In this excerpt from WichitaLiberty.TV: Analysis of household expenditure data shows that a proposed sales tax in Wichita affects low income families in greatest proportion, confirming the regressive nature of sales taxes. View below, or click here to view on YouTube. For more on this, see Wichita sales tax hike would hit low income families hardest.
Wichita city council member Lavonta Williams (district 1, northeast Wichita) is a supporter of the proposed one cent per dollar Wichita sales tax. She has also spoken of her concern for Wichita’s low-income families, as she did in November 2013 when the Wichita City Council voted to increase water rates. City documents indicated that the average residential bill would rise by $1.33 per month for those who use modest amounts of water.
According to the meeting minutes, Williams said this:
Council Member Williams stated she realizes that some may think that $1.33 is not that big of an increase, but for so many of our constituents, it is quite an increase for them especially those who are on a fixed income. Stated this is concerning to her and appreciates staff looking at all options and are kicking off a program that will help those who need assistance from the City. Stated she realizes as a City that we have to continue moving forward and look at our infrastructure.
I wonder: When Williams voted in favor of the Wichita sales tax ballot placement, did she understand that anyone who spends $133.00 per month on taxable purchases will see a $1.33 rise in their monthly sales tax expense? Recall that Kansas applies sales tax to food, although there is a possibility of receiving a rebate. The rebate is implemented through a nonrefundable income tax credit.
Here’s something else: Since Williams applauded the formation of a payment assistance program for those who can’t afford their water bills, I wonder if she will propose a similar program for those who can’t afford a higher sales tax?
Supporters of a proposed sales tax in Wichita promise there will be no conflicts of interest when making spending decisions. That would be a welcome departure from present city practice.
In November Wichita voters will decide on a new one cent per dollar sales tax, part to be used for economic development, specifically job creation. “Yes Wichita” is a group that supports the sales tax. Language on its website reads: “Conflict-of-interest policies will prohibit anyone from participating in decisions in which there is any self-interest.” The page is addressing the economic development portion of the proposed sales tax. It’s part of an effort to persuade Wichita voters that millions in incentives will be granted based on merit instead of cronyism or the self-interest of politicians, bureaucrats, and committee members.
The problem is that while the city currently has in place laws regarding conflicts of interest, the city does not seem willing to observe them. If the proposed sales tax passes, what assurances do we have that the city will change its ways?
Following, from October 2013, is one illustration of Wichita city hall’s attitude towards conflicts of interest and more broadly, government ethics.
Wichita contracts, their meaning (or not)
Is the City of Wichita concerned that its contracts contain language that seems to be violated even before the contract is signed?
This week the Wichita City Council approved a development agreement for the apartments to be built on the west bank of the Arkansas River. The development agreement the council contemplated included this language in Section 11.06, titled “Conflicts of Interest.”
No member of the City’s governing body or of any branch of the City’s government that has any power of review or approval of any of the Developer’s undertakings shall participate in any decisions relating thereto which affect such person’s personal interest or the interests of any corporation or partnership in which such person is directly or indirectly interested.
At Tuesday’s meeting I read this section of the contract to the council. I believe it is relevant for these reasons:
1. Wichita Mayor Carl Brewer is a member of a governing body that has power of approval over this project.
2. Bill Warren is one of the parties that owns this project.
3. Bill Warren also owns movie theaters.
4. Wichita Mayor Carl Brewer owns a company that manufactures barbeque sauce.
5. Brewer’s sauce is sold at Warren’s theaters.
The question is this: Does the mayor’s business relationship with Warren fall under the prohibitions described in the language of section 11.06? Evidently not. After I read section 11.06 I asked the mayor if he sold his sauce at Warren’s theaters. He answered yes. But no one — not any of the six city council members, not the city manager, not the city attorney, not any bureaucrat — thought my question was worthy of discussion.
(While the agreement doesn’t mention campaign contributions, I might remind the people of Wichita that during 2012, parties to this agreement and their surrogates provided all the campaign finance contributions that council members Lavonta Williams and James Clendenin received. See Campaign contributions show need for reform in Wichita. That’s a lot of personal interest in the careers of politicians.)
I recommend that if we are not willing to live up to this section of the contract that we strike it. Why have language in contracts that we ignore? Parties to the contract rationalize that if the city isn’t concerned about enforcing this section, why should they have to adhere to other sections?
While we’re at it, we might also consider striking Section 2.04.050 of the city code, titled “Code of ethics for council members.” This says, in part, “[Council members] shall refrain from making decisions involving business associates, customers, clients, friends and competitors.”
That language seems pretty clear to me. But we have a city attorney that says that this is simply advisory. If the city attorney’s interpretation of this law is controlling, I suggest we strike this section from the city code. Someone who reads this — perhaps a business owner considering Wichita for expansion — might conclude that our city has a code of ethics that is actually observed by the mayor and council members and enforced by its attorneys.
Claims by boosters of a proposed Wichita sales tax that the city will be transparent in how money is spent must be examined in light of the city’s attitude towards citizens’ right to know.
When a city council member apologizes to bureaucrats because they have to defend why their agencies won’t disclose how taxpayer money is spent, we have a problem. When the mayor and most other council members agree, the problem is compounded. Carl Brewer won’t be mayor past April, but the city council member that apologized to bureaucrats — Pete Meitzner (district 2, east Wichita) — may continue serving in city government beyond next year’s elections. Wichita City Manager Robert Layton will likely continue serving for the foreseeable future.
Why is this important? Supporters of the proposed Wichita sales tax promise transparency in operations and spending. But requests for spending records by the city’s quasi-governmental agencies are routinely rebuffed. The city supports their refusal to comply with the Kansas Open Records Act. Many of the people presently in charge at city hall and at agencies like Greater Wichita Economic Development Coalition will still be in charge if the proposed sales tax passes. What assurances do we have that they will change their attitude towards citizens’ right to know how taxpayer funds are spent?
Following, from December 2012, an illustration of the city’s attitude towards citizens’ right to know.
Wichita, again, fails at open government
The Wichita City Council, when presented with an opportunity to increase the ability of citizens to observe the workings of the government they pay for, decided against the cause of open government, preferring to keep the spending of taxpayer money a secret.
The occasion was consideration of renewing its contract with Go Wichita Convention and Visitors Bureau. I asked, as I have in the past for this agency and also for Wichita Downtown Development Corporation and Greater Wichita Economic Development Coalition, that they consider themselves to be what they are: public agencies as defined in the Kansas Open Records Act.
In the past I’ve argued that Go Wichita is a public agency as defined in the Kansas Open Records Act. But the city disagreed. And astonishingly, the Sedgwick County District Attorney agrees with the city’s interpretation of the law.
So I asked that we put aside the law for now, and instead talk about good public policy. Let’s recognize that even if the law does not require Go Wichita, WDDC, and GWEDC to disclose records, the law does not prohibit them from fulfilling records requests.
Once we understand this, we’re left with these questions:
Why does Go Wichita, an agency funded almost totally by tax revenue, want to keep secret how it spends that money, over $2 million per year?
Why is this city council satisfied with this lack of disclosure of how taxpayer funds are spent?
Why isn’t Go Wichita’s check register readily available online, as it is for Sedgwick County?
For that matter, why isn’t Wichita’s check register online?
It would be a simple matter for the council to declare that the city and its taxpayer-funded partner agencies believe in open government. All the city has to have is the will to do this. It takes nothing more.
Only Wichita City Council Member Michael O’Donnell (district 4, south and southwest Wichita) gets it, and yesterday was his last meeting as a member of the council. No other council members would speak up in favor of citizens’ right to open government.
But it’s much worse than a simple failure to recognize the importance of open government. Now we have additional confirmation of what we already suspected: Many members of the Wichita City Council are openly hostile towards citizens’ right to know.
In his remarks, Wichita City Council Member Pete Meitzner (district 2, east Wichita) apologized to the Go Wichita President that she had become “a pawn in the policy game.” He said it was “incredibly unfair that you get drawn into something like this.”
He added that this is a matter for the Attorney General and the District Attorney, and that not being a lawyer, she shouldn’t be expected to understand these issues. He repeated the pawn theme, saying “Unfortunately there are occasions where some people want to use great people like yourself and [Wichita Downtown Development Corporation President] Jeff Fluhr as pawns in a very tumultuous environment. Please don’t be deterred by that.”
Mayor Brewer added “I would have to say Pete pretty much said it all.”
We’ve learned that city council members rely on — as Randy Brown told the council last year — facile legal reasoning to avoid oversight: “It may not be the obligation of the City of Wichita to enforce the Kansas Open Records Act legally, but certainly morally you guys have that obligation. To keep something cloudy when it should be transparent I think is foolishness on the part of any public body, and a slap in the face of the citizens of Kansas. By every definition that we’ve discovered, organizations such as Go Wichita are subject to the Kansas Open Records Act.”
But by framing open government as a legal issue — one that only lawyers can understand and decide — Wichita city government attempts to avoid criticism for their attitude towards citizens.
It’s especially absurd for this reason: Even if we accept the city’s legal position that the city and its quasi-governmental taxpayer-funded are not required to fulfill records request, there’s nothing preventing from doing that — if they wanted to.
In some ways, I understand the mayor, council members, and bureaucrats. Who wants to operate under increased oversight?
What I don’t understand is the Wichita news media’s lack of interest in this matter. Representatives of all major outlets were present at the meeting.
I also don’t understand what Council Member Lavonta Williams (district 1, northeast Wichita) suggested I do: “schmooze” with staff before asking for records. (That’s not my word, but a characterization of Williams’ suggestion made by another observer.)
I and others who have made records requests of these quasi-governmental taxpayer-funded organizations have alleged no wrongdoing by them. But at some point, citizens will be justified in wondering whether there is something that needs to be kept secret.
The actions of this city have been noticed by the Kansas Legislature. The city’s refusal to ask its tax-funded partners to recognize they are public agencies as defined in the Kansas Open Records Act is the impetus for corrective legislation that may be considered this year.
Don’t let this new law be known as the “Wichita law.” Let’s not make Wichita an example for government secrecy over citizens’ right to know.
Unfortunately, that bad example has already been set, led by the city’s mayor and city council.
Supporters of the proposed Wichita sales tax contend that the millions in incentives Boeing received were not cash. That’s true — they were more valuable than cash.
At a forum on the proposed Wichita sales tax on September 9, 2014, “Yes Wichita” co-chair Jon Rolph told the audience “The Boeing incentive thing? The city never gave Boeing incentives. They didn’t take our incentive money and run.” As explained at Fact-checking Yes Wichita: Boeing incentives, the claim that the “city never gave Boeing incentives” must be astonishing news to the Wichita city officials who dished out over $600 million in subsidies and incentives to the company.
In response, “Yes Wichita” posted this on its Facebook page: “Those who were at the event understand that the conversation was about cash incentives not about IRBs. Boeing never received cash incentives from the City.”
First, it’s interesting that the person commenting on behalf of “Yes Wichita” was able to read the minds of the audience members. That’s a neat trick. But let’s talk about something more important — the confusion that often surrounds economic development incentives.
“Yes Wichita” contends that although Boeing received an estimated $657,992,250 in property tax abatements over several decades, this doesn’t count as “cash incentives” because it wasn’t given to Boeing in the form of cash.
