From Kansas Policy Institute and the Kansas Chamber of Commerce, a new website with facts about the Kansas budget, economy, and schools.
GetTheFactsKansas.com aims to provide Kansans with factual information about our state. Sometimes this is in short supply, so this effort is welcome.
As an example, when explaining school spending, the site notes: “At $13,124 per-pupil, 2015 marked the third consecutive year of record-setting funding according to the Kansas Department of Education (KSDE). And if the Department’s estimates hold, another new record will be set when the 2016 final results are reported. Record funding is not the result of accounting changes; emails from KSDE confirm that no accounting changes impacted state or district funding totals for more than ten years. There was a correction effective in 2015 when the state-mandated 20 mills of property tax began being properly recorded as State Aid instead of Local Aid, but there would have been an increase in State Aid without that change.”
Information like this rebuts two arguments that Kansas progressives use. First, that the increase in school spending is due to a recent change in the way KPERS payments are reported. But, there has been no change in ten years. Second, that the shift in the reporting of local property taxes is used to falsely inflate state spending. As KPI notes, even after adjusting for this change, state funding of schools has risen.
The Wichita City Council approves economic development incentives, but citizens should not be proud of the discussion and deliberation.
Today’s meeting of the Wichita City Council saw the council discuss and approve economic development incentives for a project in downtown Wichita.
The item contemplated economic development incentives for redevelopment of an empty building in downtown Wichita to become a Hilton Garden Inn Hotel. The incentives being considered were a Community Improvement District (CID), Industrial Revenue Bonds (IRB), a parking agreement, and a skywalk easement. The discussion by the council was useful for revealing two members who are opposed to some targeted economic development incentives, but it also showed a troubling lack of knowledge and consideration by others.
The hotel is requesting industrial revenue bonds. These bonds do not mean the city is lending any money. Instead, IRBs in Kansas are a mechanism to convey property tax abatements and sales tax exemptions.
The agenda packet for this item states: “[Hotel developer] WDH is not requesting abatement of property taxes in conjunction with the IRBs.”1 This is presented as a magnanimous gesture, as something the hotel developers (WDH) could have requested, but did not, presumably out of some sort of civic duty.
But: Property tax abatements may not be granted within the boundaries of a TIF district, which this hotel is located within.23 So the developers did not request something that they are not entitled to request. This is not news. Nonetheless, several council members were grateful.
As to property taxes, Wichita City Council Member James Clendenin (district 3, southeast and south Wichita) asked what would be the increase in value in the building, once finished. Later Wichita City Council Member Jeff Blubaugh (district 4, south and southwest Wichita) praised the property taxes that will be paid. He also mentioned the “nearly-empty parking garage.” When the city built this garage and accompanying retail space it was to be a showpiece, but has been suffering from blight and lack of tenants paying market rates for rent.4
Asking about tax abatements, Wichita City Council Member Pete Meitzner (district 2, east Wichita) asked “They didn’t apply for other …” His voice trailed off before finishing the question, but the “other” tax abatement that could be applied for is the property tax abatement. Except, the law does not allow for a property tax abatement for this project.
All these questions alluded to the increased property taxes the renovated building will pay. Except, being within a TIF district, property taxes may not be abated. So where will the hotel’s property taxes go?
First, the property tax generated by the present value of the property (the “base”) will be distributed as before. But the increment — which will be substantial — will go to the TIF district, not the city, county, and school district. Except: This is an unusual TIF district, in that an agreement between the city and county provides that only 70 percent of the incremental property taxes will go to the TIF district, with the remainder being distributed as usual. This was not mentioned during today’s discussion.
There was talk about a “gap.” Some economic development incentives require documenting of a “financing gap” that makes the project not economically feasible. But that is not required for the incentives considered for this hotel.
Regarding the sales tax exemption: City document do not state how much sales tax will be forgiven, so we’re left to speculate. Previous city documents5 indicate spending $3,000,000 on furniture and fixtures, which is taxable. Sales tax on this is $225,000.
The same city document mentioned spending of $6,250,000 on construction of the hotel, and of $1,000,000 for construction of retail space. Sales tax on this combined total is $543,750. Based on material from the Kansas Department of Revenue, these amounts would be due if not for the action of the city council.6
In total, the development of this hotel will escape paying $768,750 in sales tax. It should be noted that Kansas is one of the few states that charges sales tax on groceries at the same rate as other purchases, making Kansas food sales tax among the highest in the nation.7
Curiously, council members Clendenin and Williams, who represent low-income districts where families may be struggling to buy groceries — and the sales tax on them — did not object to this special sales tax treatment for a commercial developer.
No more cash?
In his remarks, the mayor talked about how we can continue with economic development “without handing cash to corporations.” But when a project is going to buy materials and services on which $768,750 in sales tax is normally due, and the city council takes action to extinguish that liability, well, that’s better than cash to the receiver.
Kudos to Wichita City Council Member Bryan Frye (district 5, west and northwest Wichita), who actually cited the United States Constitution in his statement from the bench. He said that the issues surrounding this project are a far cry from what our Founding Fathers envisioned as the role of government, saying “I struggle with using city resources to collect and distribute sales tax for the sole benefit of one commercial entity.” He offered a substitute motion which would have approved all the parts of the agreement except for the CID tax. His motion failed, with only he and Wichita Mayor Jeff Longwell voting in favor.
On the original motion, which was to approve all parts of the incentive agreement, Longwell and Frye voted in opposition, with everyone else voting in favor.
