Tax abatements

Carl Brewer: State of the City for Wichita, 2012

by Bob Weeks on February 1, 2012

Last night Wichita Mayor Carl Brewer delivered his annual State of the City Address. The text of the address may be read at State of the City Address.

In his speech, Brewer several times criticized those who act on “partisan agendas.” This is quite a remarkable statement for the mayor to make. Partisan usually refers to following a party line or platform. The mayor didn’t mention who he was criticizing, but it’s likely he was referring to myself and others like John Todd, Susan Estes, and Clinton Coen, as we appear regularly before the city council, usually in disagreement with the mayor and his policies.

What’s remarkable is that the council, even though it has four Republican members, almost always votes uniformly with Democrat Brewer and the other two politically liberal members of the council. The only exception is Michael O’Donnell (district 4, south and southwest Wichita), who is often in a minority of one voting in opposition to the other six. The other Republican members — Pete Meitzner (district 2, east Wichita), James Clendenin (district 3, southeast and south Wichita), and Jeff Longwell (district 5, west and northwest Wichita) — routinely vote in concert with the Democrats and liberals on the council.

Remarkable also are the many members of the business community who appeal to the council for subsidies, increased government intervention, and more central planning from city hall: many of these are Republicans. Conservative Republicans, many have personally told me.

This describes a lack of partisanship. Most of the mayor’s critics, such as myself, are more accurately characterized not as acting along party lines, but as acting on their belief in economic freedom, free markets, and limited government.

Economic development

The mayor said that the city’s efforts in economic development had created “almost 1000 jobs.” While that sounds like a lot of jobs, that number deserves context.

According to estimates from the Kansas Department of Labor, the civilian labor force in the City of Wichita for December 2011 was 192,876, with 178,156 people at work. This means that the 1,000 jobs created accounted for from 0.52 percent to 0.56 percent of our city’s workforce, depending on the denominator used. This miniscule number is dwarfed by the normal ebb and flow of other economic activity.

The mayor did not mention the costs of creating these jobs. These costs have a negative economic impact on those who pay these costs. This means that economic activity — and jobs — are lost somewhere else in order to pay for the incentives.

The mayor’s plan going forward, in his words, is “We will incentivize new jobs.” But under the mayor’s leadership, this “active investor” policy has produced a very small number of jobs, year after year. Doubling down on the present course is not likely to do much better.

But there are those who disagree, despite all evidence to the contrary. Sedgwick County Commissioner Dave Unruh — a conservative Republican, for those keeping track of partisanship — recently called for a “deal-closing” fund of $100 million. A funding source of this magnitude would undoubtedly require a new tax. There are many who feel there should be a new sales tax devoted to economic development and downtown Wichita development. We should not be surprised to see such a proposal emerge, and not be surprised that civic and business institutions will support it.

The mayor repeatedly said that the city has been “courageous.” In reality, Wichita does about the same as everyone else. But there is a way Wichita could distinguish itself among cities.

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, tax increment financing, community improvement district special taxes, and other forms of subsidy. Being an “active investor” has been the approach of the City of Wichita, and according to the mayor’s vision, this plan is to be stepped up in the future.

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 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.”

We need business and political leaders in Wichita and Kansas who can see beyond the simplistic 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 — and Mayor Brewer leads in the opposite direction.

Critical of misinformation campaigns

In his speech, Brewer was critical of those who “spread misinformation.” He was not specific as to who he’s criticizing, and I wouldn’t expect him to name specific people in a speech like this.

But when the mayor criticizes people for being uninformed or misinformed, he needs to look first at himself. He and city staff also need to engage their critics and be responsive to requests for information.

As an example of misinformation, the mayor cited this evidence that city policies are working: “The proposed Ambassador Hotel with a 3-to-1 private to public investment ratio.”

The city arrived at this ratio by employing a very narrow definition of public investment. When tax credits from the State of Kansas and federal government as well as other sources of public subsidy are accounted for, the ratio drops to less than two to one.

It’s true that considering only the city’s artificially narrow definition of public funding, the ratio does reach three to one. But Wichitans also have to pay part of the costs of the tax credits and other subsidies.

The city has also been less than honest in its promotion of the cost-benefit ratio for the Ambassador Hotel project. The city officially cites a cost-benefit study produced by Wichita State University Center for Economic Development and Business Research. Part of that study produced a cost-benefit ratio of 2.63 to one, and that’s what the city uses as justification for its participation in the project.

But the full story of the costs and benefits of this project are contained in these numbers from the WSU analysis:

                                    ROI   Cost-benefit ratio
City Fiscal Impacts General Fund  163.2%        2.63
City Fiscal Impacts Debt Service  -17.2%        0.83
City Fiscal Impacts                -9.8%        0.90

WSU evaluated the impact of the Ambassador Hotel on the City of Wichita’s finances in two areas: The impact on the city’s General Fund, and separately on the city’s Debt Service Fund. The two were combined to produce the total fiscal impact, which is the bottom line in this table.

The City of Wichita cites only the positive impact to the General Fund figure. But the impact on the Debt Service fund is negative, and the impact in total is negative.

It’s true that the ROI and cost-benefit ratio for the General Fund indicate a positive investment return. But the cost of the Ambassador Hotel subsidy program to the General Fund is $290,895, while the cost to the Debt Service Fund is $7,077,831 — a cost factor 23 times as large.