“Yes Wichita” is correct, in a way. As a result of the City of Wichita’s issuance of industrial revenue bonds, Boeing didn’t receive cash from the city. Instead, the benefits the city initiated on Boeing’s behalf are more valuable to the company than receiving an equivalent amount of cash.
According to IRS guidelines, “tax incentives, whether in the form of an abatement, credit, deduction, rate reduction or exemption, simply reduce the tax imposed by state or local governments.” The IRS says these incentives do not count as income. Therefore, Boeing did not pay income taxes on these benefits, as it would have if the city gave the company cash.
The claim by the “Yes Wichita” group — that tax abatements don’t count as cash incentives — is characteristic of the way economic development incentives are justified. Instead of passing out cash, it’s more common that government uses abatements, credits, tax increment financing, investment in training and infrastructure, or exemptions. Many of these programs are confusing to citizens, and perhaps also to the elected officials who approve them. This allows government to shroud the economic realities of the transaction, and “Yes Wichita” is contributing to this confusion.
In this episode of WichitaLiberty.TV: Wichita economic development, one more untold story. The arrival of Uber is a pivotal moment for Wichita. Fact-checking Yes Wichita on paved streets. View below, or click here to view at YouTube. Episode 58, broadcast September 14, 2014.
Supporters of a proposed Wichita sales tax contend there is only one alternative for paying for a new water supply, and it is presented as unwise.
The major component of the proposed Wichita one cent per dollar sales tax is to pay for a new water supply. Controversy surrounds how the water should be supplied (ASR? El Dorado? New reservoir?) and its urgency. But according to sales tax boosters, there is no controversy about how to pay for a new water supply.
The City of Wichita and the “Yes Wichita” group present two alternatives to Wichita voters: Either (a) approve a sales tax to pay for a new water supply, or (b) the city will borrow to pay for the water supply and water users will pay a lot of interest. Campaign material from “Yes Wichita” states that without a sales tax, “we end up paying 50% more over 25 years because of financing costs.”
Are there other alternatives? Here’s one: If the water supply project costs $250 million, let’s raise water bills by that amount over five years. In this way, water users pay for the new water supply, and we avoid the long-term debt that city council members and “Yes Wichita” seem determined to avoid.
Water bills would have to rise by quite a bit in order to raise $50 million per year. But it’s important to have water users pay for water. Also, Wichitans need to be aware — acutely aware — of the costs of a new water supply. Many citizens are surprised to learn that the city has spent $247 million over the past decade on a water project, the ASR program. That money was mostly borrowed, much of it by the same mayor, council members, and city hall bureaucrats that now shun long-term debt.
It will be easier to let people know how much a new water supply costs and how it affects them personally when its cost appears on their water bills. The money that is collected through water bills can be placed in a dedicated fund instead of flowing to the city’s general fund. Then, after the necessary amount is raised, water bills can be immediately adjusted downwards. That’s more difficult to do with a sales tax.
If we pay for a new water supply through a general retail sales tax, the linkage between cost and benefit is less obvious. There is less transparency, and ultimately, less accountability.
Sales tax supporters like “Yes Wichita” claim that one-third of the sales tax collected in Wichita is paid by non-Wichitans. It’s smart, they say, to have visitors to Wichita pay for a portion of the costs of a new water supply. But don’t retail stores pass along their costs — including water bills — to their customers?
Consider this: What is probably the most expensive item sold on a routine basis by a Wichita water utility customer? A good guess would be a Boeing 737 fuselage manufactured by Spirit Aerosystems and sold to Boeing. This item isn’t subject to sales tax. But Spirit can pass along higher water bills to Boeing. (This assumes that shifting costs to outsiders is desirable. I’m not convinced it is.)
According to the Wichita budget, the Wichita water utility provides water to 425,000 customers. As the population of Wichita is about 385,000, there are some 40,000 Wichita water utility customers outside the city. How best to have them help pay for a new water supply: Through their water bills, or hoping that residents of Derby drive past their local Wal-Mart and Target stores to shop at identical stores in Wichita so they can pay sales tax to the city?
There are alternatives for paying for a new water supply other than a sales tax and long-term debt. As has been illustrated by sales tax opponents, water is important, but the need for a new water supply is not as urgent as sales tax supporters portray. There is time to consider other alternatives.
Claims of valuing and promoting government transparency by the City of Wichita are contradicted by its taxpayer-funded surrogates.
As boosters of a proposed Wichita sales tax promise accountability and transparency in how money will be spent, especially the portion designated for jobs and economic development, voters may want to consider the city’s past and present attitude towards government transparency and open records.
The city has three surrogate quasi-governmental agencies that are almost totally taxpayer-funded, specifically Go Wichita Convention and Visitors Bureau, Wichita Downtown Development Corporation, and Greater Wichita Economic Development Coalition. Each agency contends it is not a “public agency” as defined in Kansas law, and therefore does not have to fulfill records requests.
These agencies spend considerable sums of tax money. In December the city approved funding Go Wichita with $2,322,021 for 2014, along with a supplemental appropriation of $150,000. Earlier this year the council voted to increase the city’s hotel tax by 2.75 cents per dollar, with the proceeds going to Go Wichita. That tax is thought to raise $2.5 million per year.
That’s a lot of tax money. It’s also a very high portion of the agency’s total funding. According to the 2012 IRS form 990 for Go Wichita, the organization had total revenue of $2,609,545. Of that, $2,270,288 was tax money from the city. That’s 87 percent taxpayer-funded. When the surge of higher hotel tax money starts flowing in, that percent will undoubtedly rise, perhaps to 93 percent or more.
Despite being nearly totally funded by taxes, Go Wichita refuses to supply spending records. Many believe that the Kansas Open Records Act requires that it comply with such requests. If the same money was being spent directly by the city, the records would be supplied.
I’ve appeared before the council several times to ask that Go Wichita and similar organizations comply with the Kansas Open Records Act. See Go Wichita gets budget approved amid controversy over public accountability, City of Wichita Spends $2 million, Rebuffs Citizen’s Transparency Request, and articles at Open Records in Kansas.
This week Go Wichita refused to provide to me its contract with a California firm retained to help with the re-branding of Wichita. If the city had entered into such a contract, it would be public record. But Go Wichita feels it does not have to comply with simple transparency principles.
Supporters of the proposed one cent per dollar Wichita city sales tax promise transparency in the way decisions are made and money is spent. Below, Mike Shatz explains how this promise is hollow.
City of Wichita wants to increase sales tax by 14%
The City of Wichita funnels your tax dollars into “non-profit” development groups that refuse to show us how that money is spent, and now the City wants you to vote in favor of a sales tax increase so they can give these organizations even more of your money.
These groups, Go Wichita, The Downtown Development Corporation, and the Greater Wichita Economic Development Coalition, get roughly 90% of their overall funding from Wichita tax dollars, but claim that they are exempt from the Kansas Open Records Act, because they are “private” organizations.
The City of Wichita could easily place conditions on the money it gives to these groups, requiring them to show taxpayers how their tax dollars are being spent, but the City refuses to do so. This is not transparency.
Continue reading at Kansas Exposed.
The cost of the proposed Wichita sales tax to households is a matter of dispute. I present my figures, and suggest that “Yes Wichita” do the same.
At a forum on the proposed Wichita sales tax on September 9, 2014, Jennifer Baysinger told the audience that “the average family bringing in about $50,000 a year would pay about $240 a year tax.” She was speaking on behalf of Coalition for a Better Wichita, a group that opposes the one cent per dollar sales tax that Wichita voters will see on their November ballots.
In his rebuttal, “Yes Wichita” co-chair Jon Rolph disputed these figures, saying that Baysinger’s claim would mean that the average family spends $24,000 per year on “groceries and sweaters and socks.” He said a family would need to make $200,000 per year to spend that much on taxable items.
So who is correct? It’s relatively easy to gather figures about sales taxes and households. Here’s what I found.
According to a report from the Kansas Department of Revenue, in fiscal year 2013 the City of Wichita generated $372,843,844 in retail sales tax collections. With a population of 385,577 (2012 value), the tax collected per Wichita resident was $966.98.
Supporters of the proposed sales tax say that one-third of the sales tax collected in Wichita is paid by non-Wichitans. If true, that leaves $248,562,563 in sales tax paid by 385,577 Wichita residents, or $645 per person. This figure is from sales tax being collected at a rate of 7.15 percent, which implies that one cent per dollar of sales tax generates $90 per person. (This assumes that people do not change their purchases because of higher or lower sales taxes, which does not reflect actual behavior. But this is an estimate.)
According to the U.S. Census Bureau, there are 2.49 persons per household in Wichita. That means that a one cent per dollar sales tax has a cost of $224 per household. That’s close to Baysinger’s figure of $240.
We could also take sales tax collections of $248,562,563 and divide by the 151,309 households in Wichita to get a figure of $1,642.75 in sales tax paid per household. Again, since that is tax paid at the rate of 7.15 percent, it implies that one cent per dollar of sales tax generates $230 per household, subject to the same caveats as above. Again, this is close to Baysinger’s figure.
These results are close to my estimation of the cost of the proposed sales tax derived in an entirely different way. I took Census Bureau figures for the amount spent in various categories by families of different income levels. For each category of spending, I judged whether it was subject to sales tax in Kansas. The result was that the average household spent $22,287 per year on taxable items. One percent of that is $223, which is an estimate of the cost of a one cent per dollar sales tax per household. For households in the middle quintile of income, the value was $194. See Wichita sales tax hike would hit low income families hardest for details and charts.
How can the claims of Baysinger and Rolph be so far apart? I’ve presented my reasoning and calculations. The results are figures very close to what Coalition for a Better Wichita is using. Wichita voters might ask that Jon Rolph or one of the other co-chairs of “Yes Wichita” do the same.
The claim that the “city never gave Boeing incentives” will come as news to the Wichita city officials who dished out over $600 million in subsidies and incentives to the company.
At a forum on the proposed Wichita sales tax on September 9, 2014, “Yes Wichita” co-chair Jon Rolph told the audience “The main reason I’m here, I need to educate folks on this. There’s been a lot of misinformation out there.”
The proposed one cent per dollar Wichita sales tax will be voted on by Wichita voters in November. The city plans to use the proceeds for four areas: A new water supply, bus transit, street maintenance and repair, and economic development, specifically job creation. It is the last area that is the most controversial. Sales tax boosters make the case that Wichita has a limited budget for incentives, generally pegged at $1.65 million per year. They say that other cities have much larger budgets, and unless Wichita steps up with additional incentives, Wichita will not be able to compete for jobs.
Wichita has, however, many available incentive programs that are worth much more than $1.65 million per year. Just this week the city extended property tax abatements to one company that are valued at $108,541 per year. The company will receive this benefit annually for five years, with a likely extension for another five years. The city will also apply for a sales tax exemption on behalf of the company. City documents estimate its value at $126,347.
None of this money counts against the claimed $1.65 million annual budget for incentives, as these incentive programs have no cash cost to the city. There is a cost to other taxpayers, however, as the cost of government is spread over a smaller tax base. To the recipient companies, these benefits are as good as receiving cash. I’ve detailed other incentive programs and some recent awards at Contrary to officials, Wichita has many incentive programs.
The nature of, and value of, available incentive programs is important to understand. “Yes Wichita” co-chair Jon Rolph is correct. There is much misinformation. Here’s what he told the audience of young Wichitans after warning about misinformation: “The Boeing incentive thing? The city never gave Boeing incentives. They didn’t take our incentive money and run.”