City of Wichita. Agenda packet for September 6, 2016. Available here. ↩
“General rule: Materials are taxable.” (p. 4) Also: “Taxable labor services in Kansas are the services of installing, applying, servicing, repairing, altering, or maintaining tangible personal property performed on real property projects in the general category of commercial remodel work.” (p. 8) Kansas Department of Revenue. Sales & Use Tax for Contractors, Subcontractors, and Repairmen. Available at www.ksrevenue.org/pdf/pub1525.pdf. ↩
But the city has a sales tax. It’s called a “franchise fee” or “franchise tax,” depending on which city documents you’re reading. Either way, it’s just like a sales tax applied to your utility bill: gas, electric, cable television, water, sewer, or telephone.
In 2015, Wichita collected $44.3 million in franchise taxes. By comparison, the city’s share of the county-wide one cent per dollar sales tax was $58.0 million.1 Another context: In 2014 the city estimated that a one cent per dollar city sales tax would generate $80 million per year.
For 2017 the city is budgeting for $48.4 million in franchise fees.2 For 2018, $49.8 million.
What is the purpose of franchise taxes? The Wichita city budget explains: “Franchise Fees — These revenues are based on agreements between the City and local utilities. Generally, these agreements are long term and result in payments to the City of 5% of utility revenues. All franchise fee revenues are credited to the General Fund.”
The Wichita city code amplifies:
Sec. 3.93.350. — Payment of taxes — Franchise fee not a tax.
The franchise fees required herein as part of any franchise shall be in addition to, not in lieu of, all taxes, charges, assessments, licenses, fees and impositions otherwise applicable that are or may be imposed by the city, except that the franchisee shall be entitled to a credit in payment of franchise fees in the amount of any telecommunications service occupation tax due pursuant to Chapter 3.01 of this Code, as may be amended. The franchise fee is compensation for use of the right-of-way and shall in no way be deemed a tax of any kind.
There is some confusion over the naming of this concept. The city’s Comprehensive Annual Financial Report uses “franchise taxes.” The budget documents and the code shown above use “franchise fees.” Either way, this is extra money people must pay when they use utilities, as illustrated on these excerpts from electric and gas bills.
But should city residents have to pay this tax or fee? The city explains that the fee is “compensation for use of the right-of-way.” That makes sense. If someone owns something and someone else wants to use it, charging a fee is reasonable, if the parties agree.
Except: Who owns the right-of-way? The people of Wichita, of course. So our city government is charging us a tax (or fee) to use something we own. That’s clever — deviously clever. And something that only government can do.
I don’t want to give our city leaders any ideas, but when the city is complaining about not having enough revenue to fund everything it wants, it should look at franchise taxes. (Sorry, I mean fees.) While the city budget explains that the rates are the results of agreements between the utility companies and the city, why would utility companies object to an increase in franchise tax rates? They would simply pass along the tax to their customers, just as retail stores do when the state raises the sales tax rate. Certainly the water and sewer utilities would not object, as they are owned by the city.
Wichita, City of. Comprehensive Annual Financial Report for Fiscal Year Ended December 31, 2015. Page A-6. ↩
City of Wichita, Kansas 2017-2018 Proposed Budget. Page 61. ↩
Here is the delinquent property tax list for Sedgwick County for 2015, summarized and presented in an interactive table that you may sort.
Of note, the two property owners with the largest delinquent balances are the City of Wichita and the Kansas Turnpike Authority.
Inquiry to the City of Wichita reveals that two properties, 3239 E 1st and 3244 E Douglas ($72,282.69 and $47,878.37), are left over from a real estate developer’s default. He, not the city, was responsible for these taxes. A third property is a leased property related to the East Kellogg expansion, and the tenant is responsible for the taxes. For another property, the taxes were paid late, and another was an error that has been corrected.
The Sedgwick County Treasurer issues this caution:
Public notice is hereby given that taxes on Personal Property located in Sedgwick County, State of Kansas, is unpaid, in whole or in part, and here appears the name of each delinquent taxpayer followed by his/her last known address and the total amount of unpaid taxes, penalties and costs.
Some of the names listed may have already paid their personal property taxes or may be awaiting results of a tax grievance or tax protest before paying the taxes due. Unfortunately, it is not practical to delete these names.
I regret any undue embarrassment this may cause those who are still awaiting tax protest decisions.
In this episode of WichitaLiberty.TV: Wichita’s economic development, Sedgwick County spending, editorials ignoring facts, your house numbers, Kansas governors, taxpayer-funded political campaigns, and the nature of economic competition. View below, or click here to view at YouTube. Episode 127, broadcast August 21, 2016.
The good news, according to the report? “The majority of governors seem to understand that lower tax rates and limited government give citizens and businesses a greater incentive to reside and operate in their states compared to others with higher tax rates and more regulations.”
But some states received bad news. Louisiana Governor John Bel Edwards told his state: “So, if you insist on saying that I never said I would raise taxes — that I’m going back on my word — that’s fine. Say it. Get it out of your system, and then please come back here ready to work with me to do the job we were all hired to do.”
In Minnesota — which has a budget surplus — Governor Mark Dayton told his constituents, “They say, ‘give it all back’ to the taxpayers. But that slogan is based upon a wrong premise and a wrong conclusion.”
Kansas wasn’t highlighted in this report, as Governor Brownback’s State of the State address contained little regarding economic policy.
