Tag Archives: Wichita city council

In Kansas and Wichita, there’s a reason for slow growth

If we in Kansas and Wichita wonder why our economic growth is slow and our economic development programs don’t seem to be producing results, there is data to tell us why: Our tax rates are too high.

In 2012 the Tax Foundation released a report that examines the tax costs on business in the states and in selected cities in each state. Location Matters Tax Foundation coverThe news for Kansas is worse than merely bad, as our state couldn’t have performed much worse: Kansas ranks 47th among the states for tax costs for mature business firms, and 48th for new firms. (Starting in 2013, Kansas income tax rates are lower, and we would expect that Kansas would rank somewhat better if the study was updated.)

The report is Location Matters: A Comparative Analysis of State Tax Costs on Business.

The study is unusual in that it looks at the impact of state tax burden on mature and new firms. This, according to report authors, “allows us to understand the effects of state tax incentives compared to a state’s core tax system.” In further explanation, the authors write: “The second measure is for the tax burden faced by newly established operations, those that have been in operation less than three years. This represents a state’s competitiveness after we have taken into account the various tax incentive programs it makes available to new investments.”

The report also looks at the tax costs for specific types of business firms. For Kansas, some individual results are better than overall, but still not good. For a mature corporate headquarters, Kansas ranks 30th. For locating a new corporate headquarters — one that would benefit from tax incentive programs — Kansas ranked 42nd. For a mature research and development facility, 46th; while new is ranked 49th. For a mature retail store the rank is 38th, while new is ranked 45th.

There are more categories. Kansas ranks well in none.

The report also looked at two cities in each state, a major city and a mid-size city. For Kansas, the two cities are Wichita and Topeka.

Among the 50 cities chosen, Wichita ranks 30th for a mature corporate headquarters, but 42nd for a new corporate headquarters.

For a mature research and development facility, Wichita ranks 46th, and 49th for a new facility.

For a mature and new retail store, Wichita ranks 38th and 45th, respectively.

For a mature and new call center, Wichita ranks 43rd and 47th, respectively.

Kansas tax cost compared to neighbors
Kansas tax cost compared to neighbors
In its summary for Kansas, the authors note the fecklessness of Kansas economic development incentives: “Kansas offers among the most generous property tax abatements and investment tax credits across most firm types, yet these incentives seem to have little impact on the state’s rankings for new operations.”

It’s also useful to compare Kansas to our neighbors. The comparison is not favorable for Kansas.

The record in Wichita

Earlier this year Greater Wichita Economic Development Coalition issued its annual report on its economic development activities for 2014. GWEDC says its efforts created or retained 424 jobs.

gwedc-office-operationsThis report shows us that power of government to influence economic development is weak. GWEDC’s information said these jobs were for the geographical area of Sedgwick County. According to the Bureau of Labor Statistics, the labor force in Sedgwick County in 2014 was 247,614 persons. So the jobs created by GWEDC’s actions amounted to 0.14 percent of the labor force. This is a vanishingly small fraction. It is statistical noise. Other economic events overwhelm these efforts.

GWEDC complains of not being able to compete because Wichita has few incentives. This is not true, as Wichita has many incentives to offer. Nonetheless, GWEDC says it could have created or retained another 3,010 jobs if adequate incentives had been available. Adding those jobs to the jobs it claims credit for amounts to 1.39 percent of the labor force, which is still a small number that is overwhelmed by other events.

Our tax costs are high

The report by the Tax Foundation helps us understand one reason why the economic development efforts of GWEDC, Sedgwick County, and Wichita are not working well: Our tax costs are too high.

While economic development incentives can help reduce the cost of taxes for selected firms, incentives don’t help the many firms that don’t receive them. In fact, the cost of these incentives is harmful to other firms. The Tax Foundation report points to this harm: “While many state officials view tax incentives as a necessary tool in their state’s ability to be competitive, others are beginning to question the cost-benefit of incentives and whether they are fair to mature firms that are paying full freight. Indeed, there is growing animosity among many business owners and executives to the generous tax incentives enjoyed by some of their direct competitors.”

It seems in Wichita that the thinking of our leaders has not reached the level of maturity required to understand that targeted incentives have great cost and damage the business climate. Instead of creating an environment in which all firms have a chance to thrive, government believes it can identify firms that are subsidy-worthy — at the exclusion of others.

But there is one incentive that can be offered to all firms: Reduce tax costs for everyone. The policy of reducing tax costs or granting incentives to the selected few is not working. This “active investor” approach to economic development is what has led companies in Wichita and Kansas to escape hundreds of millions in taxes — taxes that others have to pay. That has a harmful effect on other business, both existing and those that wish to form.

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

In the same paper, Hall writes this regarding “benchmarking” — the bidding wars for large employers that Wichita and Kansas has been pursuing and Wichita’s leaders want to ramp up: “Kansas can break out of the benchmarking race by developing a strategy built on embracing dynamism. Such a strategy, far from losing opportunity, can distinguish itself by building unique capabilities that create a different mix of value that can enhance the probability of long-term economic success through enhanced opportunity. Embracing dynamism can change how Kansas plays the game.”

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

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

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

WichitaLiberty.TV: Initiative and referendum

In this excerpt from WichitaLiberty.TV: What recourse do citizens have when elected officials are not responsive? Initiative and referendum are two possibilities. View below, or click here to view at YouTube. Originally broadcast May 3, 2015.

For more about this issue, see Wichita has examples of initiative and referendum and Initiative and referendum.

In Wichita, bad governmental behavior excused

A Wichita newspaper op-ed is either ignorant of, or decides to forgive and excuse, bad behavior in Wichita government, particularly by then-mayoral candidate Jeff Longwell.

In a column just before the April 2015 Wichita election, Bill Wilson, managing editor of the Wichita Business Journal, reported on fallacies during the mayoral campaign, fallacies he called “glaring.” 1 But only a juvenile interpretation of the facts surrounding the events could find them fallacious. This is especially troubling since Wilson covered city hall as a reporter for the Wichita Eagle.

The first reported fallacy concerns the award of the contract for the new Wichita airport terminal. Jeff Longwell, then a city council member, had received campaign contributions from executives of Key Construction, the local company bidding on the contract. He also received contributions from Walbridge, the Michigan partner of Key. The Walbridge contributions are problematic, as they were made just a few days before the vote. More arrived a few days after Longwell’s vote. 2

In his column Wilson had an explanation as to why the council voted the way it did. That explanation was a matter of dispute that the council had to resolve. But the validity of the explanation is not the point. The point is something larger than any single issue, which is this: The Wichita city council was asked to make decisions regarding whether discretion was abused or laws were improperly applied. It is not proper for a council member to participate in decisions like this while the ink is still wet on campaign contribution checks from a party to the dispute. Jeff Longwell should not have voted on this matter.

For that matter, several other council members should not have voted. Wichita City Council Member James Clendenin (district 3, southeast and south Wichita) received substantial campaign contributions from Key Construction executives several months before he voted on the airport contract. So too did Wichita City Council Member and Vice Mayor Lavonta Williams (district 1, northeast Wichita) . In fact, the only contributions Williams received in 2012 were from Key Construction interests. 3

Wichita Mayor Carl Brewer with major campaign donor Dave Wells of Key Construction.
Wichita Mayor Carl Brewer with major campaign donor Dave Wells of Key Construction. Brewer has voted to send millions to Key, including overpriced no-bid contracts.
Then we have Former Wichita Mayor Carl Brewer. Here he’s pictured fishing with his friend Dave Wells of Key Construction. Do you think it is proper for the mayor to have voted in a quasi-judicial role on a matter worth millions to his fishing buddy? How do you feel about the mayor voting for no-bid construction contracts for his friend? Contracts that later were found to be overpriced? 4

In Wichita, city council members receive campaign contributions while participating in a quasi-judicial proceeding involving the contributors. This doesn’t seem to be improper to the Wichita Business Journal. But it isn’t alone. The Wichita Eagle doesn’t object to any of this. Well, maybe once in a while it does, but not very strenuously or for very long.

Another problem: Wilson dismisses the claim that Longwell was able to exert much influence over the other six council members in order to benefit a project in his council district. But during the campaign, Longwell eagerly took credit for the good things that the city council did. Though Longwell was but one of seven votes, his commercials made it seem like he performed these deeds all by himself. But when things go wrong, well, he’s just one of seven votes.

The last fallacy Wilson objects to is this: “The idea that a $500 campaign contribution buys a vote, a specious claim by Americans for Prosperity that inexplicably lives on. If a council member’s vote is for sale for $500, their stupidity trumps their corruption. And yet some of these false claims remain in political advertising, despite being debunked by two media outlets — and here.”

A few points: First, it’s not just a $500 contribution. We find many examples of individual $500 contributions from executives of the same company, along with spouses and other family members. The contributions are effectively stacked. Second, sometimes campaigns are funded to a large extent by these stacked contributions from just one or two firms. 5 Third, if these contributions are not seen as valuable to those who make them, why do the same small groups of business interests make the maximum contributions year after year?

As far as the claims being debunked: A few weeks ago I showed you the inexplicably bad reporting from the Wichita Eagle. 6 The Business Journal didn’t do any better.

Wilson’s op-ed seems more like an audition for a job at city hall than a critical look at the campaign and its issues. Making a move from news media to a government job in communications is a common career move. There are three former journalists working in Wichita city hall. One former Wichita Eagle reporter went to work for the Wichita school district. There are many examples in Topeka. It’s a problem when journalists who are supposed to be exercising watchdog duty over government agencies end up working for them. We can also recognize when journalists are auditioning for jobs in government.