Citizens ought to ask: Who is spreading misinformation?

It is difficult to get a response from city hall regarding questions like these. So far city economic development director Allen Bell has not agreed to meet with representatives of Tax Fairness for All Wichitans, a group opposed to the subsidies for the Ambassador Hotel. (I am part of that group.) The city and its allied economic development groups will not send representatives to participate in a public forum on this matter.

Simplistic answers

The mayor criticized those who “provide simplistic answers to very complicated challenges.” He may be — we don’t really know — referring to those like myself who advocate for free market solutions to problems rather than reliance on government. Certainly the mayor believes that government must act — “courageously” he said — to confront our problems.

A problem with the mayor’s plan for increased economic interventionism by government is the very nature of knowledge. In a recent issue of Cato Policy Report, Arnold King wrote:

As Hayek pointed out, knowledge that is important in the economy is dispersed. Consumers understand their own wants and business managers understand their technological opportunities and constraints to a greater degree than they can articulate and to a far greater degree than experts can understand and absorb.

When knowledge is dispersed but power is concentrated, I call this the knowledge-power discrepancy. Such discrepancies can arise in large firms, where CEOs can fail to appreciate the significance of what is known by some of their subordinates. … With government experts, the knowledge-power discrepancy is particularly acute.

Relying on free market solutions for economic growth and prosperity means trusting in the concept of spontaneous order. That takes courage. It requires faith in the values of human freedom and ingenuity rather than government control. It requires that government officials let go rather than grabbing tighter the reins of power.

Mayor Brewer, five of six city council members, and the city hall bureaucracy do not believe in these values. Wichita’s mayor is openly dismissive of economic freedom, free markets, and limited government, calling these principles of freedom and liberty “simplistic.” Instead, his government prefers crony capitalism and corporate welfare. This is the troubling message that emerges from Brewer’s State of the City address.

Tagged as: Allen Bell, Capitalism, Carl Brewer, Corporate welfare, Dave Unruh, Economic development, Economic freedom, Free markets, Interventionism, James Clendenin, Jeff Longwell, Michael O'Donnell, Pete Meitzner, Subsidy, Tax abatements, Wichita city council, Wichita city government

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Boeing departure presents challenge for Wichita and Kansas

by Bob Weeks on January 6, 2012

The announcement of the departure from Wichita of Boeing presents challenges for the Wichita area and the state of Kansas. The response of government officials over the next few years will need to depart from past and present practice if Wichita wants to build a dynamic and sustainable economy. With a few exceptions, our current elected officials will likely proceed with targeted economic development, and Wichita and Kansas will miss an opportunity to implement meaningful and lasting change.

Aid offered to Boeing

Boeing has been the recipient of much targeted economic development incentives over the years. From 1979 to 2007, Boeing received tax abatements through the industrial revenue bond process worth $658 million, according to a compilation provided by the City of Wichita.

In his remarks, Kansas Representative Jim Ward said “Boeing is the poster child for corporate tax incentives.” Kansas Legislative Research has compiled a list of legislative measures that benefited Boeing, which may be viewed at Kansas and Boeing. This document contains only those measures passed by the state, not by cities and counties to help Boeing.

Some of the legislation on the list really should not be included, as it benefited all companies, not just Boeing. An example is the 2006 machinery and equipment property tax exemption. The author correctly notes that Boeing often received targeted relief from this tax through the IRB process. Still, this is an example of good economic policy that affects all businesses, which is important.

Similarly, the repeal of the franchise tax — another bill on this list — benefited not only Boeing, but everyone, and should not be on this list.

An example of legislation crafted specifically for Boeing was 2003′s Economic Development and Revitalization Reinvestment Act, which became statute 74-50,136. This law awarded Boeing with $80 million, the money to be repaid by the withholding taxes of Boeing’s employees — in other words, at no cost to Boeing. This bill passed the Kansas House of Representatives by a vote of 107 to 6, with Rep. Ward voting with the majority to pass.

Now, Ward says “We will be less trusting in the future of corporate promises.”

The danger going forward

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

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

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

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

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

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

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

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

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

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

Kansas tax policy

One person reminded me of this: “The real point about Boeing’s departure that no one is discussing is the fact that the positions leaving here are going to three states: Oklahoma, Texas, and Washington. Two of these states have no income tax while the third, Oklahoma, has tight limits on both state and local tax increases while reducing state income tax rates in recent years.”

While Governor Brownback and many members of the legislature want to reduce income rates in Kansas to make our state more competitive for business, there is much opposition. It has been thought that the plan would be to gradually reduce income tax rates over several years. If anything, the departure of Boeing means we should act to reduce tax rates sooner rather than later.

Those who oppose reducing taxes raise the problem of how to replace the income lost due to lower tax rates. They fear that the state will raise the sales tax, or that local governments such as cities, school districts, and counties will raise sales or property taxes.

But the answer should be: Don’t replace the missing income. Instead, spend less at the state level. That will improve the Kansas economy as more money will be left in the private sector instead of being transferred to an unproductive and wasteful government. And if the state can be successful in nurturing a competitive business and economic climate, that will bring more jobs, which will reduce the demand on the state for various social services. More jobs mean more revenue to the state in other forms besides income taxes, too.

