spending and policy that includes one year fixes to get us by. We must instead focus on a long-term path to prosperity for our state. This path includes the regulation of our tax base with less volatile taxes paired with a more business friendly regulation environment.” … The groups is conducting a bus trip across Kansas this Friday and Saturday. More information, including locations and times, is in this press release.

Misguided efforts to improve capitalism. From Eamonn Butler: Ludwig von Mises — A Primer on how efforts by government to intervene in markets fail: Indeed, our efforts to manipulate the market economy, and make it conform to a particular vision, are invariably damaging. Capitalism is superbly good at boosting the general standard of living by encouraging people to specialise and build up the capital goods that raise the productivity of human effort. But when we tax or regulate this system, and make it less worthwhile to invest in and own capital goods, then capitalism can falter. But that is not a “crisis of capitalism,” explains Mises. It is a crisis of interventionism: a failure of policies that are intended to “improve” capitalism but in fact strangle it. One common political ideal, for example, is “economic democracy” — the idea that everyone should count in the production and allocation of economic goods, not just a few capitalist producers. But according to Mises, we already have economic democracy. In competitive markets, producers are necessarily ruled by the wishes of consumers. Unless they satisfy the demands of consumers, they will lose trade and go out of business. If we interfere in this popular choice, we will end up satisfying only the agenda of some particular political group. A more modest notion is that producers’ profits should be taxed so that they can be distributed more widely throughout the population. But while this shares out the rewards of success, says Mises, it leaves business burdened with the whole cost of failure. That is an imbalance that can only depress people’s willingness to take business risks and must thereby depress economic life itself.

Markets: exploitation or empowerment? Do markets lead to a centralization of political and economic power, or do markets decentralize and disseminate wealth? In an eight-minute video from LearnLiberty.org, a project of Institute for Humane Studies, Antony Davies presents evidence and concludes that markets and free trade empower individuals rather than exploit them.

Tagged as: Capitalism, free, Government spending, Interventionism, Kansas state government, Mike Pompeo, Regulation, Sedgwick county government, Taxation

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Johnson Controls loan not needed

November 1, 2011

The Sedgwick County Commission will consider making a forgivable loan that is not needed.

Tagged as: Capitalism, Economic development, Interventionism, Sedgwick county government, Subsidy

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