WichitaLiberty.TV: Wichita economic development, Kansas schools and spending, minimum wage

In this episode of WichitaLiberty.TV: Can we reform economic development in Wichita to give us the growth we need? Kansas school test scores, school spending, and how the Wichita district spends your money. Then, who is helped by raising the minimum wage? View below, or click here to view at YouTube. Episode 84, broadcast May 10, 2015.

Wichita property tax rates up again

The City of Wichita says that it hasn’t raised its mill levy in many years. Data shows the mill levy has risen, and its use has shifted from debt service to current consumption.

Wichita mill levy rates. This table holds only the taxes levied by the City of Wichita and not any overlapping jurisdictions.
Wichita mill levy rates. This table holds only the taxes levied by the City of Wichita and not any overlapping jurisdictions.
In 1994 the City of Wichita mill levy rate was 31.290. In 2014 it was 32.652, based on the city’s Comprehensive Annual Financial Report and the Sedgwick County Clerk. That’s an increase of 1.362 mills, or 4.35 percent, since 1994. (These are for taxes levied by the City of Wichita only, and do not include any overlapping jurisdictions.)

The Wichita City Council did not take explicit action to raise this rate. Instead, the rate is set by the county based on the city’s budgeted spending and the assessed value of taxable property subject to Wichita taxation.

Wichita mill levy rates. Click for larger version.
Wichita mill levy rates. Click for larger version.
While the city doesn’t have control over the assessed value of property, it does have control over the amount it decides to spend.

Change in Wichita mill levy rates, year-to-year and cumulative. Click for larger version.
Change in Wichita mill levy rates, year-to-year and cumulative. Click for larger version.
Also, while some may argue that an increase of 4.35 percent over two decades is not very much, this is an increase in a rate of taxation, not actual tax revenue. The revenue collected is a function of the mill levy rate multiplied by the value of taxable property. Revenue has risen, due both to appreciation in the value of property and an increase in the amount of property.

Application of tax revenue has shifted

The allocation of city property tax revenue has shifted over the years. According to the 2010 City Manager’s Policy Message, page CM-2, “One mill of property tax revenue will be shifted from the Debt Service Fund to the General Fund. In 2011 and 2012, one mill of property tax will be shifted to the General Fund to provide supplemental financing. The shift will last two years, and in 2013, one mill will be shifted back to the Debt Service Fund. The additional millage will provide a combined $5 million for economic development opportunities.”

Wichita mill levy, percent dedicated to debt service. Click for larger version.
Wichita mill levy, percent dedicated to debt service. Click for larger version.
In 2005 the mill levy dedicated to debt service was 10.022. In 2014 it was 8.537. That’s a reduction of 1.485 mills (14.8 percent) of property tax revenue dedicated for paying off debt. Another interpretation of this is that in 2005, 31.4 percent of Wichita property tax revenue was dedicated to debt service. In 2014 it was 26.1 percent.

This shift has not caused the city to delay paying off debt. This city is making its scheduled payments. But we should recognize that property tax revenue that could have been used to retire debt has instead been shifted to support current spending. Instead of spending this money on current consumption — including economic development spending that has produced little result — we could have, for example, used that money to purchase some of our outstanding bonds.

Despite the data that is readily available in the city’s comprehensive annual financial reports, some choose to remain misinformed and/or uninformed. The video below provides insight into the level of knowledge of some elected officials and city staff.

Wichita economic development, the need for reform

An incentives deal for a Wichita company illustrates a capacity problem and the need for reform.

Next week the Wichita City Council will consider an economic development incentives package intended to enable a local manufacturing company to expand its operations.

R and R Aerospace benefits 2015-05-05City documents give some detail regarding the amounts of property tax to be forgiven on an annual basis, for a period of up to ten years. In the past, city documents have often mentioned other incentive programs that will benefit the company, but that information is missing. Other sources mention two state programs — PEAK and HPIP — the company may benefit from, but amounts are not available.

In order to prepare the incentives package, several events took place. There was a visit to the company. Then another visit and tour. Then economic development officials helped the company apply for benefits from the Kansas Department of Commerce. Then these officials worked closely with Wichita city staff on an incentive package.

City documents state that the expansion will create 28 jobs over the next five years. Obtaining these jobs took a lot of effort from Wichita and Kansas economic development machinery. Multiple agencies and fleets of bureaucrats at GWEDC, the City of Wichita, Sedgwick County, and the State of Kansas were involved. Wichita State University had to be involved. All this to create 5.6 jobs per year for five years.

The jobs are welcome. But this incident and many others like it reveal a capacity problem, which is this: We probably need to be creating 5.6 jobs every working hour of every day in order to make any significant progress in economic growth. If it takes this much effort to create 28 jobs over five years, how much effort will it take to create the many thousands of jobs we need to create every year?

This assumes, of course, that the incentives are necessary to enable the company to expand. City documents state that the tax exemption is necessary to make the project “viable.” It’s likely that the mayor or city council members will say that if we don’t award the incentives, the company won’t be able to expand. Or perhaps the company will expand in some other city. So the incentives really don’t have any cost, they will tell citizens.

This only hints at a larger problem. If companies can’t afford to make investments in Wichita unless they receive exemptions from paying taxes, we must conclude that taxes are too high. (An ongoing study reveals that generally, property taxes on commercial and industrial property in Wichita are high. In particular, taxes on commercial property in Wichita are among the highest in the nation. See here.) It’s either that, or this company simply doesn’t want to participate in paying for the cost of government like most other companies and people do.

To top it off, this expansion and the new jobs seem far from certain. City documents state the company is “bidding on a new work package” and the “expansion project would be completed in phases
based upon the timing and demand of the work package.”

Civic leaders say that our economic development policies must be reformed. So far that isn’t happening. Our leaders say that cash incentives are on the way out. This deal does not include grants of cash, that is true. But forgiveness of taxes is more valuable to business firms than receiving cash. That’s because cash incentives are usually taxable as income, while forgiveness of taxes does not create taxable income. Each dollar of tax that is forgiven adds one dollar to after-tax profits. 1

The large amount of bureaucratic effort and cost spent to obtain a small number of speculative jobs lets us know that we need to do something else in order to grow our local economy. We need to create a dynamic economy, focusing our efforts on creating an environment where growth can occur organically without management by government. Dr. Art Hall’s paper
Embracing Dynamism: The Next Phase in Kansas Economic Development Policy provides much more information on the need for this.

Another thing we can do to help organically grow our economy and jobs is to reform our local regulatory regime. Recently Kansas Policy Institute released a study of regulation and its impact at the state and local level. This is different from most investigations of regulation, as they usually focus on regulation at the federal level.

Business Perceptions of the Economic Impact of State and Local Government Regulation coverThe study is titled “Business Perceptions of the Economic Impact of State and Local Government Regulation.” It was conducted by the Hugo Wall School of Public Affairs at Wichita State University. Click here to view the entire document.

Following is an excerpt from the introduction by James Franko, Vice President and Policy Director at Kansas Policy Institute. It points to a path forward.

Surprising to some, the businesses interviewed did not have as much of a problem with the regulations themselves, or the need for regulations, but with their application and enforcement. Across industries and focus group sessions the key themes were clear — give businesses transparency in what regulations are being applied, how they are employed, provide flexibility in meeting those goals, and allow an opportunity for compliance.

Sometimes things can be said so often as to lose their punch and become little more than the platitudes referenced above. The findings from Hugo Wall are clear that businesses will adapt and comply with regulations if they are transparent and accountable. Many in the public can be forgiven for thinking this was already the case. Thankfully, local and state governments can ensure this happens with minimal additional expense.

A transparent and accountable regulatory regime should be considered the “low hanging fruit” of government. Individuals and communities will always land on different places along the continuum of appropriate regulation. And, a give and take will always exist between regulators and the regulated. Those two truisms, however, should do nothing to undermine the need for regulations to be applied equally, based on clear rules and interpretations, and to give each business an opportunity to comply. (emphasis added)

Creating a dynamic economy and a reformed regulatory regime should cost very little. The benefits would apply to all companies — large or small, startup or established, local or relocations, in any industry.

Our civic leaders say that our economic development efforts must be reformed. Will the path forward be a dynamic economy and reformed regulation? Or will it be more bureaucracy, chasing five jobs at a time?

  1. Site Selection magazine, September 2009. 2015. ‘INCENTIVES — Site Selection Magazine, September 2009′. Siteselection.Com. Accessed May 1 2015. http://www.siteselection.com/issues/2009/sep/Incentives/

WichitaLiberty.TV: Kansas revenue and spending, initiative and referendum, and rebuliding liberty

In this episode of WichitaLiberty.TV: The Kansas Legislature appears ready to raise taxes instead of reforming spending. Wichita voters have used initiative and referendum, but voters can’t use it at the state level. A look at a new book “By the People: Rebuilding Liberty Without Permission.” View below, or click here to view at YouTube. Episode 83, broadcast May 3, 2015.

Wichita economic development policies questioned

One of the themes of the recent Wichita mayoral campaign was the need to restore trust in city hall. Following, from April 2013, an example of how city hall has created the trust deficit. Although this story was covered nowhere but here, it it exemplary of how Wichita city hall operates. Since then the city’s economic development director has retired, but we have the same city manager and nearly all the same council members, with one having moved up to mayor. For an update on this story, see Wichita: No such document.

At Tuesday’s meeting of the Wichita City Council, I was prepared to ask the council to not approve issuance of Industrial Revenue Bonds. My reason, explained here, was that the cost-benefit analysis did not meet the standard the city has established in its economic development incentives policy.

At the meeting, though, Urban Development Director Allen Bell and Wichita city manager Robert Layton both explained that for downtown projects, the city’s policy that the debt service fund must show a cost-benefit ratio of 1.3 to one or better doesn’t apply. (Video of Bell explaining this policy is here, and of Layton doing the same, here.)