Our challenge is this: Boeing said that costs in its San Antonio, Texas facility are 70 percent lower than in Wichita. We need to figure out why this discrepancy — if it is real — exists. We need to eliminate this differential cost of doing business in Kansas. The instinct of politicians and bureaucrats will be to offer targeted relief to the companies they believe deserve it. For those few companies, perhaps this differential can be reduced.

But this is the wrong policy. All business firms deserve relief, and by doing that we can create a dynamic Kansas economy so that we all will prosper.

Tagged as: Carl Brewer, Economic development, Kansas state government, Tax abatements, Wichita city council, Wichita city government

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Wichita falls in economic performance ranking

by Bob Weeks on December 28, 2011

Recently the Milken Institute released a report examining the economic performance of metropolitan areas in the United States. The report, titled Best-Performing Cities 2011, describes itself as “The annual Best-Performing Cities index provides an objective, comprehensive measure of economic performance across metropolitan areas of the country.”

Specifically, this report “measures growth in jobs, wages and salaries, and technology output over a five-year span (2005–2010 for jobs and technology output and 2004-2009 for wages and salaries) to adjust for extreme variations in business cycles.”

On the composition of the index, the report states: “Employment growth is weighted most heavily in the index because of its critical importance to community vitality. Wage and salary growth measures the quality of the jobs being created and sustained. Technology output growth is another key element of economic vibrancy.”

Among the top 200 metropolitan areas, Wichita ranked 104th in overall performance this year, down from 72nd the year before.

In the category of one-year job growth from 2009 to 2010, Wichita ranked 199th out of the 200 largest metropolitan areas. For five-year job growth Wichita did better, ranking 63rd of 200.

Interestingly, Wichita ranks high — ninth out of 200 — in a measure of high-technology industry concentration. The description of this measure in which Wichita ranks highly is: “High-tech location quotients (LQs), which measure the concentration of the technology industry in a particular metro relative to the national average, are included to indicate a metro’s participation in the knowledge-based economy.”

Reports such as these can be useful, but can also be misunderstood or misapplied — or sometimes incorrect. For example, Wichita isn’t usually thought of as a center of concentration in high-tech industry. In a 2011 ranking of the best cities for high tech jobs produced by Joel Kotkin, Wichita didn’t make the list, which included 51 cities. That list was based on “Employment in 45 high technology manufacturing, services, and software industry sectors.”

Some will dismiss Wichita’s fall in rankings because of our heavy reliance on aviation, particularly business aviation, which was hit very hard by the recession.

Wichita — and Kansas — can take note, however, of the high performance by cities in Texas. Four of the top five are in Texas, as are nine of the top 25. There is a movement in Kansas to reduce the state’s income tax rates to make Kansas more attractive to business. Texas has no state income tax.

We should also note that Wichita’s ranking fell at a time of vigorous economic development efforts by Wichita and Sedgwick County, the major components of the Wichita metropolitan area. In his State of the City address this year, Wichita Mayor Carl Brewer spoke about Wichita’s economic development efforts. The mayor said that the city’s efforts saved 745 jobs and created 435 jobs, for a total impact of 1,180 jobs. To place those numbers in context, we note that American Community Survey data from the U.S. Census Bureau indicates the labor force in Wichita is 191,760 persons. This means that the economic development efforts of the City of Wichita affected a number of jobs equivalent to 0.6 percent of the city workforce.

This small number of jobs impacted by the city’s economic development initiatives is dwarfed by other economic events. Additionally, these efforts by the city are counterproductive — if our interest is creating a dynamic economy in Wichita. Analysis by the Kauffman Foundation finds that it is new firms — young firms, in other words — that are the primary drivers of job creation. But the economic development policies of cities like Wichita are definitely biased toward older, established firms. The cost of these economic development efforts, which are paid for by everyone — including young businesses firms struggling to grow — means that we prop up unproductive companies at the expense of the type of firms we need to really grow the Wichita economy.

Wichita is not the only component of the Wichita metropolitan area, but is certainly the driving force in the region’s economy.

Reports such as these are evidence that the economic development policies of Wichita and Sedgwick County are not working well. We need to distinguish ourselves somehow and produce greater economic growth. Kansas Governor Sam Brownback released an economic development plan that sounded some of the right notes, but in practice his administration is relying on more of the same targeted subsidies that most states and cities use.

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.

Tagged as: Economic development, Economics, Greater Wichita Economic Development Coalition, Subsidy, Tax abatements, Wichita city government

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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.

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.

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.”

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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Sedgwick County, Golf Warehouse, reveal shortcomings in procedure

by Bob Weeks on June 3, 2011

Wednesday’s decision by the Sedgwick County Commission to grant a forgivable loan of $48,000 to The Golf Warehouse is yet another example of local government relying on corporate welfare as economic development, and exposes how little deliberation is given to making these decisions.

This subsidy was promoted by the county and TGW’s consultant as necessary to persuade the applicant company to expand its operations in Wichita rather than Indiana, where the company has other operations and had also received an offer of subsidy. The same argument had been made to the Wichita City Council in May 10th, and it was successful in persuading all council members but one to vote in favor of granting a forgivable loan of the same amount as the county.

At the county commission meeting, commissioners received a presentation by Leslie Wagner, Director of Project Management and Development for Ginovus, an economic development and site location advisory services firm working on behalf of TGW.

While The Golf Warehouse was started in Wichita by entrepreneurs, Wagner told commissioners that the company is now owned by Redcats, a Paris, France company. That acquisition took place in 2006, she said.