The claim that the “city never gave Boeing incentives” will come as news to the Wichita city officials who dished out the subsidies and incentives. In a written statement at the time of Boeing’s announcement that it was leaving Wichita, Mayor Carl Brewer wrote “Our disappointment in Boeing’s decision to abandon its 80-year relationship with Wichita and the State of Kansas will not diminish any time soon. The City of Wichita, Sedgwick County and the State of Kansas have invested far too many taxpayer dollars in the past development of the Boeing Company to take this announcement lightly.”
Along with the mayor’s statement the city released a compilation of the industrial revenue bonds authorized for Boeing starting in 1979. The purpose of the IRBs is to allow Boeing to escape paying property taxes, and in many cases, sales taxes. According to the city’s compilation, Boeing was granted property tax relief totaling $657,992,250 from 1980 to 2017. No estimate for the amount of sales tax exemption is available. I’ve prepared a chart showing the value of property tax abatements in favor of Boeing each year, based on city documents. There were several years where the value of forgiven tax was over $40 million.
Kansas Representative Jim Ward, who at the time was Chair of the South Central Kansas Legislative Delegation, issued this statement regarding Boeing and incentives:
Boeing is the poster child for corporate tax incentives. This company has benefited from property tax incentives, sales tax exemptions, infrastructure investments and other tax breaks at every level of government. These incentives were provided in an effort to retain and create thousands of Kansas jobs. We will be less trusting in the future of corporate promises.
Not all the Boeing incentives started with Wichita city government action. But the biggest benefit to Boeing, which is the property tax abatements through industrial revenue bonds, starts with Wichita city council action. By authorizing IRBs, the city council cancels property taxes not only for the city, but also for the county, state, and school district.
We’re left wondering, as we have wondered before, whether the “Yes Wichita” campaign is uninformed, misinformed, or intentionally deceptive in making its case to Wichita voters.
Readers of the Wichita Eagle might be excused for not understanding the economic realities of a proposed tax giveaway to a local development.
Tomorrow’s meeting of the Wichita City Council holds an item of economic development that might be confusing to citizens unless they read the meeting’s agenda packet. Here’s what the Wichita Eagle is reporting to readers: “The owner of the former Wichita Mall is seeking $3.6 million in industrial revenue bonds for a new parking lot — a request that the Wichita City Council will consider at its Tuesday meeting.” (Owners of former Wichita Mall seek IRBs for new parking lot, kansas.com, September 8, 2014)
The article doesn’t present much more about the economics of this transaction and its importance to public policy. That’s unfortunate, as after reading this article, citizens could be excused for thinking that the city is making a loan to a private entity.
But that isn’t the purpose of industrial revenue bonds, or IRBs, in Kansas. By issuing these bonds, the City of Wichita is not lending any money, and is not guaranteeing — not even hinting — that any loan will be repaid. Instead, city documents — but not Wichita Eagle reporting — tell us that Co-Co Properties, LLC will purchase the bonds. Who is Co-Co, you may be wondering? It’s the company that owns the Wichita Mall property, the same company that wants to borrow money to repair its parking lot. By purchasing the IRBs, the company is, in effect, lending money to itself. (It’s possible that Co-Co may seek other loans to get the funds to buy the IRBs, but if so, these would be private transactions and therefore not a matter of public policy.)
So if Co-Co is buying these IRBs itself, what is the purpose of the transaction? Why is Co-Co taking $3.6 million from one of its corporate pockets and transferring it to another pocket, and incurring costs in the process?
At this point, if all you’ve done is read the Wichita Eagle story, you may be confused. Actually, you’d be uninformed, because the Eagle story says nothing about who will purchase the IRBs. Further, the Eagle story tells us nothing about the reason for this transaction, which is to avoid paying two forms of taxes.
The city council agenda packet, available on the city’s website, explains that property tax forgiveness accompanies the IRBs. Specifically:
The one year estimated tax abatement on Co-Co’s proposed $3.6 million real property improvements when fully complete would be $108,541. … The value of a 100% real property tax exemption as applicable to taxing jurisdictions is:
City of Wichita, $29,258
Sedgwick County, $26,439
State of Kansas, $1,350
Wichita school district, $51,494
These annual numbers would be repeated for five years, plus another five years if the city council approves, based on council review. That’s potentially over one million dollars of forgiven property taxes.
That’s not all. City documents say city staff will also apply for a sales tax exemption. No value is given for how much sales tax Co-Co may avoid paying. If all purchases were taxable the value of the sales tax exemption would be $257,400, but it’s unlikely the value of the exemption would reach that level.
So there it is. The purpose of the industrial revenue bonds transaction is to avoid paying taxes. That inspires a question. In its application, Co-Co says it has spent millions renovating the building in order to attract tenants, done without public incentive or financing. But now we’re told the parking lot can’t be repaired without two forms of tax giveaways?
When the city finds it necessary to forgive taxes in order to make investment possible, it tells us that taxes in Wichita are too high. Those high taxes are blocking investment. It’s either that, or cronyism — a simple taxpayer-funded gift to a city council crony.
One more thing: Boosters of the proposed Wichita sales tax, part to be used for economic development, tell us that Wichita has only $1.65 million per year to fund incentives. The incentives being considered for Co-Co are worth over $1 million, but have no cash cost to the city. These incentives aren’t part of the $1.65 million annual budget for incentives. But the incentives do have a cost, paid by taxpayers when the city, county, state, and school district spend and expect taxpayers to make up this missing tax revenue.
Now that Uber has started service in Wichita, the city faces a decision. Will Wichita move into the future by embracing Uber, or remain stuck in the past?
Uber is a ridesharing service, although that word doesn’t describe it adequately. Here’s how it works. People apply to be Uber drivers. Uber does background checks to its satisfaction. Drivers must have a relatively late-model car. If Uber accepts drivers, they receive a smartphone with an app, and they’re in business.
Customers who want to use Uber must have a smartphone. Then, customers create an account and make payment arrangements such as credit card, Google Wallet, or PayPal.
When customers want a ride, they use the Uber smartphone app to make a request. A driver accepts the request and picks up the passenger. At the end of the ride, payment is made through the Uber app. There is no tipping.
After the ride, passengers rate drivers. (Drivers rate passengers, too.) Passengers receive a receipt via email that shows the route taken on a map.
I’ve used Uber a few times in Washington and was pleased with the experience: No extortion of tips, polite and courteous drivers, clean cars, offers of bottled water, a bowl of wrapped candy on the seat beside me, and magazines in front of me.
People like Uber. Especially the young millennials I know that live in cities where Uber operates. These are people that Wichita is desperately trying to appeal to. So you may be thinking “isn’t it great that Uber has expanded to Wichita?”
Uber in Wichita is good if you value innovation and progress. But not everyone does. There will be a scuffle.
In 2012 Wichita passed new taxi regulations. They create substantial barriers to entering the taxicab market. Some of the most restrictive include these: A central office, staffed at least 40 hours per week; a dispatch system operating 24 hours per day, seven days per week; enough cabs to operate city-wide service, which the city has determined is ten cabs; and a supervisor on duty at all times cabs are operating.
These regulations protect Wichita’s existing traditional taxi industry. There are three taxi companies in Wichita, with two having the same ownership. Already one owner is speaking out against Uber. The public agenda for Tuesday’s meeting of the Wichita City Council lists a citizen speaking on the topic “Taxi Cab Insurance.” I imagine this speaker is inspired to speak on this topic due to Uber’s arrival.
The taxi companies that benefit from the restrictive Wichita regulations are likely to fight to keep their competitive barriers in place. The question is this: Does Uber fall under these regulations?
So far, the city’s position is this, according to the Wichita Eagle: “From the government side, interim City Attorney Sharon Dickgrafe said Uber is not a taxi service because the private cars its drivers use aren’t equipped with taxi meters.” (Ride-sharing app begins offering Wichitans a lift, August 28, 2014)
I’ll expect the city’s position to change when the city realizes that Uber cars do have meters. Not clunky old-fashioned meters, but meters running on smartphones that track journeys using GPS. After all, Uber charges for its trips just like traditional cabs: A fee to enter the cab, and then charges based on distance traveled, and in some cases, time. (In Wichita, Uber charges a base fare of $2.00 plus $0.20 per minute and $1.65 per mile, plus $1.00 safe rides fee. There is a $5.00 minimum. When you request a ride, Uber can give you a fare quote.)
The overhaul of Wichita taxi regulations in 2012 was partly inspired by the perception that drivers were not projecting a good image for the city. Now there are regulations in addition to the above that require standards of dress and hygiene, and “knowledge of the geography of the city and the area, and knowledge of local public and tourist destinations and attractions.” Cabbies must take a customer service class delivered by city bureaucrats.
So Wichita has many regulations for the taxi industry. But as I explain in more detail below, the city admitted that it failed to enforce a really important regulation: Convicted sex offenders shouldn’t be taxi drivers. But through the city’s mistake, one such man was granted a taxi driver license. He’s now serving a lengthy prison sentence for raping a passenger.
The standard argument against Uber is that it is unfair because Uber doesn’t have to follow laws and regulations. But Uber is regulated by a very powerful force: The marketplace. Remember, passengers rate Uber drivers. Can you rate your traditional Wichita taxi driver? What if you felt that your traditional taxi driver was padding the fare by taking a roundabout route? Uber trips are monitored by GPS. Passenger receipts have a map that shows the route taken, which can be the basis for a fare review.
The traditional taxi industry complains that Uber doesn’t have to follow follow laws and regulations. That’s nonsense. Uber drivers must follow traffic laws. Uber drivers and passengers must observe the most fundamental of laws: “Don’t hit people, and don’t take their stuff.” Beyond that, the taxi industry laws and regulations are from a bygone era. The traditional taxi industry is comfortable with these laws and regulations. The taxi companies can cope with them, and they make it difficult for competition to form. The purpose of these laws and regulations is not to benefit passengers, in most cases. They exist for the benefit of the taxicab industry.
But there is a transformation underway. Wichita can stop it if it wants to, but that would be a mistake.
The city says it is considering whether this industry — Uber — needs regulation. The question I have is this: Has the City of Wichita earned the right to regulate taxis? The answer is no. The city has created regulations that prop up the near-monopoly of traditional taxi companies and stifle innovation, but failed to protect passengers from being raped by convicted sex offenders.
Beyond that, the city has to decide whether it can back off its heavy-handed regulation and allow market-based innovation to thrive. The city has to decide in favor of customers or the traditional taxi industry and its near-monopoly ownership. It’s a decision that will let us learn a lot about the future direction of Wichita.
Regulation failure leads to tragedy in Wichita
When the Wichita City Council passed new taxicab regulations in 2012, the focus was on dirty cabs and slovenly drivers who were not acting as goodwill ambassadors for the city. Mayor Carl Brewer said he was “tired” of hearing complaints about drivers.
So the council passed new regulations regarding taxicabs, including the requirement that drivers attend customer service training provided by Go Wichita Convention and Visitors Bureau. Other regulations determine taxicab office staffing levels and level of supervision.
But something very important slipped through the cracks. The Wichita Eagle has reported the city didn’t competently enforce regulations designed to protect passenger safety:
A Wichita taxicab driver now in prison for raping a passenger last year shouldn’t have been allowed to operate a taxi in the first place.