I thought I should have known about that policy. I felt bad — embarrassed, even — for not being aware of it.

There’s a certain logic to their arguments. The parking garage is available to the public — at least some parking stalls. But the garage was not built until the Ambassador Hotel project was finalized. And the number of parking spots actually available to the public is difficult to determine. One analysis shows that the number of spots available to the public is zero, although the city says otherwise.

So the next day I sought to inform myself of this policy regarding the cost-benefit ratio for the city’s debt service fund for downtown projects.

I found a document titled “City of Wichita Downtown Development Incentives Policy” as approved by the Wichita City Council on May 17, 2011. It doesn’t address cost-benefit ratios for any funds, at least by my reading.

(By the way, that document, which was available on the city’s website at wichita.gov, wasn’t available after the city recently transitioned to a new website.)

There is also the evaluation matrix for downtown projects. It includes as a criterion “Extent City’s ROI exceeds benefit/cost ratio of 1.3:1 on CEDBR Model.”

I don’t see either of these documents supporting what was stated by two top city officials at Tuesday’s meeting, that the cost-benefit ratio of 1.3 to one requirement does not apply to the debt service fund for downtown projects.

I’ve asked the city to provide such a policy document. So far, city officials have searched, but no such document has been provided. You’d think that if there is a document containing this policy, it would be readily accessible.

Whether the “new” policy explained Tuesday by Messrs. Bell and Layton is sound public policy is something that should be discussed. It might be a desirable policy.

But this entire episode smacks of molding public policy in order to fit the situation at hand.

The city relies on cost-benefit analysis produced by Wichita State University Center for Economic Development and Business Research. The positive result produced for the general fund — the 2.62 that Bell referred to — was used to justify the public investments the city asked taxpayers to make in September 2011.

We didn’t know about the unfavorable result for the city’s debt service at that time. City officials, however, knew, as it’s contained in the analysis provided to the city from CEDBR.

City officials could have — if they had wanted to — explained this special debt service policy for downtown projects at that time. City officials or the mayor could have explained that part of the Ambassador Hotel project doesn’t meet the city’s economic development policies, but here’s why the project is a good idea nonetheless.

City officials and the mayor could have used that opportunity to inform Wichitans of the special policy for downtown projects regarding the debt service fund, if such a policy actually existed at that time.

But they didn’t do that. And if the policy actually existed at that time, it was a well-kept secret, and was until Tuesday.

I’m sure some will say that we should just shrug this off as an innocent oversight. But this project is steeped in cronyism. It is the poster child for why Wichita and Kansas need pay-to-play laws so that city council members are prohibited from voting to send millions to their significant campaign contributors and the mayor’s fishing buddy.

Soon the city will probably ask Wichitans to trust it with more tax revenue so the city can do more for its citizens. The city commissioned a survey to justify this. Also, the mayor wants a dedicated stream of funding so that the city can spend more on economic development.

In other words, the city wants its citizens to trust their government. But in order to gain that trust, the city needs to avoid episodes like this.

Wichita has examples of initiative and referendum

Citizens in Wichita have been busy exercising their rights of initiative and referendum at the municipal level. The Kansas Legislature should grant the same rights to citizens at the state level.

What recourse do citizens have when elected officials are not responsive? Initiative and referendum are two possibilities. Citizens in Wichita have exercised these rights, but Kansans are not able to do this at the state level.

Initiative is when citizens propose a new law, and then gather signatures on petitions. If a successful petition is filed, the matter is (generally) placed on a ballot for the electorate to decide whether the proposed law will become actual law. Examples are the initiative to add fluoride to Wichita water (which voters rejected) and reduce the penalties for possession of small amounts of marijuana (which passed, but has not taken effect pending legal action by the Kansas Supreme Court.)

Referendum is when citizens petition to overturn an act passed by a governing body. An example is the 2012 repeal of a charter ordinance passed by the Wichita city council.

So at the municipal level in Kansas, citizens have the right of initiative, although in practice the right is limited. The right of referendum is more narrowly limited. But at the state level, there is no possibility for citizens to exercise initiative or referendum. The law simply does not allow for this.

Policies, not politicians

Initiative and referendum allow citizens to vote on specific laws or policies. This is contrasted with elections for office, where voters must choose candidate A or candidate B. Voters have to take the entire package of positions associated with a candidate. It isn’t possible to select some positions from candidate A, and others from candidate B. So when a candidate wins an election, can we say why? Which of the candidate’s positions did voters like, and which did voters not like? Results of regular elections rarely provide a clear answer.

Initiative and referendum, however, let citizens vote on a specific law or proposal. There is little doubt as to the will of the voters.

There’s a difference between voting for politicians and voting for policies. When given a chance, Wichitans have often voted different from what the council wanted. An example is the 2012 overturn of a charter ordinance the council passed. Another is the failure of the sales tax in November 2014. That was on the ballot not because of citizen initiative, but it is an example of voting directly for an issue rather than a candidate. Citizens rejected the sales tax by a wide margin, contrary to the wishes of the city council, city hall bureaucrats, and the rest of Wichita’s political class.

It’s different voting for policies than politicians. For one thing, the laws passed by initiative don’t change, at least for some period of time. But politicians and their campaign promises have a short shelf life, and are easily discarded or modified to fit the current situation.

Politicians don’t want it, which is its best argument

Generally, politicians and bureaucrats don’t want citizens to be empowered with initiative and referendum. When the city council was forced to set an election due to the successful petition regarding the Ambassador Hotel issue, reactions by council members showed just how much politicians hate initiative and referendum. Council Member Pete Meitzner (district 2, east Wichita) wanted to move the election to an earlier date so as to “avoid community discourse and debate.”

Council Member Janet Miller (district 6, north central Wichita) expressed concern over “dragging this out,” and said she wants to “get it over with as soon as we can so that we can move on.”

In his remarks, Mayor Carl Brewer advocated having the election as soon as possible. He told the city “By doing that, it eliminates a lot of turmoil inside the community, unrest.”

As you can see by these remarks, politicians don’t like citizens second-guessing their actions. Initiative and referendum gives citizens this power. John Fund said it best: “Without initiatives and referendums, elites would barely bother at all to take note of public opinion on issues they disdained — from supermajority requirements to raise taxes to term limits. They serve as a reminder that the experts sometimes have to pay attention to good old common sense.”

Petitioning is not easy

A criticism often leveled against initiative and referendum is that ballots will be crowded with questions submitted by citizens. But as anyone who has been involved in a petitioning effort knows, filing a successful petition is not a simple matter. The first petition effort to relax Wichita marijuana laws failed, with the election commissioner ruling that an insufficient number of valid signatures were submitted. (Generally, petition signers must meet certain requirements such as being a registered voter and living within a certain jurisdiction.) Now the Kansas Attorney General contends that the second petition by the same group is defective because it lacks the proper legal language. It is common for the validity of petitions to be contested, either by government or by special interest groups that believe they will be adversely affected.

How to get it

It will take an amendment to the constitution for the people of Kansas to have initiative and referendum rights at the state level. That requires passage in both chambers of the legislature by a two-thirds margin, and then passage by a majority of voters.

Although the governor does not play a direct role in constitutional amendments — as they do not require the governor’s signature — a governor can still have a role. In 1991 Joan Finney supported initiative and referendum. An amendment passed the Kansas Senate, but did not advance through the House of Representatives.

Today it seems unlikely that the present Kansas Legislature would support an amendment implementing initiative and referendum. Politicians just don’t want to give up the power. (The laws giving some initiative and referendum rights at the municipal level is a state law. State legislators were imposing a hardship on other elected officials, not themselves.)

But initiative and referendum are popular with voters. In 2013 Gallup polled voters regarding petitioning at the national level. 68 percent favored this, while 23 percent opposed. One of the few issues that poll higher than this is term limits for office holders.

By the way, do you know what citizens in states often do after gaining the right of initiative? Impose term limits on their legislatures. Lawmakers don’t want you to do that.

Recent history in Wichita

In 2011, Wichitans petitioned to overturn a charter ordinance passed by the city council. In February 2012 the ordinance was overturned by a vote of 16,454 to 10,268 (62 percent to 38 percent). This was a special election with only question on the ballot.

In 2012 a group petitioned to add fluoride to Wichita water. The measure appeared on the November 2012 general election ballot, and voters said no by a vote of 76,906 to 52,293, or 60 percent to 40 percent.

On the November 2014 general election ballot, Wichita voters were asked about a one cent per dollar sales tax. This was not the result of a petition, but it provides an example of a vote for a policy rather than a person. Voters said no to the sales tax, 64,487 to 38,803 (62 percent to 38 percent.)

In 2015 a group petitioned to reduce the penalties for possession of small amount of marijuana. The measure appeared on the April 2015 city general election ballot, where Wichita voters approved the proposed law 20,327 to 17,183 (54 percent to 46 percent).

Wichita tourism plan should include spending disclosure

As part of a plan for spending a dedicated tax revenue stream, the Wichita city council should include disclosure of spending. It would fulfill a campaign promise.

When the City of Wichita collects money through taxation, citizens have the right to know how it is spent. For the city, it is possible to view every check that is written, although the city is not able to supply this information in machine-readable form. But it is available.

But when the city establishes non-profit corporations that are funded totally, or nearly totally, with taxes, different rules apply, says the city: Spending does not have to be disclosed.

This is contrary to the spirit of the Kansas Open Records Act, which opens with the preamble “It is declared to be the public policy of the state that public records shall be open for inspection by any person unless otherwise provided by this act, and this act shall be liberally construed and applied to promote such policy.”

For some time citizens have asked that the spending records of Wichita Downtown Development Corporation, Greater Wichita Economic Development Coalition, and Go Wichita Convention and Visitors Bureau (now known as Visit Wichita) be made available. But it is the position of each of these agencies that despite being funded almost totally by taxes, they do not need to reveal their spending records. The City of Wichita has backed this position.