A focus of Wagner’s presentation was how large and successful an enterprise Redcats is, with $4.8 billion in annual sales revenue and over 14,000 employees. As to TGW specifically, Wagner said it offers the largest and broadest selection of golf products in the world, and has expanded to included baseball, softball, and soccer products.

Right away some might be inclined to ask why, with the company so large and successful, local governments find it necessary to prop up this company with public assistance.

According to Wagner, TGW will add 105 new employees by 2015, and the company’s average annual payroll by then will be $9,995,000.

The argument for subsidy

In her presentation, Wagner listed the incentives offered to TGW by both Indiana and Kansas. But she did not supply the value of each incentive, which makes the comparison largely meaningless. Additionally, the list of the incentives and subsidies offered by the State of Kansas was not complete. Further, some of the incentives offered by Indiana are already present in Kansas.

For example, one incentive offered by Indiana was an abatement on personal property tax, which Wagner indicated was a factor in favor of that state. But Kansas does not tax business personal property, that is, business machinery and equipment newly purchased, leased, or moved into Kansas. This ranges from desks, computers, and copiers to large pieces of machinery and equipment. The incentive offered by Indiana, therefore, is already in place in Kansas without companies needing to ask for it, and Wagner should not have included this as a distinguishing factor between Indiana and Kansas.

In addition, Kansas has added “expensing,” which allows businesses to depreciate purchases in one year instead of several, which reduces Kansas state income tax. As TGW expands and makes these purchases, it will be able to take advantage of this new provision in the Kansas tax code.

Wagner also mentioned an Indiana program called EDGE (Economic Development for a Growing Economy), which rebates employees’ state income tax withholding back to the company. We have that in Kansas, too. It’s called Promoting Employment Across Kansas (PEAK), and the range of situations where this program can be applied has been expanded by this year’s legislature. This, again, is an example where an incentive offered by Indiana and promoted by Wagner as a reason as to why the county must grant a subsidy of its own to TGW is already present in Kansas.

Another part of Wagner’s presentation that deserves a second look is her analysis of the economic impact of TGW. Wagner said that over ten years the payroll — the wages paid to its employees in Wichita — of TGW would be $100,623,437, with a “conservative” apportionment to the county of $50,311,718.

She then showed the commission a slide where she computed the return on the county’s investment. For the “return,” she used the $50,311,718 figure of payroll that she attributed to the county. For the “investment,” she used $96,000, which is the sum of the forgivable loans from both Wichita and Sedgwick County. (Why she used both entity’s investment but only county payroll, I don’t know.)

Her calculations from these numbers produced a return on investment of 524 percent. “If I were making an investment, that’s a phenomenal return, and I’d make that one all day long,” she told commissioners.

But her actual calculation should have been as follows ($50,311,718 – $96,000) / $96,000 * 100 = 52,308 percent for the rate of return, if she was looking to fluff up her numbers as much as possible.

But even that calculation wouldn’t make economic or financial sense. The $50,311,718 is returned over a period of 10 years, so the receipt of that money needs to be spread over that time. Then, since long time periods are involved, the returns in future years need to be discounted, because a dollar expected to be received in ten years is not worth as much as a dollar received this year. I made a few other assumptions and used Excel’s internal rate of return function to compute a rate of return of 5,241 percent.

This tremendous rate of return, of course, makes no economic sense either. The $50,311,718 used as the “return” to the county is not that at all. This money is wages paid to workers. It belongs to them, not to the county. True, the county will get some of that in the form of sales taxes these workers pay as they make purchases within the county, and perhaps in other forms of taxes. Using an estimate of that number would make sense on some level, and that is the type of reasoning the Wichita State University Center for Economic Development and Business Research uses to compute the cost-benefit figures the city and county often rely upon in making decisions.

But the figures and calculations Wagner used to make the case for TGW make absolutely no economic or financial sense. Worse than being merely absurd, they are deceptive. Compounding the error, elected officials such as commission chair Dave Unruh cited them as a factor in making his vote in favor of granting the forgivable loan.

Completing her presentation, Wagner said “Perhaps as important, it’s goodwill. … Does the state want us to stay, does the community want us to stay, and are they willing to help us grow?” Brad Wolansky, CEO of TGW, said the loan is part of the “element of partnership” between the county and TGW, which he said was indicative of the county’s support. This is the same attitude expressed at the Wichita City Council meeting: Many of these companies requesting incentives and subsidies believe they deserve some sort of reward for investing in Wichita and creating jobs. The profits of entrepreneurs or capitalists are no longer sufficient, it seems, for some companies.

In remarks from the bench, Sedgwick County Commissioner Richard Ranzau questioned the need for this incentive, citing the recent example of a Save-A-Lot store which will be built by a developer without incentives, after the original developer failed to acquire all the incentive he asked for. Video of his remarks and an exchange with Wagner is below.

In his remarks, Commissioner Jim Skelton said this decision is a “no-brainer,” and that he was proud to do this for the community. Chairman Unruh said “we’re competing with someone else for this company.” He referenced the “great return” on the county’s investment, and that he could not find a reason not to support it.

All commissioners except Ranzau voted to grant the forgivable loan, with Karl Peterjohn absent.