Kansas tax receipts by category, presented in an interactive visualization.
The Kansas Division of the Budget publishes monthly statistics regarding tax collections. These figures have been gathered and are presented in an interactive visualization.
For the past two years, individual income tax collections have been relatively flat. There are variations each month, but overall the trend is slightly up. Corporate income tax collections are on a slight downward trajectory.
Retail sales tax and compensating use tax have been rising for two years. A higher sales tax rate took effect on July 1, 2015, with the rate rising from 6.15 percent to 6.50 percent.
Cigarette taxes have risen rapidly since July 2015 when higher tax rates on these products took effect. The same trend is present in the tobacco products tax.
Severance taxes — tax collected on natural gas and oil as it is extracted from the ground — have been on a downward trend as prices for these produces have fallen. This is a sizable tax. In June 2014 collections of this tax were running at about $143 million per year. Two year later the rate is $28 million annually.
A proposal for a community improvement district in downtown Wichita includes a public hearing, but much information the public needs is missing.
This week the Wichita City Council will consider starting the process of creating a community improvement district and other economic development incentives. The action the council will consider Tuesday is to accept the petition of the property owners and set September 6 as the date for the public hearing. Also, on September 6, “a development agreement defining the City and Developer’s responsibilities will be presented to the City Council.”1
A community improvement district, or CID, is a geographical district in which merchants add extra sales tax, known as the CID tax. This extra tax is then routed to the property owners. CIDs may be of two types. In one, the city borrows money to give to the developers, and the CID tax repays the bonds. In the second, no money is borrowed. Instead, the CID tax is periodically remitted to the developers as it is collected. The proposed CID is of the latter type. It is proposed to collect a CID tax of 1.5 percent for up to ten years, with a limit of $930,000. (For more information about how CIDs work, see Community improvement districts in Kansas.)
City documents also state the developers will request industrial bond financing. In this case, according to city documents, the purpose of the IRBs is to avoid paying sales tax on property purchased. The developers are also requesting use of the nearby state office building parking garage, but no details are given.
A public hearing?
The September 6th meeting will include a public hearing regarding the CID, industrial revenue bonds, parking agreement, and development agreement. As of today, we have information about the CID. But we have little or no information about the other items to be considered that day, which is billed as a public hearing.
If a public hearing is to include meaningful input from the public, the city needs to provide citizens with information about these items, and soon.
What is the need for these economic development incentives? No reason is given. Some incentive programs require that the applicant demonstrate financial necessity. In other words, if the incentive is not given, it is impossible to proceed. No such argument has been advanced for this project. And if such an argument were to be made, we have to ask why are incentives needed to develop in downtown Wichita?
Since these incentives are proposed for a hotel, supporters argue that the cost of the incentives — at least the CID — will be borne by visitors to Wichita. This development, however, will contain a rooftop bar and ground floor commercial space. To the extent that Wichitans patronize these business firms, they will pay the CID tax. Even considering only the hotel, there are many Wichita-based companies whose employees travel to Wichita, staying in hotels at their companies’ expense. Wichita companies will be paying the CID tax in these cases. They will also pay the tourism fee, even though their employees are not tourists.
Besides, we shouldn’t view visitors to Wichita as a cash cow. Visitors staying in this hotel will pay these taxes:
State of Kansas sales tax, 6.5%
Sedgwick County sales tax, 1.0%
Wichita hotel tax, 6%
City tourism fee, 2.75%2
CID tax, 1.5%
The total of these taxes is 17.75%. (Yes, Wichita does charge visitors a “tourism fee.” If Wichita voters had followed the recommendation of the city, its bureaucrats, and the political class, there would be an additional tax of one percent.3)
Finally: As with all CIDs, why don’t the merchants simply raise their prices? Part of the answer is that the CID tax goes to benefit the landowners, which may not be the same party as the merchants who collect the tax.
Other than that, it’s convenient to have someone to blame higher prices on.
Jonathan Williams, Vice President in charge of the Center for State Fiscal Reform at the American Legislative Exchange Council (ALEC), addressed a luncheon gathering of the Wichita Pachyderm Club on July 22, 2016, presenting “A National Perspective on Kansas Fiscal Policy.” View below, or click here to view at YouTube. Videography by Paul Soutar.
Is Kansas government “hollowed-out” even though spending is rising?
In the Wichita Eagle,Burdett Loomis writes: “In 2011, Gov. Sam Brownback and a far-right Kansas House of Representatives began to hollow out state government, all in the name of smaller, more efficient, more private administration.”1
Loomis doesn’t define what he means by “hollow out” but the measure of the size of government is spending. Not taxation, but spending, because if government spends without taxing by the same amount, someone has to pay, eventually. Or, in the case of Kansas, we spent funds saved from years when Kansas collected more than it spent. (Yes, Kansans were over-taxed.) Then, we raised taxes.
In recent history Kansas general fund spending hasn’t fallen, except for one year, and that doesn’t “hollow out” government. Tax revenue declined, but what did Kansas do in response? Instead of cutting spending, the state engaged in deficit spending. For two years in a row, Kansas spent over $300 million each year from its savings in order to support (mostly) increasing spending. When that savings ran out, the state raised taxes rather than cutting spending.2
Charts at the end of this article show Kansas government spending, from general fund and all funds spending. One chart shows total dollars spent, and one shows per-capita spending. Both are adjusted for inflation. On these charts it’s difficult to see where total spending has been cut or slashed in recent years. All funds spending continues its upward trend, with a few exceptions. General fund spending remains level or trending slightly upwards.