This week the city council will consider a scope of services and budget agreement with its convention and visitors bureau. This year that agency is receiving the proceeds of a new 2.75 percent tax on hotel bills. City documents indicate this tax is expected to raise $2.7 million annually. When added to other tax funds the convention and visitors bureau receives, its budget is some $5 million per year.

But none of this money is subject to the same disclosure as regular city spending.

During the recent mayoral campaign, candidate Jeff Longwell wrote this in response to a question for the Wichita Eagle voter guide: “The city needs to continue to improve providing information online and use other sources that will enable the taxpayers to understand where their money is going.”

Now Wichita mayor, Longwell has an opportunity to implement a campaign promise. It would be simple to do. All the council needs to do is insist that the convention and visitors bureau agree that it is what the law says it is: An agency funded nearly totally by taxes, which means it is a public agency that falls under the scope of the Kansas Open Records Act.

Did Jeff Longwell dodge a tough city council vote?

On election day, Wichita city council member and mayoral candidate Jeff Longwell appears to have ducked an inconvenient vote and would not say why.

At his Wichita mayoral campaign announcement last November, then-council member Jeff Longwell called for a moratorium on the use of forgivable loans until a new policy is implemented. 1

Jeff Longwell, now Wichita mayor
Jeff Longwell, now Wichita mayor

At other times he called for the end to traditional cash incentives, telling the Wichita Eagle “I think that we have to get away from the traditional cash incentives that we’ve been using and look for better ways to grow jobs in this community.” 2

In the Wichita Eagle voter guide, for the question “What is your philosophy or practice regarding public incentives for companies and developers?” Longwell started his response with this: “I believe there is a better way to promote economic growth.” 3

Wichita voters can be excused for believing Jeff Longwell wants to pursue economic development in a different way. It was a good strategy for the candidate to employ, as the rejection of the sales tax last year by Wichita voters is widely thought to be grounded in voter distrust of the economic development package.

Summary of benefits for Figeac AeroOn election day this April, an economic development incentive package was under consideration by the Wichita city council. The deal contained a common mix of incentives from city, county and state. Details on the amounts of the incentives were sketchy, so I estimated the benefit to the company at $2,315,000 up front cash and credits equivalent to cash, and $605,000 in ongoing annual benefits for at least five years. 4

This was an example of the traditional way Wichita and other cities do economic development, that is, targeted incentives for specific companies. It’s something that Longwell said we need to get away from, especially the forgivable loans part, having called for a moratorium on their use.

This matter provided a perfect opportunity for Longwell to cast a vote aligned with his new perspectives on economic development. So when this matter came before the city council, how did Longwell vote?

The answer is: We don’t know. Longwell didn’t vote. At about 10:27 am, shortly before the council took up this economic development incentives agenda item, Longwell left the council chambers. He did not return before the meeting ended. When asked why he left the meeting, Longwell would not provide an answer. He provided several contradictory explanations. He said he would explain at his campaign watch party on election night the reason for leaving, but would not say that afternoon why he left the meeting. (See Twitter and Facebook dialogs following.)

In a profile during the campaign, Longwell told the Wichita Eagle “I certainly can appreciate and understand the need to not vote on items, but sometimes you just simply, as tough as it is, you have to take a position,” he said. “I don’t know any better way to explain it. It’s part of the responsibility of being elected to do a job. 5

Here was a tough vote for Longwell. It was an opportunity for citizens to see him cast a vote in alignment with his campaign rhetoric. But he didn’t vote. He didn’t take a position, and he wouldn’t say why.

This isn’t the first time Longwell has dodged questions he doesn’t want to answer. He canceled an appearance on The Joseph Ashby Show and would not reschedule. Ashby, for those who haven’t listened, asks tough questions.

Twitter and Facebook transcripts, April 7, 2015

Bob Weeks @bob_weeks Apr 7
Does anyone know why Jeff Longwell left the city council meeting early? @jefflongwellict #ictcouncil @CityofWichita

Jeff Longwell @jefflongwellict Apr 7
@bob_weeks I had a prior appointment. I had to see a man about a horse. I know you miss me when I’m not there. @CityofWichita

Bob Weeks @bob_weeks Apr 7
@jefflongwellict @CityofWichita May I ask why you made an appointment during city council hours?

Jeff Longwell @jefflongwellict Apr 7
@bob_weeks Bob, I’m touched. Thank you for being concerned that my voice is being heard on the council and I’m there to help guide our city.

Jeff Longwell @jefflongwellict Apr 7
@bob_weeks Also, this was unplanned and was of a personal nature. But thank you for your concern. It means a lot, Bob.

Bob Weeks @bob_weeks Apr 7
@jefflongwellict @CityofWichita Would you please answer why you made an appointment during city council hours?

Bob Weeks @bob_weeks Apr 7
@jefflongwellict @CityofWichita Which was it? A prior appointment or unplanned?

Jeff Longwell @jefflongwellict Apr 7
@bob_weeks An appointment I had to schedule this morning. Priorly unplanned to making it. Don’t worry, I’m fine. @CityofWichita

Bob Weeks @bob_weeks Apr 7
@jefflongwellict @CityofWichita Could you please tell us some details? Why did it have to be done during a city council meeting?

Bob Weeks @bob_weeks Apr 7
@jefflongwellict @CityofWichita When a council member and mayoral candidate misses an important vote, the public has a right to know why.

Jeff Longwell @jefflongwellict Apr 7
@bob_weeks City council members leave meetings periodically. It’s a personal matter, not a conspiracy, Bob. @CityofWichita

Jeff Longwell @jefflongwellict Apr 7
@bob_weeks if you’d like to stop by my watch party tonight we can chat about it all you want. @CityofWichita

Bob Weeks @bob_weeks Apr 7
@jefflongwellict @CityofWichita You will not tell voters why you scheduled this appointment, is that your response?

Bob Weeks @bob_weeks Apr 7
@jefflongwellict @CityofWichita It’s not me who deserves to know. It’s the people of Wichita who need to know why a council member left.

Jeff Longwell @jefflongwellict Apr 7
@bob_weeks Nothing would have changed with my vote today, Bob. Council members miss on occasion. @CityofWichita

Bob Weeks @bob_weeks Apr 7
@jefflongwellict @CityofWichita If you had a legitimate reason for missing a vote, I would think you’d be willing to tell voters details.

Later, on Facebook:

Mayor Jeff Longwell: As I said, while I appreciate your concern and the fact that you feel my presence is crucial to city council meetings, I had to leave for a personal matter. Council members leave meetings on occasion, and nothing would have changed with the addition of my vote. But it really means a lot to me that you feel I’m a vital part of the council and miss me when I’m gone, Bob.
April 7 at 3:02pm

Bob Weeks: Dodging the question again. You said that you would tell me tonight why you left the meeting, so why won’t you say now?
April 7 at 3:05pm

  1. Kansas, 2015. ‘Economic Development Among Mayoral Candidate Jeff Longwell’s Priorities For Wichita’. Accessed April 16 2015. http://www.kansas.com/news/local/article393829
  2. Kansas, 2015. ‘Jeff Longwell, Sam Williams Advance In Race For Wichita Mayor’. Accessed April 16 2015. http://www.kansas.com/news/politics-government/election/article12332810.html
  3. C3.thevoterguide.org, 2015. ‘Wichita Mayor — The Wichita Eagle Voter Guide.’ Accessed April 16 2015. http://c3.thevoterguide.org/v/wichita15/race-detail.do?id=14013125
  4. Weeks, Bob. 2015. ‘Figeac Aero Economic Development Incentives’. Voice For Liberty In Wichita. Accessed April 16 2015. http://wichitaliberty.org/wichita-government/figeac-aero-economic-development-incentives/
  5. Kansas, 2015. ‘Council Member Jeff Longwell Touts Experience In Mayoral Race’. Accessed April 16 2015. http://www.kansas.com/news/politics-government/election/article15627836.html

For Wichita’s Longwell, flipping in the face of an election

Campaign season provides an opportunity to see just how malleable candidates’ positions can be, leaving us to wonder if some have any firm and guiding principles.

When Wichita City Council Member Jeff Longwell was asked about citizens exercising their constitutional right to challenge an ordinance passed by the council, Jeff Longwell said it was “disappointing,” and a “stunt.” He said that using this fundamental aspect of democracy causes citizens to “lose credibility.” (Wichita Eagle, September 14, 2011)

Now that Wichitans are voting on controversial matter that was placed on the ballot using a similar procedure, Longwell told the same newspaper “I believe the voters should be allowed to decide this issue and I supported placing the issue on the ballot.”

What caused the evolution from “disappointing” to “supported”? Why was one a “stunt” and another a simple exercise in democracy?

It’s easy to see. The present issue — reducing the penalty for possession of marijuana — doesn’t involve money, at least to any appreciable extent. And even if it passes, it’s likely the state will try to block it from taking effect.

But the 2011 issue involved Longwell voting for a taxpayer-funded giveaway to the special interests that fund his campaigns. His cronies, in other words. That is what really counts for Longwell, and it shows his lack of respect for the rule of law.

Wichita city council member Jeff Longwell should not have voted

A sequence of events involving Jeff Longwell should concern citizens as they select the next Wichita mayor. Based on Wichita law, Longwell should not have voted on a matter involving the Ambassador Hotel, either for or against it.

In 2011 the Wichita City Council voted to award millions of taxpayer subsidy to the developers of the Ambassador Hotel in downtown Wichita. Because of the nature of one of the ordinances the council passed, citizens were able to petition to have it overturned. A successful petition was filed, so there was an election.