That’s because at the time Bryon Scott Spohn applied for a taxi driver’s license in late 2012, he was on a state sex offender registry for possession of child pornography. A city ordinance that went into effect in July 2012 says a taxi driver’s license shall not be issued to anyone who “is now or has ever been registered as a sexual offender with any state, county or local government.”
Spohn shouldn’t have received a taxi license but did because the new change banning registered sex offenders wasn’t communicated to staff members doing background checks on taxi driver applicants, city officials told The Eagle on Friday. The city has fixed the problem that led to the oversight in Spohn’s case, they said. Taxi driver in prison for raping passenger was on sex offender registry, March 3, 2014
The regulations regarding customer service training were implemented. But the really important regulations? Lack of oversight, says the city.
I wonder: Who is regulating the regulators?
A group promoting the proposed Wichita sales tax makes an arithmetic error, which gives us a chance to ask a question: Is this error an indication of Yes Wichita and the city’s attitude towards, and concern for, factual information?
“Yes Wichita” is a group that promotes a one cent per dollar sales tax that Wichita voters will see on the November ballot. Using a $10 purchase as an example, a page on the Yes Wichita website breaks down the tax among the four areas of spending sales tax revenue, informing voters that means 6.3 cents to water, 2 cents to jobs, 1 cent to transit, and .07 cent to streets.
These numbers, however, don’t add up. On a $10 purchase, the one percent sales tax generates ten cents of sales tax revenue. The numbers used in the Yes Wichita example sum to 9.37 cents. The correct number is 0.7 cent to streets, not 07.
Should we be concerned about errors like this? For what it’s worth, this error is repeated at least once more on the voteyeswichita.com site. This site has been online with these errors for at least two weeks. Haven’t any of the members of the Yes Wichita team noticed this error? Or have they noticed the error, but don’t think it’s worth a correction?
Most importantly for Wichita voters: Is this error an indication of Yes Wichita and the city’s attitude towards, and concern for, factual information?
This does give us a chance to look at the cost of the sales tax for various levels of taxable purchases. I’ve prepared a table. As you can see, once we make purchases that add up to large amounts, so too does the amount of the extra sales tax Wichita city hall recommends citizens pay. Click on it for a larger version.
In this episode of WichitaLiberty.TV: Let’s ask that Wichita trim its blatant waste of tax dollars before asking for more. We’ll look back at a program called Transforming Wichita. Then: We need to hold campaigns accountable. I’ll give you examples why, and tell how you can help. View below, or click here to view at YouTube. Episode 57, broadcast September 7, 2014.
In making the case that economic development incentives are necessary and successful in creating jobs, a Wichita campaign overlooks the really big picture.
In November Wichita voters will decide whether to approve a sales tax of one cent per dollar. Part of the proceeds, about 20 percent, is dedicated to economic development, specifically the creation of jobs. On its website under the heading “Most of our growth comes from within,” the “Yes Wichita” campaign presents this argument in favor of sales tax revenue for economic development:
In the past, more than 90% of our existing economic development resources have been used to support expansion of local companies. NetApp is a great example because they had new work and needed to locate 400 new jobs in one of their existing facilities. They looked at multiple locations and it came down to expanding in an existing facility in the Research Triangle or an existing facility in Wichita. Those 400 jobs came to Wichita because of our great workforce and the partnership with WSU along with a small forgivable loan. With this new system, Wichita could have invested in training the 400 new hires at WSU.
Voters reading this might conclude that all that was needed to create 400 new jobs in Wichita was a “small forgivable loan,” along with things we already have (“great workforce and the partnership with WSU”). But voters might be interested in the entire picture of what NetApp received.
First, what the city and county offered to NetApp was not a forgivable loan. NetApp received, and will continue to receive, an annual grant as long as the company meets conditions. City documents explain: “Under the terms of the attached grant agreement, NetApp would be issued an annual grant payment of $312 per year during the 5-year term of the agreement for each employee in excess of 439 base employees, but in no event will the sum of all grant payments exceed $418,000.”
We won’t quibble over the difference between “grant” and “forgivable loan.” Instead, let’s take a look at the entire incentive package offered to NetApp.
A letter to NetApp from the Kansas Department of Commerce laid out the potential benefits from the state. As detailed in the letter, the programs with potential dollar amounts are:
- Promoting Employment Across Kansas (PEAK), up to $7,705,535
- Kansas Industrial Training with PEAK, up to $160,800
- sales tax savings of $6,880,000
- personal property tax exemption, $11,913,682
- High Performance Incentive Program (HPIP), $8,500,000
The total of these is $35,160,017. Some of these benefits are paid over a period of years. The PEAK benefits are payable over seven years, according to the letter, so that’s about $1.1 million per year. These are potential benefits; the company may not actually qualify for and receive this entire amount. But it’s what the state offered.
(We should qualify that the nearly $12 million in personal property tax exemption arises from a 2006 law whereby the state no longer taxes business equipment and machinery. This is not a targeted incentive for NetApp; it is something that benefits all companies in Kansas.)
It’s true that these programs are not cash incentives paid by the City of Wichita. But if a company is going to make purchases, and if the state says you can skip paying sales tax on the purchases — well, that’s as good as cash. $6,880,000 in the case of NetApp, according to the Kansas Department of Commerce. Unless the state reduces its spending by an equivalent amount, that’s missing revenue that other taxpayers have to make up, including Wichita taxpayers.
The City of Wichita is — or should be — generally aware of the entire incentive package offered to NetApp and other companies. In a presentation made to the Wichita City Council by Gary Schmitt, an executive at Intrust Bank and the Chair of Greater Wichita Economic Development Coalition, NetApp was presented as an example of a successful economic development effort. On a chart in the presentation, figures indicate that NetApp received $2,000 per job from local incentives, and $84,115 per job from state incentives.
In another section of the presentation, this is noted: “The $4.5 million PEAK program incentive from the Kansas Department of Commerce was an important factor in keeping NetApp in Wichita.”
Wichita voters will have to decide whether the Yes Wichita campaign is being forthright when it claims that a “small forgivable loan” was all the cash incentive that was necessary to create NetApp jobs in Wichita. If voters choose to believe that the small forgivable loan was all the incentive needed to seal the NetApp deal, they should then wonder why the State of Kansas offered many millions of unnecessary incentives.
Will the proposed Wichita sales tax result in more paved streets? It depends on what you mean by “pave.”
Of the proposed Wichita sales tax that voters will consider in November, a portion is scheduled to be used for streets. The specific language in the ordinance that the Wichita City Council passed on August 5 states “with an amount not to exceed $27.8 million dollars of such tax applied for street maintenance and repairs.”
But “maintenance and repairs” may mean different things to different people. The “Yes Wichita” group that supports the sales tax states this on their website:
What happens to neighborhood streets if we pass the sales tax proposal?
The city would contract to pave an additional 111 miles of neighborhood streets. This would help catch up the backlog with an infusion of additional resources targeted to some of the worst streets in the city. It would join the $8 million in regular funding to pave more than 1,900 miles of neighborhood streets.
Appearing on KNSS radio on August 26, Yes Wichita spokesman Jon Rolph said “we’ll be able to double the number of miles of paved streets over the next five years.”
That sounds as though sales tax money will be used to convert dirt streets into concrete or asphalt streets. That, I believe, is what most people would conclude when reading or hearing the language produced by the Yes Wichita group.
But that’s not what will happen if the sales tax passes. No sales tax money will be used to convert dirt streets to concrete or asphalt streets, which is the normal meaning of “pave.”
Here’s how dirt streets are paved in Wichita: The surrounding property owners petition for the formation of an improvement district. If a successful petition is filed, the city paves the street, and the property owners in the improvement district pay the cost. A city document titled Petitioning for Residential Street Paving explains in more detail.
How will sales tax proceeds be used regarding streets? The July 22 presentation to the city council held this: “The sales tax funds would repair 111 lane miles of streets over the next five years, focusing on some of the worst residential streets in Wichita. Coupled with the current CMP budget allocation of $8 million, a total of 1,964 lane miles will be repaired over the next five years.”
A little backwards arithmetic shows that without sales tax revenue, the city plans to pay for the repair of 1964 – 111 =1853 lane miles. The sales tax would increase what is already planned and budgeted through existing funding by (1964 – 1853) / 1853 = six percent.
As for Rolph’s contention that “we’ll be able to double the number of miles of paved streets over the next five years”: Even if we grant that he used pave to mean repair, the city won’t be able to double the miles. Instead, city documents indicate the sales tax will allow for an additional six percent in the number of lane miles to be repaired. That’s quite different from doubling, which means to increase something by 100 percent.
Has the Yes Wichita group been merely careless in using the word pave? Or is the group trying to present the proposed sales tax as something other than what it is?
When Wichita voters weigh the plausibility of the city’s plans for spending proposed new sales tax revenue, they should remember this is not the first time the city has promised results and accountability.
Do you remember Transforming Wichita? According to the city, “Transforming Wichita is the journey by which we are fundamentally changing the way we measure, report and perform the work of delivering services to the citizens of Wichita.”
In more detail, the city website proclaimed: “TW is the journey by which we will be fundamentally changing the way we deliver services to the citizens of Wichita. Our vision is for Wichita to be a premiere Midwestern city where people want to visit, live and play and for the city government to be a model of world class city governance where citizens receive the best possible value for their tax dollars and have confidence in their city government.”
At the end of this article I present the complete page from the city’s website as captured on November 10, 2007. That’s just seven years ago. There are officeholders (Wichita Mayor Carl Brewer, City Council member Jeff Longwell, City Council member Lavonta Williams) and many bureaucrats still in office from that year. It’s not ancient history.
Some of the most frequently-mentioned concepts in this document are:
- measure and report
The document mentions “supported by modernized information systems that facilitate collaboration with our partners.” That promise was made seven years ago. Today, do you know what you get when you ask the City of Wichita for spending records? The city can supply data of only limited utility. When I asked for spending records, what was supplied to me was data in pdf form, and as images, not text. It would be difficult — beyond the capability of most citizens — to translate the data to useful format. Even if someone translated the reports to computer-readable format, I don’t think the data would be very useful. This is a serious defect in the city’s transparency efforts.
How does Wichita compare to other jurisdictions in this regard? Many governmental agencies post their checkbooks on their websites, having mastered this aspect of accountability and trust years ago. Not so the City of Wichita.
Speaking of websites: The new and “improved” wichita.gov website is actually less useful than the city’s website in 2007. For more on this see A transparency agenda for Wichita.
Regarding performance: One of the most important functions city leaders say they perform is economic development, specifically the creation of jobs. Last year when the Wichita Eagle asked for job creation figures, it reported this:
“It will take us some time to pull together all the agenda reports on the five-year reviews going back to 2003. That same research will also reveal any abatements that were ‘retooled’ as a result of the five-year reviews,” city urban development director Allen Bell said.
One might have thought that the city was keeping records on the number of jobs created on at least an annual basis for management purposes, and would have these figures ready for immediate review. If the city had these figures available, it would be evidence of trustworthiness, performance, accountability, and measuring and reporting. But the city isn’t doing this.
Regarding values for dollars spent: During the past decade Wichita spent $247 million on the Aquifer Storage and Recovery Program, or ASR. As that project was contemplated, Wichita was told there was sufficient water for the next 50 years. We should ask: What value did we receive for those dollars?