Loomis: “But the value of a stable, reliable state government that delivers core programs in education, transportation, health and social services remains a bedrock element of most successful American states.”
Education spending in Kansas is not falling.3 Tables at Kansas State Department of Education have the numbers.4 Now we hear that the increases in spending are “all KPERS,” meaning contributions to the state retirement fund for teachers, and the state has recently changed to method of reporting KPERS contributions in a way that artificially inflates school spending. But Kansas State Department of Education says the method of reporting KPERS has not changed for ten years.5 Maybe we should ask former governor Kathleen Sebelius why she changed the method of reporting KPERS contributions in a way that (purportedly) artificially inflates school spending.
By the way, when writing about “reliable” state services, I wish Loomis would take notice of the huge gaps in achievement in our state’s schools between white students and minority students. For Kansas white students, 42 percent are proficient in reading at grade 4. For Kansas black students, only 15 percent are proficient, and 20 percent of Kansas Hispanic students. Similar gaps appear in reading at grade 8, and in math at grades 4 and 8.6 The sad fact is that this gap is reliable, occurring year after year.
As for transportation, there have been transfers from the state’s transportation fund to the general fund. This has been going on for a long time. But look at actual spending on roads. KDOT’s Comprehensive Annual Financial Report shows spending in the categories “Preservation” and “Expansion and Enhancement” has grown rapidly over the past five years. Spending in the category “Maintenance” has been level, while spending on “Modernization” has declined. For these four categories — which represent the major share of KDOT spending on roads — spending in fiscal 2015 totaled $932,666 million, up from a low of $698,770 in fiscal 2010. This is actual spending on roads without regard to transfers in or out of the highway fund.7
And while critics of the current administration focus on transfers from the highway fund, look at transfers to the fund. Nearby is a chart showing how many sales tax dollars were transferred to the highway fund. In 2006 the transfer was $98,914 million, and by 2015 it had grown to $511,586 million, an increase of 417 percent. Inflation rose by 18 percent over the same period.8
I’ll leave it to someone else to research spending on health and social services.
Near the end of the article, Loomis writes: “Over the past few years, much of the political discourse has focused on shrinking revenues from tax cuts.” But we should really be looking at the level of spending.
Now: Could it be possible that even with rising state spending that services are, in fact, being “hollowed out?” Yes. Absolutely. It is, after all, government providing these services.
Notes for charts:
Data is from Kansas Fiscal Facts 2015
2015 through 2017 are approved figures, not actual spending
2015 and beyond population are my estimates
CPI is Consumer Price Index – All Urban Consumers, CUUR0000AA0
A recent op-ed in the Wichita Eagle read: “Some have begun to call public schools ‘government schools,’ a calculated pejorative scorning both education and anything related to government.”1
This is not the only time people have objected to the term “government schools.” Public schools bristle at use of the term. In a 2008 email from Wichita School Interim Superintendent Martin Libhart to Wichita school employees, he took issue with those who, using his words, “openly refer to public education as ‘government schools.'”2 “Openly refer,” he writes, as though it should be kept a secret.
It’s surprising that liberals and progressives object to the term “government schools.” They like government, don’t they? They want more taxation and government spending, don’t they?
When we think about public schools, we find they have all the characteristics of government programs.
Public schools are owned by government.
Their funding comes almost totally from governmental sources, which is to say taxes. (Isn’t it strange that few will donate to public schools?) If you can’t use the services of public schools and don’t want to pay for them — even if you are also paying for other schools that meet your needs — the full weight of the government will come crashing down on you.
Through laws passed by government, public schools are guaranteed a stream of customers.
Public schools are regulated — heavily — by government.
The members of their “board of directors” (the local school board) are chosen through a governmental process — elections.
Public schools are welcoming to labor unions at the time the private sector is becoming less unionized. In fact, labor unions are becoming a hallmark of government, and government only.3
Accountability of public schools, like other forms of government, is weak.
In sum, public schools have all the negative attributes of government institutions and few or none of the positive characteristics that make markets the source of continuous improvement and innovation. So I guess it isn’t surprising that public school advocates like Merritt object to being lumped in with government in general. But public schools share all the characteristics of government, and government is the worst way to supply services except in a few special instances.
What’s also troubling is how Merritt equates using the term “government schools” with scorn for education. Turning over education to government — with its litany of troubles as listed above — is scornful for children.
Merritt and others want to have the benefits of governmental institutions without accepting the reality of what government means. That’s a shame for Kansas schoolchildren.
Explaining common economic development programs in Kansas.
TIF projects: Some background
Tax increment financing disrupts the usual flow of tax dollars, routing funds away from cash-strapped cities, counties, and schools back to the TIF-financed development. TIF creates distortions in the way cities develop, and researchers find that the use of TIF means lower economic growth. Click here.
STAR bonds in Kansas
The Kansas STAR bonds program provides a mechanism for spending by autopilot, without specific appropriation by the legislature. Click here.
Industrial Revenue Bonds in Kansas
Industrial Revenue Bonds are a mechanism that Kansas cities and counties use to allow companies to avoid paying property and sales taxes. Click here.
Community Improvement Districts in Kansas
In Kansas Community Improvement Districts, merchants charge additional sales tax for the benefit of the property owners, instead of the general public. Click here.