Ambassador Hotel sign 2014-03-07A group named “Moving Wichita Forward” was formed to campaign for the Ambassador Hotel for the February 28, 2012 election regarding the repeal of its special guest tax measure. The measure benefited Paul Coury, Dave Burk, and executives of Key Construction. The primary funder of the campaign was this ownership group.

As part of the campaign, on January 30, 2012 Moving Wichita Forward spent money with Luminance Display, a company that sold space on billboards.

Jeff Longwell Luminance Display 2012-01-30 excerpt

Based on a statement of substantial interests that Longwell filed in 2012, you can see that he had an ownership interest in Luminance Display.

Jeff Longwell SSI 2012-05-31 excerpt

So far, nothing contrary to Wichita city code has taken place. Yes, it is sleazy to sell advertising to people who have had business before the council in the past. But there’s nothing in the Wichita city code addressing this.

Then on April 16, 2013 Longwell voted in favor of Industrial Revenue Bonds for the Ambassador Hotel. The bond package allowed the hotel to avoid paying $703,017 in sales tax, according to city documents.

That is where Longwell crossed the line from being merely sleazy to acting contrary to city code. Here’s an excerpt from Section 2.04.050 Code of ethics for council members from the Wichita city code as passed in 2008:

“[Council members] shall refrain from making decisions involving business associates, customers, clients, friends and competitors.”

The owners of the Ambassador Hotel were customers of a company that Jeff Longwell partially owned. Based on the laws of the City of Wichita, Longwell should not have voted on a matter involving the Ambassador Hotel, either for or against it.

Downtown Wichita deal shows some of the problems with the Wichita economy

In this script from a recent episode of WichitaLiberty.TV: A look at the Wichita city council’s action regarding a downtown Wichita development project and how it is harmful to Wichita taxpayers and the economy. This is from episode 77, originally broadcast March 8, 2015. View the episode here.

This week a downtown Wichita project received many economic benefits such as free sales taxes and a bypass of Wichita’s code of conduct for city council members.

Exchange Place
Exchange Place
The issue had to do with tax increment financing, or TIF. This is a method of economic development whereby property taxes are routed back to a real estate development rather than funding the cost of government. It’s thought that TIF is necessary to make certain types of projects economically feasible. I appeared before the Wichita city council and shared my concerns about the harmful effects of this type of economic development.

I said that regarding the Exchange Place project in downtown Wichita, I’d like to remind the council of the entire subsidy package offered to the project.

There are historic preservation tax credits, which may amount to 25 percent of the project cost. These credits have the same economic impact as a cash payment, and their cost must be born by taxpayers.

There is $12.5 million in tax increment financing, which re-routes future property tax revenues back to the project for the benefit of its owners. Most everyone else pays property taxes in order to pay for government, not for things that benefit themselves exclusively, or nearly so.

There is a federal loan guarantee, which places the federal taxpayer on the hook if this project isn’t successful.

The owner of this project also seeks to avoid paying sales taxes on the purchase of materials. City documents don’t say how much this sales tax forgiveness might be worth, but it easily could be several million dollars.

I said: Mayor and council, if it in fact is truly necessary to layer on these incentives in order to do a project in downtown Wichita, I think we need to ask: Why? Why is it so difficult to do a project in downtown Wichita?

Other speakers will probably tell you that rehabilitating historic buildings is expensive. If so, working on historic buildings is a choice they make. They, and their tenants, ought to pay the cost. It’s a lifestyle choice, and nothing more than that.

I told the council that I’m really troubled about the sales tax exemption. Just a few months ago our civic leaders, including this council, recommended that Wichitans add more to our sales tax burden in order to pay for a variety of things.

Only 14 states apply sales tax to food purchased at grocery stores for home consumption, and Kansas has the second-highest statewide rate. We in Kansas, and Wichita by extension, require low-income families to pay sales tax on their groceries. But today this council is considering granting an exemption from paying these taxes that nearly everyone else has to pay.

I told the council that these tax subsidies are not popular with voters. Last year when Kansas Policy Institute surveyed Wichita voters, it found that only 34 percent agreed with the idea of local governments using taxpayer money to provide subsidies to certain businesses for economic development. Then, of course, there is the result of the November sales tax election where city voters emphatically said no to the council’s plan for a sales tax increase.

This project is slated to receive many million in taxpayer-funded subsidy. Now this council proposes to wave a magic wand and eliminate the cost of sales tax for its owners. People notice this arbitrary application of the burden of taxation. They see certain people treated differently under the law, rather than all being treated equally under the law. People don’t like this. It breeds distrust in government. This council can help restore some of this trust by not issuing the Industrial Revenue Bonds and the accompanying sales tax exemption.

In response to my remarks, city council member and mayoral candidate Jeff Longwell had a few comments, as we see here in video from the meeting.

We see city council member and mayoral candidate Jeff Longwell contesting the idea that TIF funds are being rerouted to the benefit of the owners of the project. We’re getting a public parking garage is the city’s response.

Let’s look at the numbers and see if we can evaluate this claim. According to city documents, the project will hold 230 apartments, and the garage is planned to hold 273 parking stalls. You can imagine that many of the apartment renters or buyers will want a guaranteed parking space available to them at all times. And in fact, an early version of the development plan states: “A minimum of 195 spaces will be allocated for use by the apartments. The remaining 103 spaces will be for public parking.” So the city is giving up $12.5 million of tax revenue to gain 103 parking spaces. That’s 121 thousand dollars per parking spot. You can buy a very nice house in Wichita for that.

The actual situation could be even worse for the city’s taxpayers. The development agreement
states: “A minimum of 103 parking spaces shall be set aside in the Parking Garage for public parking and the balance for the exclusive use of the residents and guests of Exchange Place Building and Douglas Building.” It also holds this: “This allocation can be revised by Developer as market experience may demonstrate a need to reallocate parking spaces with consent of the City Representative (which consent shall not be unreasonably withheld or delayed).”

So a large portion of the parking garage is not a public benefit. It’s for the benefit of the apartments developer. If not for the city building the garage, the developer would need to provide these parking spaces in order to rent the apartments. And because of tax increment financing, the developer’s own property taxes are being used to build the garage instead of paying for government, like almost all other property taxes do, like your property taxes do. If this was not true, there would be no benefit to the developer for using tax increment financing. And if TIF did not have a real cost to the rest of the city’s taxpayers, we might ask this question: Why not use TIF more extensively? Why can’t everyone benefit from a tax increment financing district?

In his remarks, the city manager mentioned the Block One garage as a public asset, as it was funded by tax increment financing, so let’s look at the statistics there. According to the revised budget for the project, the plan is for 270 stalls in the garage. But 125 stalls are allocated for the hotel, and 100 are allocated for the Slawson development, and 45 allocated for the Kansas Leadership Center building. That leaves precisely zero stalls for public use. That’s right. If these three businesses make full use of their allocation of parking stalls, there will be zero stalls available for the public.

It’s not quite that simple, as Slawson will use its spaces only during the workday, leaving them available to the public evenings and weekends. Perhaps the same arrangement will be made for the Kansas Leadership Center. Being near the Intrust Bank Arena, the garage is used for parking for its events. Except, there aren’t very many event in the arena. In some months there are no events. But you can see that something that is promoted for the public good really turns out to be narrowly focused on private interests.

The manager also mentioned the garage on Main Street. According to city documents, the cost to rehabilitate this garage is $9,685,000, which creates 550 parking stalls. But the city is renting 180 parking stalls to a politically-connected company at monthly rent of $35. We looked at this a few months ago and saw how bad this deal is for city taxpayers.

In his remarks, Mayor Carl Brewer thanked city staff and the developers for “working collectively as a team.” He criticized those who say, in his words, “let’s not do anything, let’s just see where the chips may fall.” As an alternative, he said “we can come together, we can work together, we can work collectively together, and we can bring about change and form it the way we want.”

These remarks illustrate the mayor’s hostility to free markets, that is, to thousands and millions and billions of people trading freely in order to figure out how to allocate scarce resources. But the mayor likens the marketplace of free people to a random event — where the chips may fall, he said. But that’s not how markets work. Markets are people planning for themselves, using their knowledge and preferences and resources in order to build things they want, and what they think others will want. That’s because in markets, the only way you can earn a profit is by doing things that other people want. You have to please customers in order to profit.

But Wichita Mayor Carl Brewer says we need to work collectively together. He says we can form the future the way “we” want. Well, who is the “we” he’s talking about? As we see, the dynamics of free markets results in people doing what other people want. But the “we” the mayor talks about is politicians, bureaucrats, cronies, and do-gooders deciding how they want things to be done, and using your money to do it. That reduces your economic freedom. Your money is directed towards satisfying the goals of politicians and bureaucrats rather than actual, real people.

Here’s how bad this deal really is for Wichita. In my remarks to the council I also said this: Might I also remind the people of Wichita that some of their taxpayer-funded subsidies are earmarked to fund a bailout for a politically-connected construction company for work done on a different project, one not related to Exchange Place except through having common ownership in the past? I don’t think it is good public policy for this city to act as collection agent for a private debt that has been difficult to collect.

I was referring to the fact that the Exchange Place project started as an endeavor of the Minnesota Guys, two developers who bought a lot of property in downtown Wichita and didn’t do very well. They both have been indicted on 61 counts of securities violations in relation to their work in downtown Wichita. One of their projects was the Wichita Executive Center on north Market Street. The Minnesota Guys still owe money to contractors on that project, and some of the taxpayer funding for the Exchange Place project will be used to pay off these contractors.

Why, you may be asking, is the city acting as collection agent for these contractors? There’s an easy answer to this. Money is owed to Key Construction company. We’ve talked about this politically-connected construction firm in the past. Through generous campaign contributions and friendships, Key Construction company manages to gain things like no-bid contracts and other subsidies from the city.