Speaking of accountability: Much of the money used to pay for the ASR project was borrowed in the form of long-term debt. Now we are told that long-term borrowing to pay for a new water supply would be bad fiscal management. So was it was prudent and advisable to borrow over $200 million for water projects during the last decade? Who do we hold accountable for that decision, if what city leaders now say is correct?
Here’s a page from the city’s website as captured on November 10, 2007:
Transforming Wichita is the journey by which we are fundamentally changing the way we measure, report and perform the work of delivering services to the citizens of Wichita. Our Vision:
- For Wichita to be a premiere Midwestern city where people want to visit, live and play (as envisioned in Visioneering Wichita).
- For Wichita City government to be a model of world class city governance — where citizens are getting the best possible value for their dollars and the City has the public’s confidence and trust. For this vision to be attained, we have to adapt to change!
While we are doing a lot of things right, we can’t be complacent, resting on our laurels from past successes. The paradox is that we must retain faith that the future is bright, while being willing to face challenges of our current situation. We must be willing to challenge every aspect of how we’re doing things today. We must position ourselves for the future.
We will do this by transforming City government into a high performance organization that:
- Focuses on results
- Understands what results matter most to their customers
- Makes performance matter
- Moves decision-making down and out to the front-line, closest to customers; and
- Fosters an environment of excellence, inclusiveness, accountability, learning and innovation.
Through Transformation Wichita:
- We deliver outstanding results that matter to our customers and are trustworthy stewards of the funds with which citizens have entrusted us;
- We utilize team work and the best business processes, supported by modernized information systems that facilitate collaboration with our partners;
- We measure and report on our work, using a balanced scorecard that shows progress and results in how we carry out programs and activities, so that performance matters; and
- We engage in work that produces results that matter for our customers; we will work with colleagues in an environment where learning enriches us and innovation expands our potential.
More about TW
TW is the journey by which we will be fundamentally changing the way we deliver services to the citizens of Wichita. Our vision is for Wichita to be a premiere Midwestern city where people want to visit, live and play and for the city government to be a model of world class city governance where citizens receive the best possible value for their tax dollars and have confidence in their city government.
While the City is doing a lot of things right, we can’t be complacent. We must be willing to challenge every aspect of how we’re doing things today and position ourselves for the future.
We will accomplish this by transforming City government into a high performance organization that:
- Delivers outstanding results that matter to our customers and is a trustworthy steward of the funds with which citizens have entrusted us;
- We utilize team work and the best business processes, supported by modernized information systems that facilitate collaboration with our partners;
- We measure and report on our work, using processes that show progress and results in how we carry out programs and activities; and
- We engage in work that produces results that matter for our customers.
Wichita plans an ambitious road project that turns out to be too expensive, resulting in continued delays for Wichita drivers and purchases of land that may not be needed.
A major road construction project in east Wichita is deferred after the design is too expensive, reports the Wichita Eagle. (East Kellogg interchange plan getting major reboot, August 30, 2014)
It’s bad news that Wichita drivers will suffer through more years of delay as they travel through east Wichita. The value of the lost hours sitting in traffic? It’s impossible to say.
But here’s something that will probably be easy to appraise: The waste of taxpayer dollars due to the actions of government planners. From the Eagle story:
It’s unclear how the redesign would affect the ongoing lawsuit between the city of Wichita and 10 property owners whose land was taken by eminent domain for the project. The city also has acquired another 30 parcels in the area.
A court-appointed panel of three appraisers awarded the owners of the 10 parcels a collective $19.6 million for their properties in November.
The Wichita City Council approved the award, as required by the court, but the amount far exceeded an internal estimate in the $4 million to $5 million range.
In December, the city sued the landowners to see if a court would reduce the valuations.
Some of that land probably would not be needed if the interchange is redesigned.
Did you catch that? The city spent nearly five times as much as original estimates to seize property through eminent domain, and also purchased other property. Buildings with remaining useful life have been razed. Now, we learn that this land may not be needed.
As Wichita city hall asks citizens to trust the plans for the proceeds of a new sales tax, remember lessons like this.
In this excerpt from WichitaLiberty.TV: Former Wichita mayor Bob Knight explained that when he left office in 2003, we were assured we had water for 50 years. What has happened? View below, or click here to view at YouTube. Originally broadcast August 24, 2014.
As Wichita prepares to debate the desirability of a sales tax increase, a public opinion poll finds little support for the tax and the city’s plans.
In April Kansas Policy Institute commissioned SurveyUSA to conduct a scientific poll concerning current topics in Wichita. The press release from KPI, along with a link to the complete survey results, is available at Poll: Wichitans don’t want sales tax increase. In summary:
- Only 28% say the city has been spending efficiently.
- Only 34% agree with the idea of local governments using taxpayer money to provide subsidies to certain businesses for economic development.
- When asked whether they would personally pay a higher sales tax to pay for certain things, there was majority support for securing a long term water source, maintaining existing infrastructure, and building new infrastructure, but one-third or less would pay a higher sales tax for business incentives, developing downtown Wichita, and expanding or renovating convention spaces.
- 78% said that to fund existing infrastructure, build new infrastructure, and secure a long-term water source Wichita should fund those items by adjusting spending and being more efficient rather than raising taxes.
More detail on these results follows.
Is city spending efficiently?
The first question the survey asked was “In the past few years, have Wichita city officials used taxpayer money efficiently? Or inefficiently?” Following are the results for everyone, and then divided by political party and political ideology.
Overall, 58 percent believe city spending was inefficient, compared to 28 percent believing spending was efficient.
The results are surprisingly consistent. An exception is that political independents strongly believed that city spending was inefficient. Those identifying as liberal were more likely to say that city spending was inefficient.
Taxes for subsidies for economic development
About one-third of voters polled support local governments using taxpayer money to provide subsidies to certain businesses for economic development.
The second question the survey asked was “In general, do you agree? Or disagree? With the idea of local governments using taxpayer money to provide subsidies to certain businesses for economic development?” Following are the results for everyone, and then divided by political party and political ideology.
Overall, 55 percent disagreed with using taxpayer money to provide subsidies to certain businesses for economic development. 34 percent agreed.
The results are fairly consistent across political party and ideology, although Republicans are somewhat more likely to agree with using taxpayer funds for economic development incentives, as are those who self-identify as political moderates.
Voters willing to pay for fundamentals
Voters are willing to pay a higher sales tax for fundamentals like infrastructure and water supply, and less willing for business incentives, downtown development, and convention centers.
In a series of questions asking if Wichita voters would be willing to pay a higher sales tax to provide certain services, a pattern appeared: Voters are willing to pay for things that are fundamental in nature, and less willing to pay for others.
As can be seen in the nearby chart, voters are willing to pay for infrastructure, and more willing to pay for maintenance of existing infrastructure than for new infrastructure. Voters are most willing to pay for securing a long-term water source.
For business incentives, downtown development, and convention centers, Wichita voters express less willingness to pay higher sales tax to fund these items.
For the first three items, the average was 68 percent of voters willing to pay a higher sales tax. For the last three, the average is 30 percent.
Following is the complete text of the questions:
Would you personally be willing to pay a higher sales tax in the city of Wichita to fund incentives to businesses expanding in Wichita or moving here from other states?
Would you personally be willing to pay a higher sales tax in the city of Wichita to fund maintenance work on existing infrastructure, such as sewers and roads?
Would you personally be willing to pay a higher sales tax in the city of Wichita to fund new infrastructure, such as new highways and passenger rail connections?
Would you personally be willing to pay a higher sales tax in the city of Wichita to continue developing downtown Wichita with apartments, businesses, and entertainment destinations?
Would you personally be willing to pay a higher sales tax in the city of Wichita to expand or renovate convention spaces, such as the Hyatt Hotel and Century II?
Would you personally be willing to pay a higher sales tax in the city of Wichita to secure a long-term water source?
How to pay for infrastructure
Wichita voters prefer adjusting spending, becoming more efficient, using public-private partnerships, and privatization to raising taxes.
Question nine asked how Wichita voters preferred paying for new government spending: “To fund existing infrastructure, build new infrastructure, and secure a long-term water source should Wichita fund those items by adjusting spending and being more efficient rather than raising taxes?”
Overall, 78 percent of Wichita voters answered “Yes,” meaning they prefer that Wichita adjust spending and become more efficient. 12 percent answered “No,” meaning they were in favor of raising taxes instead.
A related question was “Should Wichita fund those items through public-private partnerships, or privatization, rather than raising taxes?”
Overall, 65 percent answered “Yes,” meaning they prefer public-private partnerships, or privatization. 25 percent answered “No,” indicating a preference for raising taxes.
In this episode of WichitaLiberty.TV: Who would be most harmed by the proposed Wichita sales tax? Also: A look at updated airport statistics, and what the city could do if it wants to pass the sales tax. View below, or click here to view at YouTube. Episode 55, broadcast August 17, 2014.
Analysis of household expenditure data shows that a proposed sales tax in Wichita affects low income families in greatest proportion, confirming the regressive nature of sales taxes.
One of the criticisms of a sales tax is that it is regressive. That is, it affects low-income families in greatest proportion. This is an important consideration to explore, because in November Wichita voters will decide whether to create a new city sales tax of one cent per dollar. If enacted, the sales tax in Wichita would rise from 7.15 percent to 8.15 percent.
It’s an important issue because to hear some people talk, it seems as though they are saying the proposed tax is “one penny.” Anyone can afford that, they say. But the tax is an extra penny on each dollar spent, meaning that the cost of, say, fifty dollars of food at the grocery store increases by fifty cents, not one penny.
Further, we hear the sales tax spoken of as being a one percent increase. That’s true, if we mean a one percent increase in the cost of most things we buy. And one percent, after all, is just one percent. Not a big deal, people say. But considering the sales tax we pay, a relevant calculation is this: (8.15 – 7.15) / 7.15 = 14 percent. Which is to say, the amount of sales tax we pay will rise by 14 percent.
To explore the effect of the proposed sales tax on families of different incomes, I gathered data from the U.S. Census Bureau, specifically table 1101, which is “Quintiles of income before taxes: Annual expenditure means, shares, standard errors, and coefficient of variation, Consumer Expenditure Survey, 2012, (Selected Values).” This table divides families into five quintiles. It gives annual expenditures for each quintile in various categories. For each category, I judged whether it is subject to sales tax. For example, for housing, I indicated it is not subject to sales tax. This is not totally accurate, as some of the spending in this category may be for taxable items like maintenance and repair supplies. Food is subject to sales tax in Kansas, although low-income families may apply for a rebate of the tax. Despite these shortcomings, I feel this data gives us an approximation of the effect of the sales tax. (Click on the table to view a larger version, or see below for how to obtain the data.)
As you might imagine, as income rises, so does total taxable expenditures. Of interest, the percent of expenditures that are taxable is relatively constant across income levels.
An important finding is the bottom line of the table, which shows the increase in cost due to the proposed sales tax as percent of income after taxes. This calculates the relative impact of the proposed sales tax increase as a percent of income. It is here that we expect to see the regressive nature of a sales tax appear. For all consumers, the increase in cost is 0.35 percent. For the lowest class of income, the increase in cost is 0.97 percent of income. It falls to 0.26 percent for the highest income class.