In Kansas, PEAK has a leak
A Kansas economic development incentive program is pitched as being self-funded, but is probably a drain on the state treasure nonetheless. Click here.
Government intervention may produce unwanted incentives
A Kansas economic development incentive program has the potential to alter hiring practices for reasons not related to applicants’ job qualifications. Click here.
City of Wichita
City of Wichita’s economic development page is here. The Sedgwick County/City of Wichita Economic Development Policy is here.
State of Kansas
A page at the Kansas Department of Commerce with incentive programs is here.
Wichita’s mayor pens an op-ed that is counter to facts that he knows, or should know.
In the pages of the Wichita EagleWichita Mayor Jeff Longwell wrote: “The city of Wichita has held its mill levy steady for the past 22 years.”1
That’s the mayor’s opinion. The facts, as can be easily found in government documents, are that the Wichita mill levy rises nearly every year.2 Since 2005 it has risen every year.
The mayor, city council, and bureaucrats say they have not taken action to raise the mill levy. They also say the mill levy is set by the county. All this is true.
But the county sets the mill levy based on two factors, one the city controls: The amount it decides to spend. The other factor, the assessed valuation of property, is not controlled by the city. So it is understandable that the mill levy may vary by small amounts from year to year when the two numbers are melded to form the actual mill levy. Some years the levy might rise, and in some years, it may fall. If it is a truly random matter, we should expect that over time the number of rising years and falling years should be equal, and that the overall change should be near zero.
But in Wichita, the mill levy rises nearly every year. And over time, since 1995, it has risen by 4.46 percent.
(Besides that, there has been a shift in the application of property tax revenue, with revenue was diverted from debt service to current spending. As recently as 2007 the city devoted 31 percent of property tax revenue to debt service. In 2015 it was 26 percent.)
What should concern Wichitans about their mayor’s op-ed is that he knows these facts. Or, at least he should. Despite the data that is readily available in the city’s comprehensive annual financial reports, Mayor Longwell has chosen to remain misinformed and/or uninformed, and to spread that to citizens.
Following are excerpts from the minutes of the August 7, 2012 council meeting, which Jeff Longwell attended as council member, and following that, video.
Wichita City Council, August 7, 2012
Bob Weeks 2451 Regency Lakes Court stated we say the City has not raised its mill levy in a long time and thinks it is true that this Council has not taken action to raise the mill levy, but it has increased. Stated in 2002 the City’s mill levy was 31.845 and last year 32.359, which is an increase of about half a mill or 1.6 percent. Stated we should also recognize that property tax revenue increased from about $83 million to $118 million dollars or 42 percent. Stated we did not experience anything near that in the rate of growth of population or inflation? even the two put together. Stated in the City sales tax collection for the same years, $41 million to about $55 million or 34 percent increase. Stated City revenues have increased quite a bit even though the Council has not taken explicit action to increase either the sales tax rate or the property tax rate. Stated another thing he is concerned about is shifting one mill of property tax revenue from the debt service fund to the general fund. Stated over the past years since 2007 there has been a shift of about 2.5 mills, which is more than the explicit policy of one mill, which will be ending over the next two years. Stated we have not delayed paying off debt in the sense that we have not made our scheduled bond payments but that 2.5 mills could have been used to retire debt instead of supporting current spending. Stated we could have repurchased some of our outstanding bonds or we could have used that money to pay for things that we borrowed for. Stated we need to realize that we have been not taking advantage of opportunities to retire longterm debt and had been redirecting that spending to current fund spending, which is where Cowtown and the Nature Center come from. Stated we need to be aware of these types of things as we make the policies going forward.
Mayor Brewer asked staff to explain the figures that Mr. Weeks was talking about.
Kelly Carpenter Finance Director stated regarding the mill levy, they started out at 10 mills in the capital improvement plan. Stated they reduced that down to 7.5 mills and now we are gradually increasing that mill levy back up in the debt service fund to 8.5 mills over the next two years.
Council Member O’Donnell stated he was referring that the mill levy has actually increased.
Kelly Carpenter Finance Director stated the overall mill levy has not increased within the last 19 years. Stated there has been a shift between the general fund and the debt service fund but the overall mill levy of the 32 mills has not increased.
Council Member O’Donnell asked Mr. Weeks to return to the podium and asked where his figures are from.
Bob Weeks stated from the 2011 Comprehensive Annual Financial Report, page H17. Stated they are the numbers that he extracted from that report. Stated it may not be that this Council took an action to raise the mill levy but somehow it did increase.
Council Member O’Donnell asked staff to answer that.
Mark Manning Finance Department the mill levy is set by the county and what they tell the Council each year is that the mill levy in the proposed budget is not changed from the mill levy certified by the county, the prior year. Stated they do not know what the mill levy will be for 2013 right now and will not know until November when the county finalizes its evaluation. Stated it may be slightly higher or lower and that is why you see those annual fluctuations. Stated Mr. Weeks is correct? some years it goes up and some years it goes down a little bit. Stated it does fluctuate and there is nothing we can do to control that but the general policy has been to keep it level for the last 19 years.
Wichita’s largest employer asks to avoid paying millions in taxes, which increases the cost of government for everyone else, including young companies struggling to break through.