Wichita Mayor Carl Brewer with major campaign donor Dave Wells of Key Construction.
Wichita Mayor Carl Brewer with major campaign donor Dave Wells of Key Construction.
This is a problem. Dave Wells, the president of Key Construction, is a friend of the mayor, as well as frequent and heavy campaign financier for the mayor and other council members. And the mayor voted for benefits for Wells and his company. That is a violation of Wichita city code, or at least it should be. Here’s an excerpt from Wichita city code section 2.04.050, the Code of ethics for council members as passed in 2008: “[Council members] shall refrain from making decisions involving business associates, customers, clients, friends and competitors.”

Dave Wells and Carl Brewer are friends. The mayor has said so. But the City of Wichita’s official position is that this law, the law that seem to plainly say that city council members cannot vote for benefits for their friends, this law does not need to be followed. Even children can see that elected officials should not vote economic benefits for their friends — but not the City of Wichita.

There’s much research that shows that tax increment financing is not an overall benefit to a city’s economy. Yes, it is good for the people that receive it, like the developer of Exchange Place and the mayor’s friends and cronies. But for cities as a whole, the benefit has found to be missing. Some studies have found a negative effect of TIF on economic progress and jobs. That’s right — a city is worse off, as a whole, for using tax increment financing. The evolving episode involving Exchange Place — the massive taxpayer subsidies, the cronyism, the inability of the mayor and council members to understand the economic facts and realities of the transactions they approve, the hostility towards free markets and their benefits as opposed to government planning of the economy — all of this contributes to the poor performance of the Wichita-area economy. This is not an academic exercise or discussion. Real people are hurt by this.

Mayor Brewer has just a month left in office, and there will be a new mayor after that. We, the people of Wichita, have to hope that a new mayor and possibly new council members will chart a different course for economic development in Wichita.

No-bid contracts still passed by Wichita city council

Despite a policy change, the Wichita city council still votes for no-bid contracts paid for with taxpayer funds.

In the current campaign for Wichita mayor, one candidates says he never has voted for no-bid contracts: “[Longwell] also takes issue with the claim he has ever voted for any no-bid contract, something he says his voting record will back up. ‘That’s the beauty of having a voting record,’ he says.” Mayoral candidate Williams decries ‘crony capitalism’ of critics, Wichita Business Journal, March 12, 2015

We don’t have to look very hard to find an example that contradicts Longwell’s claim of never voting for a no-bid contract. Minutes from the August 9, 2011 meeting of the city council show that there was discussion about the no-bid contract for the garage benefiting the Ambassador Hotel. Then-council member Michael O’Donnell questioned if the city was getting the best deal for taxpayers, since the garage was to be built with public funds. O’Donnell was told that the no-bid contract was at “the developer’s request.” These developers include principals and executives of Key Construction and Dave Burk, all who have been generous and consistent funders of Longwell’s campaigns.

But we don’t have to go back that far to find voting for no-bid contracts paid for with taxpayer funds. Longwell has voted several times in favor of the Exchange Place project, starting when it was a project of the Minnesota Guys. The latest such vote was on March 3, 2015, when Longwell voted in favor of a project that contained this benefit, according to city documents: “The City will also provide TIF funding in an amount not to exceed $12,500,000 for the acquisition of land and construction of the parking structure.”

This garage, to be paid for through public funds, was not competitively bid. Despite the garage being pitched as a public good, most parking spaces are for the exclusive benefit of Exchange Place.

Impetus for change

The votes by Longwell and others for no-bid contracts sparked the city manager to ask for a change in policy. The Wichita Eagle reported in 2012:

The days of awarding construction projects without taking competitive bids might be numbered at City Hall if City Manager Robert Layton has his way, especially with public projects such as parking garages that are part of private commercial development.

Layton said last week that he intends to ask the City Council for a policy change against those no-bid contracts.

Three years later, Longwell and others are still voting to spend taxpayer funds on no-bid contracts.


Minutes from August 8, 2011 meeting

Council Member O’Donnell stated and we will not being going out to bid to find the best
deal on that and are just awarding.

Allen Bell Urban Development Director stated that is the developer’s request. Council Member O’Donnell asked if that is City precedent and that with a government project in the tune of $6 million dollars, does not have to be sent out for bid?

Gary Rebenstorf Director of Law stated we have Charter Ordinance No. 203 that has been adopted by the City Council, which provides a procedure to exempt these types of projects from the bidding requirements from the City and has to meet certain requirements in order for it to be used by the Council. Stated the most significant is that there has to be a public hearing and has to be a 2/3 vote by the Council to approve this development agreement that sets up this type of project.

Council Member O’Donnell stated he is glad the media is here to pick up on that because he thinks that $6 million dollars is a lot of money and to just award that to a contractor that has special ties to campaign finance reports of everyone on the City Council except himself, seems questionable.

A Wichita Shocker, redux

Based on events in Wichita, the Wall Street Journal wrote “What Americans seem to want most from government these days is equal treatment. They increasingly realize that powerful government nearly always helps the powerful …” But Wichita’s elites don’t seem to understand this.

A Wichita ShockerThree years ago from today the Wall Street Journal noted something it thought remarkable: a “voter revolt” in Wichita. Citizens overturned a decision by the Wichita City Council regarding an economic development incentive awarded to a downtown hotel. It was the ninth layer of subsidy for the hotel, and because of our laws, it was the only subsidy that citizens could contest through a referendum process.

In its op-ed, the Journal wrote:

The elites are stunned, but they shouldn’t be. The core issue is fairness — and not of the soak-the-rich kind that President Obama practices. One of the leaders of the opposition, Derrick Sontag, director of Americans for Prosperity in Kansas, says that what infuriated voters was the veneer of “political cronyism.”

What Americans seem to want most from government these days is equal treatment. They increasingly realize that powerful government nearly always helps the powerful, whether the beneficiaries are a union that can carve a sweet deal as part of an auto bailout or corporations that can hire lobbyists to write a tax loophole.

The “elites” referred to include the Wichita Metro Chamber of Commerce, the political class, and the city newspaper. Since then, the influence of these elites has declined. Last year all three campaigned for a sales tax increase in Wichita, but voters rejected it by a large margin. It seems that voters are increasingly aware of the cronyism of the elites and the harm it causes the Wichita-area economy.

Last year as part of the campaign for the higher sales tax the Wichita Chamber admitted that Wichita lags in job creation. The other elites agreed. But none took responsibility for having managed the Wichita economy into the dumpster. Even today the local economic development agency — which is a subsidiary of the Wichita Chamber — seeks to shift blame instead of realizing the need for reform. The city council still layers on the levels of subsidy for its cronies.

Following, from March 2012:

A Wichita shocker

“Local politicians like to get in bed with local business, and taxpayers are usually the losers. So three cheers for a voter revolt in Wichita, Kansas last week that shows such sweetheart deals can be defeated.” So starts today’s Wall Street Journal Review & Outlook editorial (subscription required), taking notice of the special election last week in Wichita.

The editorial page of the Wall Street Journal is one of the most prominent voices for free markets and limited government in America. Over and over Journal editors expose crony capitalism and corporate welfare schemes, and they waste few words in condemning these harmful practices.

The three Republican members of the Wichita City Council who consider themselves fiscal conservatives but nonetheless voted for the corporate welfare that voters rejected — Pete Meitzner (district 2, east Wichita), James Clendenin (district 3, southeast and south Wichita), and Jeff Longwell (district 5, west and northwest Wichita) — need to consider this a wake up call. These members, it should be noted, routinely vote in concert with the Democrats and liberals on the council.

For good measure, we should note that Sedgwick County Commission Republicans Dave Unruh and Jim Skelton routinely — but not always — vote for these crony capitalist measures.

The Wichita business community, headed by the Wichita Metro Chamber of Commerce endorsed this measure, too.

Hopefully this election will convince Wichita’s political and bureaucratic leaders that our economic development policies are not working. Combined with the startling findings by a Tax Foundation and KMPG study that finds Kansas lags near the bottom of the states in tax costs to business, the need for reform of our spending and taxing practices couldn’t be more evident. It is now up to our leaders to find within themselves the capability to change — or we all shall suffer.

WichitaLiberty.TV: A downtown Wichita deal shows some of the problems with the Wichita economy

In this episode of WichitaLiberty.TV: We’ll examine the city council’s action regarding a downtown Wichita development project and how it is harmful to Wichita taxpayers and the economy. View below, or click here to view at YouTube. Episode 77, broadcast March 8, 2015.

Exchange Place incentives, including free sales tax and an ethics bypass

A downtown Wichita project receives free sales taxes and a bypass of Wichita’s code of conduct for city council members. Remarks to the Wichita City Council, March 3, 2015.

Regarding the Exchange Place project in downtown Wichita, I’d like to remind the council of the entire subsidy package offered to the project.

There are historic preservation tax credits, which may amount to 25 percent of the project cost. These credits have the same economic impact as a cash payment, and their cost must be born by taxpayers.

There is $12.5 million in tax increment financing, which re-routes future property tax revenues back to the project for the benefit of its owners. Most everyone else pays property taxes in order to pay for government, not for things that benefit themselves exclusively, or nearly so.

There is a federal loan guarantee, which places the federal taxpayer on the hook if this project isn’t successful.

The owner of this project also seeks to avoid paying sales taxes on the purchase of materials. City documents don’t say how much this sales tax forgiveness might be worth, but it easily could be several million dollars.

Mayor and council, if it in fact is truly necessary to layer on these incentives in order to do a project in downtown Wichita, I think we need to ask: Why? Why is it so difficult to do a project in downtown Wichita?