City and county information not complete

The forgivable loan subsidy granted by both Wichita and Sedgwick County is not the only subsidy TGW will receive. An inquiry to the Kansas Department of Commerce indicates that from the state of Kansas, TGW will receive $125,000 from the Kansas Economic Opportunity Initiatives Fund, $125,000 in Kansas Industrial Retraining, $50,000 in Kansas Industrial Training, $96,000 in sales tax savings, $315,918 in personal property tax savings, and $623,796 from the High Performance Incentive Program, for total incentives from the state of $1,310,714.

These state incentives were not mentioned by the county. The value is also much higher than the City of Wichita reported in its material for its May 10th meeting when the city approved its forgivable loan to TGW. At that time, city documents reported the value of state subsidies at $275,000, a figure just 21 percent of the value reported by the Department of Commerce.

Corporate welfare, again

This episode, where subsidy is heaped on a company who presents a threat — real or imagined — of leaving Wichita or expanding elsewhere, represents local officials not grounding a decision on actual facts. The wild claims of return on investment made by the company’s representative simply can’t be believed. Her information about the incentives offered and available, as well as that from the City of Wichita, is incomplete or misleading.

With some time to analyze the claims made by Wagner (and others who appear in similar situations), we can expose them for what they are. But commissioners — city council members too — often don’t have time or expertise to examine the facts. Commissioner Ranzau told me that he did not receive Wagner’s slides before the meeting. The information delivered to the council by Sherdeill Breathett, Economic Development Specialist for the county, did not appear in the new agenda system the county recently implemented. During meetings there is not time to analyze calculations or examine the claims made by presenters.

We have to ask, however, if local government officials have the desire to examine these presentations and claims. Once the veneer of economic development hucksterism — thin as it is — is stripped away, we are left with what Ranzau has stated several times from his position on the commission bench: a simple transfer of one person’s money to another using the force of government as the agent. This reality of corporate welfare is something that officials would rather not recognize, and it’s not economic development in my book.

Tagged as: Corporate welfare, Dave Unruh, Economic development, Jim Skelton, Kansas state government, Richard Ranzau, Sedgwick county government, Subsidy, Tax abatements, Taxation, Wichita city government

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Kansas needs a dynamic economic growth policy

by Bob Weeks on May 25, 2011

Note: Since Dr. Hall’s address to the Wichita Pachyderm Club covered below, the business expensing that he proposed has been signed into law by Governor Brownback. The governor also issued an economic development plan that incorporates large portions of Hall’s advice, but legislation expanding some of the present-day “active investor” economic development practices has also been signed into law. The Promoting Employment Across Kansas (PEAK) program, which allows companies to retain their employees’ payroll withholding taxes, has been expanded, but not so that it covers all new business firms, as Hall recommended.

A dynamic market where many new business startups attempt to succeed and thrive while letting old, unproductive firms die is what contributes to productivity and economic growth. But most economic development policies, including those of Kansas and Wichita, do not encourage this dynamism, and in fact, work against it.

That’s the message of Dr. Art Hall, who spoke to the Wichita Pachyderm Club on the topic “Business Dynamics and Economic Development in Kansas.” Hall is Director of the Center for Applied Economics at the Kansas University School of Business.

At the start of his talk, Hall said that economic development has become an industry of its own, a public industry sometimes implemented as public-private partnerships. But its agenda is often not genuine economic development, he said.

In a short history lesson, Hall described how Walter Beech came to Wichita from North Carolina simply because Clyde Cessna was in Wichita. Sprint began in Abilene in 1899. Fred Koch, who founded the company that became Koch Industries, came to Wichita because Lewis Winkler was here. “Serendipity — that’s the theme.”

Hall displayed a map of taxpayer migration. There is a huge and wide swath of deep blue — representing the highest rate of out-migration — stretching north to south through the Great Plains, including much of Kansas. The Plains are urbanizing, Hall said. Pockets are doing well, but generally the rural areas are losing population. Economic development strategies must realize this long-term trend, he said.

A chart showed the geographic distribution of income earned in Kansas. In 1970, 55 percent of income was earned outside the state’s two major urban areas: Wichita and the Kansas City and Lawrence areas. In 2008, that number had declined to 38 percent. The cause of this is people moving to cities from small towns and rural areas.

On a map of Kansas counties, Hall showed how jobs are moving — concentrating — to a few areas of the state. “I think this is a positive development, because density tends to be a precursor to productivity, and productivity — meaning the value of output per worker — is one of the core fundamental definitions of economic growth.” It’s the reason, generally speaking, as to why cities are prosperous.

Hall said that we should care about our rural communities, but if we slow down the process of densification, we may be losing out on productivity growth and its benefit to economic development.

Continuing on this important theme, Hall said that the key to real and sustainable economic development is productivity growth: “Productivity growth happens on the front lines of individual businesses. You cannot will productivity growth. You cannot legislate productivity growth. You must create the conditions under which individual businesspeople, slogging it out on the front lines every day, create prosperity and productivity by trying new things and working hard. That requires a climate in which they feel optimistic enough to try new things, are rewarded for their efforts, and are willing to test new ideas.”

Dynamism is one of the most underappreciated aspects of the U.S. economy among those working in economic development, Hall told the audience. There is a high correlation between the average size of a business and economic growth, and particularly employment growth. In other words, small companies tend to grow faster than large companies. In the chart Hall displayed, there is a clear demarcation at companies with about 20 employees.