This week the Wichita City Council will consider offering Spirit Aerosystems economic development incentives that will allow the company to avoid paying some $45 million in taxes. This will be accomplished through the authorization of $280 million of Industrial Revenue Bonds. 1
Industrial Revenue Bonds are a vehicle for generating and conveying tax exemptions. 2 In the IRB program, government is not lending money, and Wichita taxpayers are not at risk if the bonds are not repaid. In fact, in the present case the applicant company plans to purchase the bonds itself, according to city documents. Instead, the purpose of the IRB process is to allow Spirit to escape paying property taxes and sales taxes.
Usually the agenda packet the city prepares for council members and the public contains the amount of tax expected to be foregone. For this item that summary is missing, and the sales tax exemption is not mentioned. I have prepared a table summarizing data from the analysis prepared for the city by the Center for Economic Development and Business Research at Wichita State University.
Of note, the share of the cost of the incentives born by the City of Wichita is small, slightly less than one percent. The bulk of the cost is born by the State of Kansas, with the Derby School District and Sedgwick County facing smaller shares of the cost.
Also, the city is forcing a decision on a neighboring jurisdiction that it would not accept for itself, unless it uses one of many exceptions or loopholes. This adverse decision is forced upon the Derby School District. It faces a benefit-cost ratio of 1.16 to 1, which is below the city’s standard of 1.30 to 1, unless an exception is cited. 3 The Derby School District is not involved in this action and has no ability to affect the issuance of these bonds, should it desire to.
Besides this, the granting of these tax breaks calls into question the validity of taxation. If a company can be excused from tens of millions of dollars in taxes, can we say there is equal treatment under law?
Effect on young companies
When large companies receive tax abatements and exemptions, others must pay the cost of government. In particular, small and young business firms are usually not eligible for incentive programs like that being offered to Spirit, and therefore must bear a disproportional share of the cost of government. This is an important consideration, as Wichita is relying on entrepreneurship as a principle method of growing its economy.
The cost of these tax abatements burdens a class of business firms that can’t afford additional cost and risk. These are young startup firms, the entrepreneurial firms that we need to nurture in order to have real and sustainable economic growth and jobs. This action — the award of incentives to an established company — is harmful to the Wichita economy for its strangling effect on entrepreneurship and young companies. As this company and others receive incentives and escape paying taxes, others have to pay.
There’s plenty of evidence that entrepreneurship, in particular young business firms, are the key to economic growth. But Wichita’s economic development policies, as evidenced by this action, are definitely stacked against the entrepreneur. As Wichita props up its established industries, it makes it more difficult for young firms to thrive.
Based on documents supplied by the city, Spirit will avoid paying $6,620,025 in sales tax through its participation in the IRB program. Kansans should be aware that our state has one of the highest sales taxes in the nation on groceries. The effect of this falls disproportionally on low-income households. 4
While Spirit seeks to avoid paying millions in sales tax, it campaigned for ordinary Wichitans to pay more sales tax. When Wichita placed a one cent city sales tax on the ballot in November 2014, Spirit Aerosystems contributed $10,000 to the group campaigning in favor of the sales tax. 5 Spirit’s immediate past president contributed $10,000 to the same effort.
This week American City Business Journals presented the results of a study of small business vitality in cities. 6 Wichita ranked at number 104 out of 106 cities studied. Awarding incentives to large companies places small business at a disadvantage. Not only must small business pay for the cost of government that incentivized companies avoid, small companies must also compete with subsidized companies for inputs such as capital and labor.
Finally, research has found that the pursuit of large companies doesn’t produce the desired growth: “The results show that large firms fail to produce significant net benefits for their host communities, calling into question the high-stakes bidding war over jobs and investment.” 7
Kansas Center for Economic Growth, often cited as an authority by Kansas news media and politicians, is not the independent and unbiased source it claims to be.
When supporters of more government spending and taxation in Kansas want to bolster their case, they often turn to Kansas Center for Economic Growth (KCEG). Portraying itself as a “nonprofit, nonpartisan organization,” KCEG says its mission is “to advance responsible policies by informing public discussion through credible, fact-based materials.” It says it conducts research and analysis to “promote balanced state policies.” 1
As it turns out, KCEG is not really the nonpartisan, independent think tank it pretends to be. Instead, as shown below, KCEG is a side project of Kansas Action for Children, Inc.. Both organizations are funded by and affiliated with well-known liberal organizations whose goals are always to expand the size and scope of government.
This is of interest to Kansans as groups that support low taxes, efficient government spending, and economic freedom are often maligned as being merely puppets of larger organizations that hide their purportedly nefarious goals. In particular, Kansas Policy Institute is often mentioned in this regard.
On its website KPI says it is “an independent think-tank that advocates for free market solutions and the protection of personal freedom for all Kansans.” 2 Also, KPI says it produces “objective research and creative ideas to promote a low-tax, pro-growth environment.”
Whenever KPI is mentioned, often condemnation of American Legislative Exchange Council follows, scorned for purportedly being a shadowy outfit that forces model legislation on unwitting legislators. But ALEC’s mission is quite clear and transparent. Its website says ALEC is “dedicated to the principles of limited government, free markets and federalism.” Economic freedom is also mentioned. ALEC says it provides a “toolkit for anyone who wants to increase the effectiveness and reduce the size, reach and cost of government.” 3
These mission statements plainly state the purposes of KPI and ALEC. Contrast them with the mission of Center on Budget and Policy Priorities, which is filled with material like this: “We pursue federal and state policies designed both to reduce poverty and inequality and to restore fiscal responsibility in equitable and effective ways.” 4 “Fiscal responsibility” can mean almost anything. To CBPP and its affiliates like KCEG, it means more taxes and more spending.