Other speakers will probably tell you that rehabilitating historic buildings is expensive. If so, working on historic buildings is a choice they make. They, and their tenants, ought to pay the cost. It’s a lifestyle choice, and nothing more than that.

But I’m really troubled about the sales tax exemption. Just a few months ago our civic leaders, including this council, recommended that Wichitans add more to our sales tax burden in order to pay for a variety of things.

Only 14 states apply sales tax to food purchased at grocery stores for home consumption, and Kansas has the second-highest statewide rate. So we in Kansas, and Wichita by extension, require low-income families to pay sales tax on their groceries. But today this council is considering granting an exemption from paying these taxes that nearly everyone else has to pay.

These tax subsidies are not popular with voters. Last year when Kansas Policy Institute surveyed Wichita voters, it found that only 34 percent agreed with the idea of local governments using taxpayer money to provide subsidies to certain businesses for economic development. Then, of course, there is the result of the November sales tax election.

Might I also remind the people of Wichita that some of their taxpayer-funded subsidies are earmarked to fund a bailout for a politically-connected construction company for work done on a different project, one not related to Exchange Place except through having common ownership in the past? I don’t think it is good public policy for this city to act as collection agent for a private debt that has been difficult to collect.

This project is slated to receive many million in taxpayer-funded subsidy. Now this council proposes to wave a magic wand and eliminate the cost of sales tax for its owners. People notice this arbitrary application of the burden of taxation. They see certain people treated differently under the law, rather than all being treated equally under the law. People don’t like this. It breeds distrust in government. This council can help restore some of this trust by not issuing the Industrial Revenue Bonds and the accompanying sales tax exemption.

The ethics problem for the city

Wichita Mayor Carl Brewer with friend and major campaign donor Dave Wells of Key Construction.
Wichita Mayor Carl Brewer with friend and major campaign donor Dave Wells of Key Construction. Today Brewer voted for benefits for Wells, in apparent contradiction of city code.
Although I did not mention this to the council, Mayor Carl Brewer should not have voted on this matter. The politically-connected construction company that benefits from this deal through a taxpayer-funded bailout Key Construction. Its president, Dave Wells, is a friend of the mayor, as well as frequent and heavy campaign financier for the mayor and other council members.

This is a problem, as there is a law in Wichita. Here’s an excerpt from Section 2.04.050 Code of ethics for council members from the Wichita city code as passed in 2008:

“[Council members] shall refrain from making decisions involving business associates, customers, clients, friends and competitors.”

Dave Wells and Carl Brewer are friends. The mayor has said so. But the City of Wichita’s official position is that Section 2.04.050 does not need to be followed. Even children can see that elected officials should not vote economic benefits for their friends — but not the City of Wichita.

How TIF routes taxpayer-funded benefits to Wichita’s political players

From January 2012, how tax increment financing routes benefits to politically-connected firms.

It is now confirmed: In Wichita, tax increment financing (TIF) leads to taxpayer-funded waste that benefits those with political connections at city hall.

The latest evidence we have is the construction of a downtown parking garage that benefits Douglas Place, especially the Ambassador Hotel, a renovation of a historic building now underway.

The flow of tax dollars Wichita city leaders had planned for Douglas Place called for taxpayer funds to be routed to a politically-connected construction firm. And unlike the real world, where developers have an incentive to build economically, the city created incentives for Douglas Place developers to spend lavishly in a parking garage, at no cost to themselves. In fact, the wasteful spending would result in profit for them.

The original plan for Douglas Place as specified in a letter of intent that the city council voted to support, called for a parking garage and urban park to cost $6,800,000. Details provided at the August 9th meeting of the Wichita City Council gave the cost for the garage alone as $6,000,000. The garage would be paid for by capital improvement program (CIP) funds and tax increment financing (TIF). The CIP is Wichita’s long-term plan for building public infrastructure. TIF is different, as we’ll see in a moment.

At the August 9th meeting it was also revealed that Key Construction of Wichita would be the contractor for the garage. The city’s plan was that Key Construction would not have to bid for the contract, even though the garage is being paid for with taxpayer funds. Council Member Michael O’Donnell (district 4, south and southwest Wichita) expressed concern about the no-bid contract. As a result, the contract was put out for competitive bid.

Now a winning bid has been determined, according to sources in city hall, and the amount is nearly $1.3 million less than the council was willing to spend on the garage. This is money that otherwise would have gone into the pockets of Key Construction. Because of the way the garage is being paid for, that money would not have been a cost to Douglas Place’s developers. Instead, it would have been a giant ripoff of Wichita taxpayers. This scheme was approved by Mayor Carl Brewer and all city council members except O’Donnell.

Even worse, the Douglas Place developers have no incentive to economize on the cost of the garage. In fact, they have incentives to make it cost even more.

Two paths for developer taxes

Recall that the garage is being paid for through two means. One is CIP, which is a cost to Wichita taxpayers. It doesn’t cost the Douglas Place developers anything except for their small quotal share of Wichita’s overall tax burden. In exchange for that, they get part of a parking garage paid for.

Flows of funds in regular and TIF development.
Flows of funds in regular and TIF development.
But the tax increment financing, or TIF, is different. Under TIF, the increased property taxes that Douglas Place will pay as the project is completed won’t go to fund the general operations of government. Instead, these taxes will go to pay back bonds that the city will issue to pay for part of the garage — a garage that benefits Douglas Place, and one that would not be built but for the Douglas Place plans.

Under TIF, the more the parking garage costs, the more Douglas Place property taxes are funneled back to it — taxes, remember, it has to pay anyway. (Since Douglas Place won’t own the garage, it doesn’t have to pay taxes on the value of the garage, so it’s not concerned about the taxable value of the garage increasing its tax bill.)

Most people and businesses have their property taxes go towards paying for public services like police protection, firemen, and schools. But TIF allows these property taxes to be used for a developer’s exclusive benefit. That leads to distortions.

Why would Douglas Place be interested in an expensive parking garage? Here are two reasons:

First, the more the garage costs, the more the hotel benefits from a fancier and nicer garage for its guests to park in. Remember, since the garage is paid for by property taxes on the hotel — taxes Douglas Place must pay in any case — there’s an incentive for the hotel to see these taxes used for its own benefit rather than used to pay for firemen, police officers, and schools.

Second, consider Key Construction, the planned builder of the garage under a no-bid contract. The more expensive the garage, the higher the profit for Key.

Now add in the fact that one of the partners in the Douglas Place project is a business entity known as Summit Holdings LLC, which is composed of David Wells, Kenneth Wells, Richard McCafferty, John Walker Jr., and Larry Gourley. All of these people are either owners of Key Construction or its executives. The more the garage costs, the higher the profit for these people. Remember, they’re not paying for the garage. City taxpayers are.

The sum of all this is a mechanism to funnel taxpayer funds, via tax increment financing, to Key Construction. The more the garage costs, the better for Douglas Place and Key Construction — and the worse for Wichita taxpayers.

Fueled by campaign contributions?

It’s no wonder Key Construction principals contributed $16,500 to Wichita Mayor Carl Brewer and five city council members during their most recent campaigns. Council Member Jeff Longwell (district 5, west and northwest Wichita) alone received $4,000 of that sum, and he also accepted another $2,000 from managing member David Burk and his wife.

This scheme — of which few people must be aware as it has not been reported anywhere but here — is a reason why Wichita and Kansas need pay-to-play laws. These laws impose restrictions on the activities of elected officials and the awarding of contracts.

An example is a charter provision of the city of Santa Ana, in Orange County, California, which states: “A councilmember shall not participate in, nor use his or her official position to influence, a decision of the City Council if it is reasonably foreseeable that the decision will have a material financial effect, apart from its effect on the public generally or a significant portion thereof, on a recent major campaign contributor.”

This project also shows why complicated financing schemes like tax increment financing need to be eliminated. Government intervention schemes like this turn the usual economic incentives upside down, and at taxpayer expense.

WichitaLiberty.TV: Mayor Carl Brewer’s State of the City address, and the Libertarian Mind

In this episode of WichitaLiberty.TV: We’ll take a look at a few things Wichita Mayor Carl Brewer told the city in his recent State of the City Address. Then a look at topics from a new book titled “The Libertarian Mind: A Manifesto for Freedom.” View below, or click here to view at YouTube. Episode 76, broadcast February 22, 2015.

WichitaLiberty.TV: Transportation issues in Wichita

In this excerpt from WichitaLiberty.TV: Wichita’s legislative agenda concerning transportation issues is unsound. For airfares, it relies on a questionable presentation, and for passenger rail, it advocates for a system that is costly for taxpayers. View below, or click here to view at YouTube. Originally broadcast December 7, 2014.

For more on this issue, see: City of Wichita State Legislative Agenda: Airfares and City of Wichita State Legislative Agenda: Passenger rail

Lavonta Williams on the Wichita City Council

Here’s a timeline of events from the tenure of Lavonta Williams on the Wichita City Council. These are events related to cronyism and disrepect for the people of Wichita — except for her campaign contributors. For them, she voted for no-bid contracts and other taxpayer-funded largess. The behavior of Williams is one of the reasons that Wichita needs pay-to-play laws that prevent council members from voting to enrich their significant campaign contributors.

Williams timeline

Jeff Longwell on the Wichita City Council

Here’s a timeline of events from the tenure of Jeff Longwell on the Wichita City Council. These are events related to cronyism and disrepect for the people of Wichita — except for his campaign contributors. For them, he voted for no-bid contracts and other taxpayer-funded largess. The behavior of Longwell is one of the reasons that Wichita needs pay-to-play laws that prevent council members from voting to enrich their significant campaign contributors.

Longwell timeline

Industrial revenue bonds in Kansas

Industrial Revenue Bonds are a confusing economic development program. We see evidence that citizens are concerned that the city or county is in the business of lending money to companies, when that is not the case. You see this misunderstanding revealed in comments left to newspaper articles reporting the issuance of IRBs, where comment writers complain that the city shouldn’t be in the business of lending companies money.