But most of our economic development policies have a bias towards big business. Hall said this is understandable. Further, he said that Wichita is a big business town, meaning that statistically, it is not poised to be a fast-growing area. Hall said we should create an atmosphere where we have lots of small businesses, where there is lots of experimentation. “If our economic development policies are biased against that, that is not helpful.”

A chart showed that each year many business firms die or contract, and many others are born or expand. These numbers are large, relatively speaking: in most years, around 150,000 jobs are created through new firms or expansion of existing firms, and about the same number are lost. Given that Kansas has about one million jobs, each year about 30 percent of Kansas jobs are in in play, just as a result of business dynamics.

Hall said that when the Kansas Department of Commerce announces the creation of 80 new jobs in Kansas, we need to remember that the marketplace swamps anything that individual economic development agencies can do. Hall called for policies that can handle a large volume of businesses — 15,000 to 25,000 — in growth mode each year. Our state’s economic development policies can not handle this level of volume, he said.

Another chart of the states illustrated the relationship between job reallocation rate — the “churn” of jobs — and the economic growth rate in a state. States with high growth rates have high turnover rates in jobs. Kansas ranks relatively low in economic growth.

Economic development policy should encourage new business startups, Hall said, although there is a high correlation between newness and death of businesses. “What you’re trying to do is have enough experimentation that enough good experiments take hold, and they grow.” This concept of experimentation is related to serendipity, or “making desirable discoveries by accident” that Hall mentioned earlier.

But much economic development policy focuses on retaining jobs. Hall said that if what we mean by job retention is saving jobs in companies that ought to die, the policy is not productive. Instead, job retainment policies should create a climate where people can find new jobs quickly here in Kansas. Job retention should not mean bailouts, he added.

Hall emphasized that while there is a high correlation between new businesses and being small, he said it is new businesses that are most important to driving economic growth.

Newness of business firms is vitally important, Hall said. Summarizing a chart of Kansas job creating by age of the firm, he told the audience: “Without year-zero businesses [meaning the newest firms], the entire state of Kansas is almost always losing jobs. It’s the same for the United States. It’s the newness that matters. We want new businesses, but new businesses create churn, as there’s a high correlation between birth and death.”

Hall said this is a complicated process, and that most discussions of economic development do not recognize this complexity.

Hall explained that the state, in conducting economic development activity, often acts as an investor in a company. Specifically, he said that the state acts as an “active manager” similar to an actively managed stock mutual fund. The other type of investor or mutual fund is the passively-managed index fund, where the fund invests in all stocks, usually weighted by the size of the firms. Which approach works best: active management, or investing in all companies. This historical record shows that very few actively-managed funds beat index funds, only 2.4 percent from 1994 to 2004.

Hall said the data shows it is very difficult to predict which are the right firms to pick to come to Kansas. Therefore, we need policies that benefit all companies in order to have a dynamic market in new business firms. “Everyone gets the same deal,” he said.

Hall recommended three specific policies: First, universal expensing of all new capital investment made in Kansas, which means that companies can deduct new investment immediately. Second, eliminate the tax on capital gains. Third, automatic property tax abatements for new or improved business investment for a period of five years.

Hall’s talk was based on his paper from earlier this year titled Embracing Dynamism: The Next Phase in Kansas Economic Development Policy. That paper contains the charts referred to, and also more detail, additional information, and policy recommendations.

Tagged as: Economic development, Economics, STAR bonds, Tax abatements, Tax increment financing, Taxation, TIF districts, Wichita Pachyderm Club

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Wichita forgivable loan action raises and illustrates issues

by Bob Weeks on May 10, 2011

Today the Wichita City Council decided to grant a forgivable loan of $48,000 to The Golf Warehouse. This subsidy was promoted by the city as necessary to properly incentivize the applicant company to expand its operations in Wichita rather than Indiana, where the company has other operations and had also received an offer of subsidy. For more information, see Forgivable loan a test for new Wichita City Council members.

In presenting the item to the council, Allen Bell, Wichita’s Director of Urban Development said the forgivable loan was a “deal-closing” device intended to “win a competition with other locations.”

Further discussion brought out the fact that companies often “test the waters,” asking for incentives from cities like Wichita as a location they might consider moving to, only to us that as leverage for getting more incentives back home. (Wichita has suffered at the hands of this ruse, most recently granting a large forgivable loan to a company when the city used as leverage says they did not have discussions with the company.)

Council Member Michael O’Donnell asked if there was another form of economic development that The Golf Warehouse could have received. Bell said that in this case there wasn’t, that IRB financing with accompanying tax abatements wasn’t available for this project. As he has in the past, Bell pointed to the lack of tools in the toolbox, or “arrows in our quiver” he said today.

When the CEO of the applicant company spoke to the council, it was easy to get the impression that this company — like the many other companies that plead for incentives and subsidy — feel that because of their past and pending investment in Wichita, they are entitled some form of incentive. When the company’s outside site selection consultant spoke, this sense of entitlement became explicit. She told how the company has made “significant investment and has employed a lot of people and kept a lot of families employed.” She said that instead of forgivable loan, this should be called an “act of goodwill.” She said the company has made a huge investment, never asking for incentives, and that the loan allows the company to continue making investment into the community.

She also said that the offer made by Indiana amounted to twice Wichita’s offer, on a per-job basis.

Citizens spoke against the forgivable loan. John Todd asked if this is the economic formula that has blessed our city and county with the wealth and prosperity we enjoy today.