This means that the lowest income class of families experience an increase nearly four times the magnitude as do the highest income families, as a percentage of after-tax income. This is the regressive nature of sales taxes illustrated in numbers, and is something that Wichita policy makers and voters should consider.
I’ve made the data available as a Google Docs spreadsheet. Click here for access.
Why do Kansans pay taxes, including sales tax on food, to fund millions in subsidy to a company that is experiencing a sustained streak of record profits?
As the Wichita City Council prepares to authorize funding for Southwest Airlines, it’s worth taking a look at updated statistics regarding the airport. The agenda item the council will consider is available here.
The city has pointed to the arrival of Southwest last June as a game-changer for the airport. It’s true that passenger counts have increased. In the nearby chart I present monthly passenger counts, enplanements only, at the Wichita airport for all carriers and for Southwest separately. I’ve treated Southwest as a continuation of AirTran, as Southwest started service at the same time AirTran stopped, and Southwest is receiving a similar subsidy. I show monthly traffic, and also a 12-month moving average to smooth out the extreme monthly variations in passenger traffic. (Click on charts for larger versions.)
Of note is that while the Southwest passenger count is rising, it started from a low position. Also, the count has not risen to the level that AirTran experienced in the middle of the last decade and as recently as 2011.
Considering the number of flights leaving the Wichita airport, the recent trend is up. This is a departure from recent trends. Although the number of available flights nationally has been slowly falling, it was falling faster for Wichita. That trend, for now, is reversed, although the number of flights in Wichita is far below the level of a decade ago.
The number of flights is an important statistic. Greater attention is given to fares, but for many travelers, especially business travelers, an available flight at any price is paramount. Last year at this time I wrote “A program designed to bring low air fares to Wichita appears to meet that goal, but the unintended and inevitable consequences of the program are not being recognized. In particular, the number of flights available at the Wichita airport continues to decline.” So it is good news that the number of flights has risen.
Wichita compared to the nation
Looking at passengers through the end of 2013, Wichita has now experienced an uptick. Passenger traffic in Wichita had been relatively level at a time that national traffic was rising. The number of available seats on flights has started to rise in Wichita, while nationally the trend has been level the past several years.
Load factor — the percent of available seats that were sold — is rising in Wichita, as it is nationally.
The last set of four charts is from an interactive visualization I prepared using data from the Bureau of Transportation Statistics. Click here to open the visualization in a new window. You may select any number of airports for display on the charts.
Recently Southwest reported record high profits for the quarter ending in June. The company said that net income was $485 million, which it said represented the fifth consecutive quarter of record profits.
We might ask this question: Why do Kansans across the state pay taxes, including sales tax on food, to fund millions in subsidy to a company that is experiencing a sustained streak of record profits?
While the proposed Wichita city sales tax is a bad idea, the city could do a few things that would not only improve its chance of passage, but also improve local government.
This week the Wichita City Council passed an ordinance that starts the process of placing a sales tax measure on the November ballot. The one cent per dollar tax will be used for several initiatives, including an economic development jobs fund.
The city will need to gain the trust of citizens if the measure is to have any chance of passage. While I am personally opposed to the sales tax for some very good reasons, I nonetheless offer this advice to the city on what it could do to help pass the sales tax.
Presentations made by city hall state that the city council will appoint a private-sector led jobs commission. It would examine potential projects and make recommendations to the council. There will also be a citizens oversight committee and a jobs commission audit committee.
The problem is that committees like these are usually stacked with city hall insiders, with people who want to personally gain from cronyism, and with people the city believes will be quietly compliant with what the city wants to do.
As an example, consider my appointment to the Wichita Airport Advisory Board last year. I had to be confirmed by the city council. I’ve been critical of the subsidy paid to airlines at the Wichita airport. I’ve researched airfares, air traffic, and the like. I’ve presented findings to the city council that were contrary to the city’s official position and that discovered a possible negative effect of the subsidy effort. Because of that, the council would not confirm my appointment. The city was not willing to have even one person on the airport board who might say wait, let’s take a look at this in a different way, and would have facts to support an alternative.
At Tuesday’s meeting the council assured citizens that it would not be the same group of city hall insiders serving on these boards. According to meeting minutes, council member James Clendenin (district 3, southeast and south Wichita) said “Over the next few months there is going to be a lot more detail given to the public so that they can make an informed decision at the time this comes up to a vote in November.”
If the council is serious about this it could take a simple step: Appoint the members of these boards well in advance of the November election. Also, define the structure of the boards, such as the number of members, how appointed, term of appointment, and other details.
The city says that the operations of the committees and the jobs fund will be transparent. But the city’s record in transparency is poor. For many years the city’s quasi-independent agencies have refused to release spending records. Many, such as I, believe this is contrary to not only the spirit, but the actual language of the Kansas Open Records Act. There is nothing the city has said that would lead us to believe that the city plans to change its stance towards the citizens’ right to know.
If the city wants to convince citizens that it has changed its attitude towards government transparency and citizens’ right to know how tax money is spent, it could positively respond to the records requests made by myself and Kansas Policy Institute.
The city is also likely to engage in an educational and informational campaign on its cable television channel. If it does, a welcome gesture would be to offer time on the channel for citizen groups to present their side of the issues. The city’s cable channel is supposed to be a public access channel, but as of now, citizens have no ability to produce content for that channel.
In presentations to the council, reports released by the Texas Enterprise Fund have been used as examples of what Wichita might do to inform citizens on the economic development activities funded by the sales tax. But many in Texas are critical of the information provided about the fund’s operation.
Even when information is provided, it is subject to different interpretations by self-interested parties. On the Texas Emerging Technology Fund, the Houston Chronicle recently reported “Whether or not the fund has lost taxpayer money depends on which accounting method is applied. The Associated Press says a method common to government entities placed the fund’s value at $175 million, with a loss of $30 million. The governor’s office uses a private accounting standard that places the fund’s value at $230 million, a $25 million profit.”
In 2011 the Wall Street Journal reported on how job creation numbers can be stretched far beyond any sense of reason:
In Texas, Mr. Perry in a 2011 report to the legislature credited the Texas A&M Institute for Genomic Medicine with already producing more than 12,000 additional jobs. That’s ahead of the 5,000 promised by 2015.
According to the institute’s director, however, 10 people currently work in its new building. A Houston-area biotech firm that agreed to produce about 1,600 of the project’s jobs has instead cut its Texas staff by almost 400 people, and currently employs 220 people in the state.
What accounts for the discrepancy? To reach their estimate of 12,000-plus jobs created by the project, officials included every position added in Texas since 2005 in fields related sometimes only tangentially to biotechnology, according to state officials and documents provided by Texas A&M. They include jobs in things ike dental equipment, fertilizer manufacturing and medical imaging.
William Hoyt, an economics professor at the University of Kentucky who studies state economic-incentive programs across the U.S., said similar efforts elsewhere have been dogged by controversy over how many jobs they actually created. Even so, Mr. Hoyt said he hasn’t come across a definition as broad as that employed by Texas. “It’s hard to see jobs in dental supplies in El Paso being related to a genome clinic in College Station,” where Texas A&M’s main campus is located, he said.
A spokeswoman for Mr. Perry’s office in Austin, Texas, said the job totals for the A&M project were provided by the grant recipients, using figures compiled by the Texas Workforce Commission, the state’s labor agency, and hadn’t yet been “verified.” (Behind Perry’s Jobs Success, Numbers Draw New Scrutiny, October 11, 2011)
Locally, Wichita has had difficulty making information available. Last year the Wichita Eagle reported on the problems.
The Eagle asked the city last week for an accounting of the jobs created over the past decade by the tax abatements, a research project that urban development staffers have yet to complete.
“It will take us some time to pull together all the agenda reports on the five-year reviews going back to 2003. That same research will also reveal any abatements that were ‘retooled’ as a result of the five-year reviews,” city urban development director Allen Bell said. “I can tell you that none of the abatements were terminated.” (Wichita doubles property tax exemptions for businesses, October 20, 2013)
One might have thought that the city was keeping records on the number of jobs created on at least an annual basis for management purposes, and would have these figures ready for immediate review. But apparently that isn’t the case.
We need to recognize that because the city does not have at its immediate disposal the statistics about job creation, it is evident that the city is not managing this effort. Or, maybe it just doesn’t care. This is a management problem at the highest level.
In fact, the city and its economic development agencies don’t even keep promotional websites current. GWEDC — that’s the Greater Wichita Economic Development Coalition credited with recruiting a company named InfoNXX to Wichita — doesn’t update its website to reflect current conditions. InfoNXX closed its facility in Wichita in 2012. When I looked at GWEDC’s website in October 2013, I found this on a page titled Office Operations:
Wichita hosts over a dozen customer service and processing centers — including a USPS Remote Encoding Center (985 employees), InfoNXX (950), T-Mobile (900), Royal Caribbean (700), Convergys (600), Protection One (540), Bank of America (315) and Cox Communications (230.) (emphasis added)
Observe that the official Wichita-area economic development agency touted the existence of a company that no longer exists in Wichita, and claims a job count that the company never achieved. Also, at that time the USPS facility was in the process of closing and eliminating all Wichita jobs.
What is Wichita doing to convince citizens that it has moved beyond this level of negligence?
In Sedgwick County, two fiscally conservative commission candidates prevailed.
This year three of the five positions on the Sedgwick County Board of Commissioners are up for election. Unlike the Wichita city Council, Sedgwick County commissioners run as members of a party, and compete in both primary and general elections. There can be independent and third-party candidates too. This year for one of the Sedgwick County commission districts the incumbent Republican ran unopposed. But in two other districts, there were spirited contests.
In district four, which covers north-central and northwest Wichita, Maize, Valley Center, and Park City, incumbent Richard Ranzau was challenged by Carolyn McGinn. She had held this position in the past, and then served in the Kansas Senate, an office she still holds. Ranzau is well known — notorious, we might say — for his tough line on spending taxpayer dollars. The McGinn campaign had about twice as much money to spend. A lot of that came from the people we know as Wichita’s crony capitalists, that is, people and companies who actively seek handouts from government. The Wichita Metro Chamber of Commerce endorsed McGinn. Now, you may think of your local chamber of commerce as pro-business. And, the chamber is pro-business, no doubt about it. But pro-business is not the same as pro-capitalism. Being pro-business is not the same as being in favor of economic freedom. Being pro-business is not the same as supporting a limited, constitutional, government that protects our freedoms and property rights.
I want to stress this point. Just this week Wichita’s own Charles Koch wrote an op-ed for USA Today. After expressing concern for the weak economy and its effect on workers, he offered a plan forward. He wrote “First, we need to encourage principled entrepreneurship. Companies should earn profits by creating value for customers and acting with integrity, the opposite of today’s rampant cronyism.”
Concluding his article, Koch wrote: “Our government’s decades-long, top-down approach to job creation has failed. Its policies have made our problems worse, leaving tens of millions chronically un- or underemployed, millions of whom have given up ever finding meaningful work. In doing so, our government has not only thwarted real job creation, it also has reduced the supply and quality of goods and services that make people’s lives better and undermined the culture required to sustain a free society. When it comes to creating opportunities for all, we can do much better. It’s time to let people seek opportunities that best suit their talents, for businesses to forsake cronyism, and for government to get out of the way.”