That dovetails cleanly with the preference of most Kansas newspapers. They — and most other news outlets — call for more spending and more taxation as the solution to all problems, state and local. They do so explicitly on their editorial pages, which is their right and privilege. In their news reporting, by using KCEG as an “objective” source, they rely on a source that isn’t being honest about its independence, its organizational status, and its ingrained policy preferences.
Who — or what — is Kansas Center for Economic Growth?
On its website, Kansas Center for Economic Growth (KCEG) says it is a “nonprofit, nonpartisan organization.” But no records exist for this entity at either the IRS or Kansas Secretary of State. Instead, KCEG uses Kansas Action for Children, Inc. (KAC) as its “fiscal agent” and funding source. KAC is a registered 501(c)(3) tax-exempt organization.
On its IRS form 990s, KAC lists a grant from AECF and SFAI, the purpose of which is supporting the type of work KCEG performs. AECF is Annie E. Casey Foundation, a non-profit with income of nearly $223 million and an endowment of $2.9 billion, according to most up-to-date IRS form 990 available. SFAI is State Priorities Partnership, originally founded as the State Fiscal Analysis Initiative (SFAI). It lists KCEG as a partner organization. 5 Both organizations promote solutions involving more government spending and taxation.
State Priorities Partnership, in turn, is coordinated by Center on Budget and Policy Priorities (CBPP). 6 CBPP promotes itself as pursuing “federal and state policies designed both to reduce poverty and inequality and to restore fiscal responsibility in equitable and effective ways.” 7 Its recommend policies nearly always call for more government spending and taxation.
In 2013 Bob Weeks was recognized by the Kansas Policy Institute with the John J. Ingalls Spirit of Freedom Award, given annually to a Kansan who uniquely supports the principles of individual liberty and economic freedom.
An interactive visualization of tax collections by state governments shows Kansas distinguished from some of its neighbors.
As shown in the nearby illustration, Kansas collects more taxes than some nearby states, on a per-person basis. This information should guide Kansas legislators and policymakers and Kansas prepares to balance its budget. Does Kansas want to further separate itself from its neighbors with even higher taxes?
The values are from the United States Census Bureau, and are for tax collections by the state only. Local governmental entities like cities, counties, townships, improvement districts, cemetery districts, library districts, drainage districts, watershed districts, and school districts are not included.
You may use this interactive visualziaton to prepare your own analysis and illustrations. Of particular interest is the “State Total” tab. Here you can select a number of states and compare their tax burdens. (Probably three or four states at a time is the practical limit.)
The City of Wichita says it hasn’t raised its property mill levy in many years. But data shows the mill levy has risen, and its use has shifted from debt service to current consumption.
In 1994 the City of Wichita mill levy rate was 31.290. In 2015 it was 32.686, based on the city’s Comprehensive Annual Financial Report and the Sedgwick County Clerk. That’s an increase of 1.396 mills, or 4.46 percent, since 1994. (These are for taxes levied by the City of Wichita only, and do not include any overlapping jurisdictions.)
The Wichita City Council did not take explicit action to raise this rate. Instead, the rate is set by the county based on the city’s budgeted spending and the assessed value of taxable property subject to Wichita taxation.
While the city doesn’t have control over the assessed value of property, it does have control over the amount it decides to spend.
Also, while some may argue that an increase of 4.46 percent over two decades is not very much, this is an increase in a rate of taxation, not actual tax revenue. As property values rise, and as the mill levy rises, property tax bills rise rapidly.
The total amount of property tax levied is the mill levy rate multiplied by the assessed value of taxable property. This amount has risen, due to these factors:
Appreciation in the value of property
An increase in the amount of property
Spending decisions made by the Wichita City Council
Application of tax revenue has shifted
The allocation of city property tax revenue has shifted over the years. According to the 2010 City Manager’s Policy Message, page CM-2, “One mill of property tax revenue will be shifted from the Debt Service Fund to the General Fund. In 2011 and 2012, one mill of property tax will be shifted to the General Fund to provide supplemental financing. The shift will last two years, and in 2013, one mill will be shifted back to the Debt Service Fund. The additional millage will provide a combined $5 million for economic development opportunities.”
In 2005 the mill levy dedicated to debt service was 10.022. In 2015 it was 8.509. That’s a reduction of 1.513 mills (15.1 percent) of property tax revenue dedicated for paying off debt. Another interpretation of this is that in 2005, 31.4 percent of Wichita property tax revenue was dedicated to debt service. In 2015 it was 26.0 percent.
This shift has not caused the city to delay paying off debt. This city is making its scheduled payments. But we should recognize that property tax revenue that could have been used to retire debt has instead been shifted to support current spending. Instead of spending this money on current consumption — including economic development spending that has produced little result — we could have, for example, used that money to purchase some of our outstanding bonds.
Despite the data that is readily available in the city’s comprehensive annual financial reports, some choose to remain misinformed and/or uninformed. The following video from 2012 provides insight into the level of knowledge of some former elected officials and city staff. Based on recent discussions with city officials, things have not improved regarding present staff.
In Rich States, Poor States, Kansas continues with middle-of-the-pack performance, and fell sharply in the forward-looking forecast.
In the 2016 edition of Rich States, Poor States, Utah continues its streak at the top of Economic Outlook Ranking, meaning that the state is poised for growth and prosperity. Kansas continues with middle-of-the-pack performance rankings, and fell sharply in the forward-looking forecast.