Clinton Coen told the council that these incentives are a bargaining tool, allowing cities to blackmail each other.

Susan Estes asked a question that built on O’Donnell’s earlier remarks: Why would we see this forgivable loan as egregious? On the surface, we see jobs, which is good, she said. But the money to pay for this loan comes from other taxpayers, she said, and there are many companies that need help, citing the number of companies filing for bankruptcy and having tax liens filed against them. “Why I find it egregious is that we’re doing something that helps one company at a time. We really need to take an overall look at our tax policy and address the tax issue. We have one of the highest tax rates on the Plains, and that’s why we get in these situations where we have to compete. If we had a better competitive tax rate we could spare all of this.”

Of interest for the political theater was the vote of three new council members, based on statements they made regarding forgivable loans on the campaign trail (see Forgivable loan a test for new Wichita City Council members). In making the motion to accept staff recommendation of the forgivable loan, council member Pete Meitzner said of the loan: “It is an investment, incentive, whatever you want to call it. It is not a give-away.”

Meitzner and James Clendenin voted with all the veteran council members to approve the forgivable loan. Only O’Donnell voted consistent with how he campaigned.

Analysis

This item before the Wichita City Council today requires analysis from two levels.

First, the economics and public policy aspects of granting the forgivable loan are this: It is impossible to tell whether The Golf Warehouse would not expand in Wichita if the forgivable loan was not granted. The companies that apply for these subsidies and that cite competitive offers from other states and cities have, in some cases, multi-million dollar motives to make Wichita think they will move away, or not invest any more in Wichita. Most politicians are scared to death of being labeled “anti-job,” and therefore will vote for any measure that has the appearance of creating or saving jobs.

Particularly inappropriate is the attitude of many of these companies in that they deserve some sort of reward for investing in Wichita and creating jobs. First, companies that make investments do, in fact, deserve a reward. That reward is called profit, but it has to be earned in the marketplace, not granted by government fiat. When a company earns profits in free markets, we have convincing evidence that wealth is being created and capital has been wisely invested. Everyone — the investors certainly but also the customers and employees — is better off when companies profit through competition in free markets.

But when government steps in with free capital, as was the case today, markets are no longer free. The benefits of capitalism are no longer available and working for us. The distortion that government introduces interferes with market processes, and we can’t be sure if the profit and loss system that is so important is working. Companies, as we saw today, increasingly revert to what economists call rent seeking — profiting through government rather than by pleasing customers in market competition.

Entrepreneurship, of which Wichita has a proud tradition, is replaced by a check from city hall.

Wichita’s own Charles Koch explained the harm of government interventionism in his recent recent Wall Street Journal op-ed: “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. Crony capitalism is much easier than competing in an open market. But it erodes our overall standard of living and stifles entrepreneurs by rewarding the politically favored rather than those who provide what consumers want.”

A forgivable loan — despite Council Member Meitzner’s claim to the contrary — is a cash payment to business, which Mr. Koch warns against.

The focus on job creation is also a confounding factor that obscures the path to true wealth and prosperity for Wichita. When companies ask the city, county, and state for subsidy and incentive, they tout the number of jobs and the payroll that will be created. But jobs are a cost, not a benefit, to business and most firms do all they can to minimize their labor costs just as they seek to minimize all costs. For Wichita to prosper, we need to focus on productivity and wealth creation, not merely employment.

The actions of the city council today keep Wichita on its path of piecemeal economic development and growth. Movement to a system that embraces economic dynamism, as advocated by Dr. Art Hall and as part of Governor Sam Brownback’s economic development plan for Kansas, is delayed. Economic development in Wichita keeps its present status as a sort of public utility, subject to policy review from time to time, as was mentioned today by the city manager.

Politically, Wichitans learned today the value of promises or statements made by most candidates while campaigning. Most candidates’ promises along with $3.75 will get you a small cappuccino at Starbucks — if you don’t ask for whipped cream.

Particularly interesting is the inability of politicians to admit they were wrong, or that they made a mistake, or that they were simply uninformed or misinformed when they made a campaign promise or statement. It was refreshing to hear Republican presidential candidate Tim Pawlenty, when he was in Wichita a few weeks ago, forthrightly admit that he was wrong about his initial position on cap-and-trade energy policies. City council members Clendenin and Meitzner could not bring themselves to admit that their votes today were at odds with their statements made while campaigning. This lack of honesty is one of the reasons that citizens tune out politics, why they have such a cynical attitude towards politicians, and perhaps why voter turnout in city elections is so low.

As one young Wichitan said on her Facebook page after sharing video of the three new council members today, obviously referring to city council district 2′s Pete Meitzner: “How to use your mouth: 1. Campaign under the guise that you are a fiscal conservative. 2. Insert foot.”

Tagged as: Allen Bell, Capitalism, Economic development, Economics, Entrepreneurship, Facebook, Free markets, Interventionism, Politics, Sam Brownback, Subsidy, Tax abatements, Wichita city council, Wichita city government

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Kansas and Wichita quick takes: Monday May 9, 2011

by Bob Weeks on May 9, 2011

Airfares down in Wichita. A city press release announces: “Wichita Mid-Continent Airport had the country’s 11th largest airline fare decrease since 2000 and now ranks 43rd in average fare of the 100 busiest airports, according to research by the federal Bureau of Transportation Statistics (BTS).” The program’s major source of funding is $5 million per year from the state. Currently, it is not known whether this funding will be in the budget the legislature is working on. … The program is controversial for claims of economic benefit that appear overstated. There is a way to pay for the program that shouldn’t be controversial. When government provides services that benefit everyone, such as police protection, most people agree that taxes to pay for these services should be broad-based. But we can precisely identify the people who benefit from cheap airfares: the people who buy tickets. Wichita could easily add a charge to tickets for this purpose. The mechanism is already in place.