While Charles Koch was writing primarily about the United States government, the same principles apply to local government. And Wichita’s cronies — those who seek profits through politicians and bureaucrats rather than customers — they lined up behind Carolyn McGinn in a big way. By using their generous funding, she ran a negative campaign against Richard Ranzau. He forcefully and truthfully responded to her negative ads, and I’m pleased to say that I helped in that effort.
What was the result of the election? Ranzau won with 54 percent of the vote. He now moves on to face Democrat Melody McRae-Miller in the November general election. She held this county commission seat before McGinn, and she also served in the Kansas legislature, in the House of Representatives.
There was also a contest in district 5, which is Derby and parts of southeast Wichita. The one-term incumbent Jim Skelton declined to run for re-election. The two Republican candidates were Jim Howell and Dion Avello. Howell has represented parts of Derby in the Kansas House of Representatives for four years. Avello has been mayor of Derby for many years. The Wichita Chamber endorsed Howell in this race. Campaign funds were close in this race, with Howell having a small edge. The result of the election was Howell winning with 63 percent of the vote. He moves on to face the Democrat in the general election, former Rose Hill Mayor Richard Young.
What do the results of these elections mean? First, there may be a shift of power on the Sedgwick County commission. Currently, commissioners Ranzau and Karl Peterjohn are often in a minority of two against the other three commissioners. It’s thought that it Howell is elected, he would often join Ranzau and Peterjohn to form a working majority of three. That could cause a change in policy at the County commission, and that’s something that the Wichita chamber and Wichita’s cronies don’t want. It will be interesting to see who the chamber and the cronies support in the general election, Ranzau or the Democrat. In 2008, when Peterjohn ran for his first term, the Wichita chamber campaigned against him, making it their most important priority in that election.
For this shift to materialize, both Ranzau and Howell must win their November elections.
Ranzau’s victory is a defeat for the Wichita Chamber of Commerce. Besides endorsing McGinn, it made independent expenditures in her favor. This has broader implications than just one county commission district. This week the Wichita City Council voted in favor of placing a sales tax issue on the November ballot. The Wichita Chamber is strongly behind the sales tax in Wichita, and I would expect to see the chamber devote a lot of resources campaigning for its passage. Richard Ranzau is opposed to the sales tax increase. While his county commission district encompasses a lot of territory that is outside the City of Wichita, and it is only Wichita voters who will decide the sales tax issue, I think we can safely conclude that his victory paints a gloomy forecast for approval of a sales tax.
Looking even farther to the future. Ranzau’s county commission district overlaps part of Wichita city council district 5. That is currently represented by Jeff Longwell. He can’t run again because of term limits. Longwell is firmly in the grasp of Wichita’s cronies. Could Ranzau’s victory pave the way for a fiscally conservative city council candidate in district 5? That election will be next spring.
Also next spring Wichita will elect a new mayor. There are many names mentioned as candidates, including Longwell. What do the victories of Ranzau and Howell mean? What impact will the sales tax campaign and election result have on the spring elections?
The Wichita Chamber and the Wichita cronies campaigned hard for Carolyn McGinn against Richard Ranzau. Well, I should clarify: They spent a lot of money on the campaign. Richard himself, his family, and his volunteers worked hard. The desire for economic freedom by Richard Ranzau and his volunteers was a more powerful force than the greed of the Wichita Chamber of Commerce, Key Construction, David Burk, and Bill Warren.
Keep this in mind. The Sedgwick County Commission has very little power to initiate the type of economic development incentives that the Wichita Chamber and the cronies want. That power rests almost totally at the Wichita City Council and the Kansas Department of Commerce. Also, the county commission has limited power to stop or object to incentives. Their main voice is the ability to cancel the formation of a tax increment financing district.
So if the Wichita Chamber and the cronies are willing to intervene to such extent in the campaign for county commissioner, think what they will be willing to do in city council or mayoral contests, if they see that their grip on the really big cookie jar might be in doubt. Since the departure of Michael O’Donnell for the Kansas Senate there has been no one on the Wichita city council who questions anything the Chamber and the cronies want. Not in any serious manner, that is. We see council members making false displays of pretense now and then, but that’s all they do.
This week the Wichita City Council holds the public hearing for the budget. Following are several observations.
(To view the budget, click here to go to wichita.gov. The best document to read is Volume I. The most important parts to read are the City Manager’s Policy Message (eleven pages) and the Budget Issues section (seven pages). Don’t worry; there are lots of pictures to skip over.)
The mill levy
The city says — many times — that the mill levy has not risen for a long time: “The 2015 Proposed Budget is based on City Council policy direction. It will not require a mill levy rate increase, for the 21st consecutive year.” (page 21)
In 2002 the City of Wichita mill levy rate was 31.845. In 2013 it was 32.509, based on the city’s Comprehensive Annual Financial Report. That’s an increase of 0.664 mills, or 2.09 percent, since 2002. In one year the mill levy rate increased .038 mills, or 0.12 percent. (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 direct control over the assessed value of property, it does have control over the amount it decides to spend.
The city may dismiss small changes in the mill levy as the result of errors in estimating assessed value. If there are errors in estimation, we would expect the errors to be random. That is, in some years we would expect the city to have estimated that assessed values would be lower than the actual value. In those years, the mill levy could go down. But that happened for only one year since 2002.
No matter what the cause, the Wichita city mill levy today is 2.09 percent higher than in 2002. The city should recognize this in its budget documents.
Stewardship of assets
While the city boasts that the mill levy has not risen, part of the reason why it is (relatively) low is the city has not been taking care of the assets that citizens purchased and trusted the city to maintain. For example: “Pavement condition has slowly deteriorated over the last decade in Wichita. New pavement strategies will enhance the effectiveness of City efforts; however, additional funds would expedite improvements to streets in poor condition and help to more rapidly stabilize overall pavement conditions in Wichita.” (page 33)
Earlier this year the council received a document from the Community Investments Plan Steering Committee. It measured the amount by which the city is behind in maintaining its assets: “Decades of under-investment in infrastructure maintenance … 38% of Wichita’s infrastructure is in ‘deficient/fair’ condition.”
The cost to remedy this lack of maintenance is substantial. The document says that on an annual basis, Wichita needs to spend $180 million on infrastructure depreciation/replacement costs. Currently the city spends $78 million on this, the presentation indicates. The “cost to bring existing deficient infrastructure up to standards” is given as an additional $45 to $55 million per year.
This is spending that the city has deferred to future years. The city knows this, too. The Wichita Eagle recently quoted Wichita Mayor Carl Brewer: “We’ve put them off for too long. We didn’t want the challenges. We didn’t want the tax bills. But now, to maintain our quality of life, we’ve got to catch up.”
The question is this: Does this budget make plans for correcting this maintenance deficit? The answer is: Yes, it does something, as described by the city: “In 2012, staff developed a new model to determine the impact of street treatment options. This model focuses on maximizing the return on investment of each treatment option. This method attempts to match the timing and method of treatment with the projected remaining service life (RSL) and value of the street network to ensure treatments maximize Wichita’s return on investment (ROI).” (page 34)
But this change is tiny compared to the magnitude of the problem. The budget talks about the proposed one cent per dollar sales tax that voters may be asked to approve. Of the nearly $80 million per year the sales tax might raise, only $5.5 million per year is allocated towards maintenance of infrastructure, in this case additional street maintenance. Remember, the city believes it needs to spend an additional $45 to $55 million per year “to bring existing deficient infrastructure up to standards.”
The budget lists the areas in which Wichita has made use of outsourcing, which are the mowing of parks and security screening at city hall. The budget says that in 2015 the intergovernmental relations function will be outsourced. Also, the city will contract with private firms to supplement snow removal, and the removal of dead trees. The city is also soliciting proposals for some street maintenance activities.
But if this is all the city is doing regarding outsourcing, Wichita is missing out on many opportunities to improve service to citizens and reduce costs.
There’s a difference between government and business. As an example, consider city golf courses. Recently an advisory board recommended that the city improve customer service and salesmanship through training of golf staff and management. Successful businesses know that customer service and salesmanship are what business is all about, especially in a service-oriented product like golf. Businesses seek to provide good customer service because that is how they earn profit. But too often government sees customers as a burden, not an asset.
Outsourcing changes city services from being a burden placed on government employees, to something that a company actually wants to do.
I’ve illustrated many instances where the city is using electricity to light streetlights during the day. If the city seems unconcerned about such blatant and visible waste that surely must be easy to avoid, what does that tell us about waste that is not easily seen?
In this episode of WichitaLiberty.TV: Wichitans ought to ask city hall to stop blatant waste before it asks for more taxes. Then, a few questions about economic development incentives. Finally, how should we pay for a new water source, and is city hall open to outside ideas? View below, or click here to view at YouTube. Episode 53, broadcast July 27, 2014.
In this excerpt from WichitaLiberty.TV: The City of Wichita urges citizens to take steps to stop “vampire” power waste. But before hectoring people to introduce inconvenience to their lives in order to save small amounts of electricity, the city should tackle the real monsters of its own creation. Originally broadcast June 29, 2014. View below, or click here to view at YouTube.
For more on this issue, see “Forget the vampires. Let’s tackle the real monsters.”
In this excerpt from WichitaLiberty.TV: When thinking about water issues, Wichita city council members and city hall bureaucrats seem to throw economic thinking out the window. Originally broadcast July 6, 2014. View below, or click here to view at YouTube.
Wichita city leaders are telling us we need to spend a lot of money for a new water source. For some reason, debt has now become a dirty word.
Details are not firm (that’s a problem right there), but the amount needed is $250 million, city officials say. It could be less, they now speculate, maybe only $200 million.
To raise these funds, here’s the choice we’re given: Either (a) endure a sales tax for five years, or (b) borrow money, raise water bills for 20 years, and pay a lot of interest.
It’s a similar argument made in favor of a sales tax to pay for the Intrust Bank Arena in downtown Wichita. By paying higher sales tax for a short while, we avoid long-term debt.
There’s also the argument made that by using a sales tax, visitors to Wichita help pay for the water project. Of course, the sales tax is largely paid by local residents. My estimates indicate that raising the sales tax by one cent per dollar costs the average household $223 per year. That’s based on U.S. Census data of household spending in various categories, some subject to sales tax, and some not.
But even if we can get visitors to Wichita to pay part of the project’s cost through a sales tax, that’s not necessarily a wise course of action. By making it more expensive to visit Wichita, we make it a less desirable destination.
The motivation of those who argue for raising funds by getting outsiders to pay for our water project through a sales tax may be missing a subtle point. That is, much of what is “sold” in Wichita is not subject to sales tax, as the output of many manufacturers in Wichita isn’t taxed. The fuselages of Boeing 737 jetliners is an example. But these manufacturers use a lot of water and pay water bills. The cost of that they’ll probably pass on to their customers.
All these arguments link the project with its funding too closely. They ought to be independent decisions.
What’s really curious is the city’s sudden aversion to debt. Almost all the money used to pay for the ASR to this point was borrowed. So far, the total cost of ASR is $247 million. It’s common to pay for long-lived capital assets with borrowed funds. So it’s strange for city council members to suddenly decide that debt is not good, and that we have to pay for this project with cash, which is what the sales tax does.
Here’s another alternative: If the project costs $250 million, let’s raise water bills by that amount over five years. In this way, water users pay for the new water supply, and we avoid the debt that city council members seem determined to avoid.