Rich States, Poor States is produced by American Legislative Exchange Council. The authors are economist Dr. Arthur B. Laffer, Stephen Moore, who is Distinguished Visiting Fellow, Project for Economic Growth at The Heritage Foundation, and Jonathan Williams, who is vice president for the Center for State Fiscal Reform at ALEC.
Rich States, Poor States computes two measures for each state. The first is the Economic Performance Ranking, described as “a backward-looking measure based on a state’s performance on three important variables: State Gross Domestic Product, Absolute Domestic Migration, and Non-Farm Payroll Employment — all of which are highly influenced by state policy.” The process looks at the past ten years.
Looking forward, there is the Economic Outlook Ranking, “a forecast based on a state’s current standing in 15 state policy variables. Each of these factors is influenced directly by state lawmakers through the legislative process. Generally speaking, states that spend less — especially on income transfer programs, and states that tax less — particularly on productive activities such as working or investing — experience higher growth rates than states that tax and spend more.”
For economic performance, Kansas is twenty-seventh. That’s up from twenty-eighth last year.
In this year’s compilation for economic outlook, Kansas ranks twenty-seventh, down from eighteenth last year and fifteenth the year before. In 2008, the first year for this measure, Kansas was twenty-ninth.
Kansas compared to other states
A nearby chart shows the Economic Outlook Ranking for Kansas and some nearby states, shown as a trend over time since 2008. The peak of Kansas in 2013 is evident, as is the decline since then.
Why Kansas fell
Kansas fell in the Economic Outlook Ranking from 2013 to 2016. To investigate why, I gathered data for Kansas from 2008 to 2016. The nearby table shows the results for 2016 and the rank among the states, with the trend since 2008 shown. A rank of one is the best ranking, so for the trend lines, an upward slope means a decline in ranking, meaning the state is performing worse.
There are several areas that may account for the difference.
The most notable change is in the measure “Recently Legislated Tax Changes (per $1,000 of personal income)” Kansas fell four positions in rank. By this measure, Kansas added $2.67 in taxes per $1,000 of personal income, which ranked forty-seventh among the states. This is a large change in a negative direction, as Kansas had ranked seventh the year before.
In “Property Tax Burden (per $1,000 of personal income)” Kansas improved one position in the rankings, despite the tax burden rising.
In “Sales Tax Burden (per $1,000 of personal income)” Kansas fell one spot in rank. The burden is calculated proportional to personal income. The sales tax burden, as measured this way, fell slightly in Kansas, but the ranking fell in comparison to other states. (Although the Kansas sales tax rate rose in 2015, this report uses data from 2013, which is the most recent data available from the U.S. Census Bureau. It’s likely that the 2015 sales tax hike will increase this burden, but whether the ranking changes depends on actions in other states.)
Kansas improved six rank positions for “Debt Service as a Share of Tax Revenue.”
Kansas remains one of the states with the most public employees, with 672 full-time equivalent employees per 10,000 population. This ranks forty-eighth among the states.
Kansas has no tax and spending limits, which is a disadvantage compared to other states. These limitations could be in the form of an expenditure limit, laws requiring voter approval of tax increases, or supermajority requirements in the legislature to pass tax increases.
How valuable is the ranking?
After the 2012 rankings were computed, ALEC looked retrospectively at rankings compared to actual performance. The nearby chart shows the correlation of ALEC-Laffer state policy ranks and state economic performance. In its discussion, ALEC concluded:
There is a distinctly positive relationship between the Rich States, Poor States’ economic outlook rankings and current and subsequent state economic health.
The formal correlation is not perfect (i.e., it is not equal to 100 percent) because there are other factors that affect a state’s economic prospects. All economists would concede this obvious point. However, the ALEC-Laffer rankings alone have a 25 to 40 percent correlation with state performance rankings. This is a very high percentage for a single variable considering the multiplicity of idiosyncratic factors that affect growth in each state — resource endowments, access to transportation, ports and other marketplaces, etc.
First, Dunphy refers to Sam Brownback as the “Tea Party” governor of Kansas. As far as I know, the tea party favors reducing not only taxation, but spending too. Given the choice, Brownback preferred raising taxes rather than cutting spending. Not very tea party-like.
Dunphy: “Moderate Republicans who voiced objections to such extremist politics were targeted by the Tea Party and voted out of office in 2012. With the legislature now dominated by True Believers, Brownback was able to pass the largest tax cut in Kansas history.” I’ll leave it to others to judge whether the legislators voted into office in 2012 classify as “True Believers.” (My opinion is that True Believers are scarce in the Kansas Legislature.) But I do know this: The tax cuts were passed during the 2012 legislative session, which ended months before the 2012 primary elections. There seems to be a timing issue here.
Dunphy: “With such drastically-reduced revenue, Kansas had to cut social services.” Except Kansas spending has continued to climb, although there have been a few cuts here and there.
Dunphy: “Rather than admit that slashing taxes created a disaster …” Tax cuts allow people to keep more of what is rightfully theirs. That is not a disaster. That is good.
Dunphy: “Trickle-down economics doesn’t work. Although most Republicans choose to ignore it, George H.W. Bush said as much while campaigning for the GOP presidential nomination in 1980.” Contrary to this assertion (made during a political campaign, and we know how much those are worth), the administration and policies of Ronald Reagan ushered in the The Great Moderation, a period of sustained economic growth.