Wichita City Council this week. A speaker on the public agenda will speak about restoring Joyland. Undoubtedly, the goal of the speaker will be to obtain public funds for this project. … City staff is recommending that the council deny a request for Industrial Revenue Bond financing by Pixius Communications LLC. As always, the benefit of the IRB financing to the applicant is the property tax and possible sales tax abatements that accompany the program. The city does not lend money, and does not guarantee that the applicant will repay the bonds. The reason staff is recommending not to approve the application is that Pixius is a service business, and under current policy, a service business must generate a majority of its revenues from outside the Wichita area. Pixius does not, and is asking the city to waive this policy for their benefit. … Separately, Pixius is applying for low-cost financing of renovations to the same building though the facade improvement program. The city has performed its “gap” analysis and has “determined a financial need for incentives based on the current market rates for economic rents.” This is another example of government investing in money-losing businesses. … Then The Golf Warehouse in northeast Wichita asks for a forgivable loan from the city as part of a larger package of incentives and subsidy. This item will prove to be a test for several council members who campaigned against these loans. … Council members will receive a quarterly financial report and view an “artistic concept” for WaterWalk.

Joyland topic of British tabloid. The British tabloid newspaper Daily Mail, in its online version, has a story and video about Wichita’s closed Joyland amusement park. For those who remember the park in its heyday, this is a fascinating — if not bittersweet — look at the park’s current condition. The headline of the article (“New images of an abandoned theme park reveal desolation in America’s heartland”) makes a connection between the deterioration of Joyland and the economic condition of America, a false impression which several comment writers corrected. … I don’t think the closing of Joyland has anything to do with public policy. Businesses come and go all the time as tastes and generations change.

Educational freedom to be discussed in Wichita. This week Kansas Policy Institute and The Friedman Foundation for Educational Choice will be discussing what other states have done to increase student achievement through reforms based on educational freedom and creating a student-centric focus. KPI and FFEC recently launched the “Why Not Kansas” initiative to educate Kansans on the need to reform the state’s K-12 educational system to allow Kansas schools to continue to improve. Speakers at the event will be Dave Trabert, president of Kansas Policy Institute, and Leslie Hiner, vice president of programs and state relations at The Foundation for Educational Choice. The event is Thursday, May 12 at 10:30 am, at the Central Wichita Public Library Auditorium. RSVP is requested by email to James Franko or by calling 316-634-0218.

Do you want to live in the world of Atlas Shrugged? From LearnLiberty.org, a project of Institute for Humane Studies: “In her masterpiece of fiction, Atlas Shrugged, Ayn Rand emphasizes three key classical liberal themes: individualism, suspicion of centralized power, and the importance of free markets. In this video, Prof. Jennifer Burns shows how Rand’s plot and characters demonstrate these themes, principally through innovative entrepreneurs who are stifled by laws and regulations instituted by their competitors. In the world of Atlas Shrugged, free markets and individual liberty have been traded away for equality and security enforced by the government. Burns ends by reviving Rand’s critical question: do you want to live in this kind of world?” … The video is six minutes in length.

Who are the real robber barons? In summarizing a chapter from his book How Capitalism Saved America: The Untold History of Our Country, From the Pilgrims to the Present, Thomas J. DiLorenzo explains the false lessons of capitalism and government that we have been taught:

“The lesson here is that most historians are hopelessly confused about the rise of capitalism in America. They usually fail to adequately appreciate the entrepreneurial genius of men like James J. Hill, John D. Rockefeller, and Cornelius Vanderbilt, and more often than not they lump these men (and other market entrepreneurs) in with genuine “robber barons” or political entrepreneurs.

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.

At the same time, the market entrepreneurs who practiced genuine capitalism, whose genius and energy fueled extraordinary economic achievement and also brought tremendous benefits to Americans, should be recognized for their achievements rather than demonized, as they so often are. Men like James J. Hill, John D. Rockefeller, and Cornelius Vanderbilt were heroes who improved the lives of millions of consumers; employed thousands and enabled them to support their families and educate their children; created entire cities because of the success of their enterprises (for example, Scranton, Pennsylvania); pioneered efficient management techniques that are still employed today; and donated hundreds of millions of dollars to charities and nonprofit organizations of all kinds, from libraries to hospitals to symphonies, public parks, and zoos. It is absolutely perverse that historians usually look at these men as crooks or cheaters while praising and advocating “business/government partnerships,” which can only lead to corruption and economic decline.

Tagged as: Capitalism, Education, Free markets, Freedom, Kansas Policy Institute, Liberty, Regulation, School choice, Subsidy, Tax abatements, Wichita city council, Wichita city government

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Sedgwick County Commission to consider corporate welfare as economic development

March 30, 2011

The Sedgwick County Commission will consider embracing corporate welfare as its economic development strategy.

Tagged as: Corporate welfare, Economic development, Sedgwick county government, Subsidy, Tax abatements, Wichita city government

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