This might be a bitter pill to swallow. In 2013, the Wichita water utility collected about $65 million in revenue. That doesn’t represent the total that people pay on their water bills, as the sewer utility collected $50 million. Adding $50 million per year to water bills might seem like a large increase, and it would be.
But it’s important to have water users pay for water. Also, we need to be aware of the costs of a new water supply. That’s easier to accomplish when people pay this cost through their water bills. When paying through a general sales tax, this linkage is less obvious. There is less transparency, and ultimately, less accountability.
An explanation of how cost benefit ratios are calculated for economic development incentives. From Center for Economic Development and Business Research, Wichita State University. 2011. View below, or click here to open in new window.
A forum on water issues featured a presentation by Wichita city officials and was attended by other city officials, but the city missed a learning opportunity.
This week Kansas Policy Institute held an educational form on the issues of water in the Wichita area. The event featured four presentations with questions and answers, with most being about one hour in length.
This was a welcome and important event, as the city is proposing to spend several hundred million dollars on an increased water supply. It is likely that citizens will be asked to approve a sales tax to pay this cost. It’s important that we get this right, and citizen skepticism is justified. The city has recently spent $247 million on a water project that hasn’t yet proved its value over a reasonably long trial. A former mayor has told audiences that he was assured Wichita had adequate water for the next 50 years. It was eleven years ago he was told that. Wichita’s current mayor has admitted that the city has not spent what was needed to maintain our current infrastructure, instead pushing those costs to the future.
Most of the information that Wichitans have access to is provided by city government. So when an independent group produces an educational event on an important topic, citizens might hope that Wichita city officials take part.
And, Wichita city officials did take part. The second of the four presentations was delivered by Wichita public works director Alan King and council member Pete Meitzner (district 2, east Wichita). City governmental affairs director Dale Goter and council member Lavonta Williams were in the audience.
But after this presentation ended, the four city officials left.
What did they miss? They missed two additional presentations, or half the program. The city officials did not hear a presentation by Dr. Art Hall of Kansas University which presented novel ideas of using markets for water resources. Particularly, how Wichita could secure increased water supply by purchasing water rights and using the infrastructure it already has in place.
In the final presentation, the audience asked questions that the presenter was not able to answer. City officials like public works director King would have been able to provide the answers.
I understand that city council members are part-time employees paid a part-time salary. Some have outside jobs or businesses to run. But that’s not the case with the city’s public works director or its governmental affairs director.
Come to think of it, where was the city manager? Assistant city manager? Other council members? The city’s economic development staff?
Where was Mayor Carl Brewer?
If you’ve attended a city council meeting, you may have to sit through up to an hour of the mayor issuing proclamations and service awards before actual business starts. Fleets of city bureaucrats are in the audience during this time.
But none of these would spend just one hour listening to a presentation by a university professor that might hold a solution to our water supply issue.
I understand that city officials might not be the biggest fans of Kansas Policy Institute. It supports free markets and limited government.
But city officials tell us that they want to hear from citizens. The city has gone to great lengths to collect input from citizens, implementing a website and holding numerous meetings.
About 70 people attended the KPI forum. Citizens were interested in what the speakers had to say. They sat politely through the presentation by the two city officials, even though I’m sure many in the audience were already familiar with the recycled slides they’d seen before.
But it appears that Wichita city officials were not interested in alternatives that weren’t developed by city hall. They can’t even pretend to be interested.
The evaluation of economic development incentives requires thinking at the margin, not the entirety.
When considering the effect of economic development incentives, cities like Wichita use a cost-benefit analysis to determine whether the incentive is in the best interests of the city. The analysis usually also considers the county, state, and school districts, although these jurisdictions have no say over whether the incentive is granted, with a few exceptions. The basic idea is that by paying money now or forgiving future taxes, the city gains even more in increased tax collections. This is then pitched as a good deal for taxpayers: The city gets more jobs (usually) and a profit, too.
Economic activity generates tax revenue flowing to governmental agencies. When people work, they pay income taxes. When they buy stuff, they pay sales taxes. When they create new property or upgrade existing property, it is taxed.
In the calculation of cost-benefit ratios, when a company receives economic development incentives, government takes credit for the increase in tax revenue. Government often says that without the incentive, the company would not have located in Wichita. Or, it might not have expanded in Wichita. Or these days, it is claimed that incentives are necessary to persuade companies to consider remaining in Wichita rather than moving somewhere else.
But there are a few problems with the arguments that cities and their economic development agencies promote. One is that the increase in tax revenue happens regardless of whether the company has received incentives. What about all the companies that locate to or expand in Wichita without receiving incentives?
Related is that jurisdictions may grant relatively small incentives and then take credit for the entire deal. I’ve been told that when economic development agencies learn of a company moving to an area or expanding, they swoop in with small incentives and take credit for the entire deal. The agency is then able to point to a small incentive that enabled a huge deal. As you can imagine, it’s difficult to get the involved parties to speak on the record about this.
The importance of marginal thinking
Here’s an example of the importance of looking at marginal gains rather than the whole enchilada. In 2012, the City of Wichita developed a program called New HOME (New Home Ownership Made Easy). The crux of the program is to rebate Wichita city property taxes for five years to those who buy newly-built homes in certain neighborhoods under certain conditions.
The important question is how much new activity this program will induce. Often government takes credit for all economic activity that takes place. This ignores the economic activity that was going to take place naturally — in this case, new homes that are going to be built even without this subsidy program. According to data compiled by Wichita Area Builders Association and the WSU Center for Economic Development and Business Research — this is the data that was current at the time the Wichita city council made its decision to authorize the program — in 2011 462 new homes were started in the City of Wichita. The HOME program contemplated subsidizing 1,000 homes in a period of 22 months. That’s a rate of 545 homes per year — not much more than the present rate of 462 per year. But, the city has to give up collecting property tax on all these homes — even the ones that would be built anyway.
What we’re talking about is possibly inducing a small amount of additional activity over what would happen naturally and organically. But we have to subsidize a very large number of houses in order to achieve that. The lesson is that we need to evaluate the costs of this program based on the marginal activity it may induce, not all activity. For more, see Wichita new home tax rebate program: The analysis.
In this episode of WichitaLiberty.TV: Two activists join host Bob Weeks to discuss activism at the local level. Then, what about the proposed sales tax increase in Wichita? View below, or click here to view at YouTube. Episode 51, broadcast July 13, 2014.
The City of Wichita is fond of saying that it hasn’t raised its mill levy in many years. But the mill levy has risen in recent years.
In 2002 the City of Wichita mill levy rate was 31.845. In 2013 it was 32.509, based on the city’s Comprehensive Annual Financial Report. That’s an increase of 0.664 mills, or 2.09 percent, since 2002. In one year the mill levy rate increased .038 mills, or 0.12 percent. (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.
Despite the data that is readily available in the city’s comprehensive annual financial reports, some choose to remain misinformed and/or uninformed. The video below provides insight into the level of knowledge of some elected officials and city staff.
In this episode of WichitaLiberty.TV: A look at a variety of topics, including an upcoming educational event concerning water in Wichita, more wasteful spending by the city, yard signs during election season, problems with economic development and cronyism in Wichita, and water again. View below, or click here to view at YouTube. Episode 50, broadcast July 6, 2014.
From Kansas Policy Institute.
A proposal before the Wichita City Council would raise the sales tax in the city by 1% to fund several projects. The biggest piece of the proposal would be to fund additional water capacity for users of the city water system.
On Thursday 17 July, come hear from the City of Wichita and others on the scope of the problems, possible solutions, and the perspectives of several experts in the debate.
Date: Thursday 17 July
When: 7:30 a.m. registration and 8:00 a.m. start to presentations
Where: Wichita State University MetroPlex Room 132 ( 29th and Oliver)
Cost: Free with Advance Registration
A light breakfast will be served. The session will conclude by 12:15 p.m.
Speaker Line-up and Agenda:
7:30 a.m. — Registration and Breakfast
8:00 a.m. — Kansas Water Office on scope of water usage/needs in SCKS
9:00 a.m. — City of Wichita Proposal: Alan King, Dir. of Public Works, accompanied by Councilman Pete Meitzner
10:00 a.m. — Are Water Markets Applicable in Kansas?: Dr. Art Hall, executive director of the Center for Applied Economics at the University of Kansas
11:00 a.m. — Wichita Chamber of Commerce Water Task Force Findings: Karma Mason, president of iSi Environmental
KPI is not taking a position of the water proposal before the City Council. This event is to provide a forum for relevant parties to present their perspective on the issue with the public. Each presenter will have 30 minutes for a presentation followed by an Q&A.
This is the first in a series of KPI-sponsored forums of this nature on the different aspects of the sales tax proposal. Future forums will be held on the economic development and street and transit proposals.
For more information about this event contact Kansas Policy Institute at 316.634.0218. To register, click here.
Following is testimony provided to the Wichita City Council on July 1, 2014. Background on this issue may be found at In Wichita, a public hearing with missing information and Wichita city council schools citizens on civic involvement.
Thank you for providing the gap analysis that I requested.
If the gap analysis is credible, if it really is true that projects like this are not financially feasible without taxpayer assistance, what does that tell us about Wichita? Shouldn’t we work on fixing these problems for everyone, rather than parceling out business welfare on a piecemeal basis?
The agenda packet material for this item says there is a need for incentives “based on the current market.” But not long ago this council was told that downtown Wichita is booming. So why won’t the market support a project like this without a handout from city taxpayers? And if downtown is truly booming but we’re still giving out incentives, will we ever be able to wean ourselves off?
Based on my reading of the gap analysis document, I see another problem with the facade improvement program. It shifts costs from landlords to commercial tenants. Instead of paying for the facade improvement costs as part of a mortgage or other financing, these costs become additional property taxes that commercial tenants pay in addition to rent.
This is really a problem, as Kansas and Wichita commercial property taxes are high. Each year The Lincoln Institute of Land Policy and Minnesota Center for Fiscal Excellence survey property taxes. Considering the largest city in each of the states, Wichita property taxes are ninth highest in the nation for commercial property.
Wichita taxes are not just a little higher, but a lot higher. For example, for a commercial property valued at $100,000, Wichita property taxes are 38.5 percent higher than the national average.
Some of the reason why commercial property taxes are so high is due to the difference in assessment rates for various property classes. That’s not set by the City of Wichita. But the overall level of spending, and therefore the level of taxation, is set by this council. Further, the cost of incentives like this raise the cost of government for everyone else. One thing the city could do is to reduce spending somewhere else to offset the cost of this incentive. This would mean that other taxpayers do not have to bear the cost of this incentive.
If we wonder why the Wichita economy is not growing, commercial property tax rates and this council’s policy of targeted reductions are a large part of the problem.
In this episode of WichitaLiberty.TV: The City of Wichita urges citizens to take steps to stop “vampire” power waste. But before hectoring people to introduce inconvenience to their lives in order to save small amounts of electricity, the city should tackle the real monsters of its own creation. Then proceedings of a recent Wichita City Council meeting are instructive of the factors citizens should consider if they want to interact with the council and city government at a public hearing. Episode 49, broadcast June 29, 2014. View below, or click here to view at YouTube.
In this excerpt from WichitaLiberty.TV: Leaders in Wichita often liken government decision making to running a business, but there are important differences. That Wichita’s leaders in both government and business do not understand this is problematic. View below, or click here to view at YouTube. For more on this, see In Wichita, no differentiation between business and government.