IRBs are not a loan by government
A recent Wichita city council agenda packet regarding an IRB issue explains that the city is not lending the applicant money. In fact, no one is lending, in the net: “Spirit AeroSystems, Inc. intends to purchase the bonds itself, through direct placement, and the bonds will not be reoffered for sale to the public.” If a company wants to lend itself money, this is a private transaction that should be of no public interest or concern.

Industrial Revenue Bonds in Kansas. Click for larger version.
Industrial Revenue Bonds in Kansas. Click for larger version.
In 2010 when movie theater owner Bill Warren and partners sought IRBs, city documents held this: “American Luxury Cinemas, Inc. proposes to privately place the $16,000,000 taxable industrial revenue bond with Intrust Bank, with whom there is a long-standing banking relationship.” Again, if a bank wants to lend someone money, this a private transaction that should be of no public interest or concern.

The reason for IRBs
The reason why IRB transactions take place is simple: tax avoidance. That’s the real story of Industrial Revenue Bonds: Companies escape paying the property and sales taxes that you and I — as well as most business firms — must pay.

It’s not uncommon for the issuing company to buy the bonds, as in the case of Spirit. So why issue the bonds? The agenda packet has the answer: “The bond financed property will be eligible for sales tax exemption and property tax exemption for a term of ten years, subject to fulfillment of the conditions of the City’s public incentives policy.”

City documents didn’t give the amount of tax Spirit will avoid paying, so we’re left to surmise. Bonds could be issued up to $59.5 million. Taxable business property of that value would generate an annual tax bill of around $1.8 million per year, and Spirit would not pay that for up to ten years. For sales taxes, if all the purchased property was subject to sales tax, that one-time tax exemption would be $4.3 million. These are the upper bounds of the tax savings Spirit Aerosystems may receive. Its actual savings will probably be lower, but still substantial.

In the case of the Warren theater, the IRBs provided sales and property tax exemptions, although the property tax exemption was partially offset by a payment in lieu of taxes agreement.

IRBs are a confusing economic development program. It sounds like a loan from the city or state, but it’s not. The purpose is to convey tax avoidance.

Here’s language from the Wichita ordinance that was passed to implement the Spirit bonds: “The Bonds, together with the interest thereon, are not general obligations of the City, but are special obligations payable (except to the extent paid out of moneys attributable to the proceeds derived from the sale of the Bonds or to the income from the temporary investment thereof) solely from the lease payments under the Lease, and the Bond Fund and other moneys held by the Trustee, as provided in the Indenture. Neither the credit nor the taxing power of the State of Kansas or of any political subdivision of such State is pledged to the payment of the principal of the Bonds and premium, if any, and interest thereon or other costs incident thereto.”

So no governmental body has any obligation to pay the bondholders in case of default. But this language hints at another complicating factor of IRBs: The city actually owns the property purchased with the bond proceeds, and leases it to Spirit. Here’s the preamble of the ordinance: “An ordinance approving and authorizing the execution of a lease agreement between Spirit Aerosystems, Inc. and the City of Wichita, Kansas.”

Other language in the ordinance is “WHEREAS, the Company will acquire a leasehold interest in the Project from the City pursuant to said Lease Agreement.” There’s other language detailing the lease.

We create this “imaginary” lease agreement — and that’s what it is, as it doesn’t have the same purpose and economic meaning as most leases — for what purpose? Just so that certain companies can avoid paying taxes.

The City of Wichita does have another program that allows it to exempt these taxes under some circumstances without having to issue bonds. In this case the goal of the program is laid clear: tax avoidance.

The actual economic transaction
IRBs are a confusing program that obfuscates the actual economic transaction. That’s not good public policy, whether or not you agree with the concept of selective tax abatements as economic development.

Similarly, a principle of good tax policy is that those in similar situations should face the same laws. IRBs are contrary to this.

Also, IRBs are generally available only to large companies. There is massive red tape to overcome, as well as fees, such as an annual fee of $2,500 to the city.

Often when IRBs are presented to city councils for approval, there is explanation of what the bond proceeds will be used for. This is curious. It is as though city council members are wise enough to ascertain whether the plans a company has are economically feasible and desirable, and that the council would not grant approval for the IRBS if not.

While we can understand that citizens — with their busy lives — may not be informed or concerned about the complex workings of IRBs, we should expect more from our elected (and paid) officials. But we find often they are not informed.

As an example, in 2004 the Wichita Eagle reported: “In July, the council approved industrial revenue bond financing and a $1.7 million property tax abatement for Genesis Health Clubs. Council members later said they didn’t realize they had also approved a sales-tax break.” (Kolb goal : Full facts in future city deals, September 26, 2004)

Here we see Wichita City Council members not aware of the basic mechanism of a major city program that is frequently used. This is in spite of an informative city web page devoted to IRBs which prominently states: “Generally, property and services acquired with the proceeds of IRBs are eligible for sales tax exemption.”

Making Wichita an inclusive and attractive community

There are things both easy and difficult Wichita could do to make the city inclusive and welcoming of all, especially the young and diverse.

Wichita Chamber of Commerce 2013-07-09 004In its questionnaire for candidates for Wichita mayor and city council, the Wichita Metro Chamber of Commerce asked this: “How will you work to make Wichita an inclusive community where all will feel welcome, particularly the young and diverse talent we need to help attract more young and diverse talent?”

There are a few very easy things Wichita could do to appeal to millennials — I think that is one of the groups the Chamber addresses in its questions — and diverse people.

Support the decriminalization of marijuana. The city council reacted to a recent petition to reduce the penalty for carrying small amounts of marijuana by placing the measure on the April general election ballot. Another option the city had was to adopt the ordinance as submitted. That would have sent a positive message to millennials, but the council did not do that.

Ask the state to positively end marriage discrimination. The city has a legislative agenda it prepares for state legislators each year, but this matter was not mentioned.

wichita-taxi regulationsWichita should reform its taxicab regulations so that ride-sharing businesses like Uber are operating fully within the law, instead of outside the law as Uber is currently operating. Uber is an example of the type of innovation that city officials and civic leaders say we need, and millennials love Uber. But: Uber has been operating in Wichita since August. Uber has model legislation that could be adopted quickly. Yet, six months later the city has not acted. This delay does not send a message that Wichita welcomes innovation. Instead, it sends a message that the regulatory regime in Wichita is not able to adapt to change.

Pledge to resist the growth of the surveillance state. No street surveillance cameras in Wichita. No mass license plate scanning by police.

To the extent there are problems with the Wichita Police Department, resolve them so that citizens feel safe and minorities feel welcome and not threatened. A citizen oversight panel that has real authority would be a good step. Proceed quickly with implementation of police body cameras. End the special entertainment districts, which many feel are targeted at minority populations.

Here’s a bad idea, but an indication what passes for innovation at the Wichita Chamber: Pay down the student loan debt of young people. This is a bad idea on several levels. First, it rewards those who borrowed to pay for college. Those who saved, worked, or went to inexpensive colleges are not eligible this benefit. Further, if we award this incentive, those who receive it might wonder if that someday they will be taxed to provide this benefit to younger people. After all, the corollary of “Come to Wichita and we’ll pay down your student loan” is “Stay in Wichita, and you’re going to be paying down someone else’s student loan.” If the Chamber wished to raise funds voluntarily to provide such a program, that would be fine. But no tax funds should be used for anything like this.

What Wichita really needs to do

Most of the above are relatively easy to accomplish. Here’s something that is very important, something that should be easy to do, but goes against the grain of elected officials, bureaucrats, and civic leaders like those who run the Wichita Metro Chamber of Commerce. That is: Promote free markets instead of government management of the economy.

A Reason-Rupe survey of 2,000 Americans between the ages of 18 and 29 found that millennials strongly prefer free markets over a government-managed economy. When asked to choose the better system, 64 percent of millennials choose the free market over an economy managed by the government (32 percent).

Also, the survey found that millennials are distrustful, believing that government acts in favor of special interest groups and that government abuses its powers: “A Reason-Rupe survey of 2,000 Americans between the ages of 18 and 29 finds 66 percent of millennials believe government is inefficient and wasteful — a substantial increase since 2009, when just 42 percent of millennials said government was inefficient and wasteful. Nearly two-thirds of millennials, 63 percent, think government regulators favor special interests, whereas just 18 percent feel regulators act in the public’s interest. Similarly, 58 percent of 18-to-29 year-olds are convinced government agencies abuse their powers, while merely 25 percent trust government agencies to do the right thing.”

What could Wichita do, in light of these findings? One thing is to stop its heavy-handed regulation of development, particularly the massive subsidies directed to downtown Wichita.

We should take steps to make sure that everyone is treated equally. Passing “pay-to-play” ordinances — where city council members or county commissioners are prohibited from voting on matters that would enrich their campaign contributors — would be a first step in regaining the trust of citizens.

We also need to reform our economic development practice to favor entrepreneurship. Millennials like to start businesses, the survey tells us: “55 percent of millennials say they’d like to start their own business one day and that hard work is the key to success (61 percent). Millennials also have a positive view of the profit motive (64 percent) and competition (70 percent).” red-tape-person-upsetMuch of our economic development practice consists of directing subsides to our existing large firms or large firms we hope to lure here. But young and small firms — entrepreneurial firms, in other words — can’t qualify for most of our incentive programs. For example. the programs that offer property tax abatements have lengthy application forms and other obstacles to overcome, plus annual fees. Sometimes there are minimum size requirements. Young firms can’t suffer through this red tape and the accompanying bureaucratic schedules.

WichitaLiberty.TV: Flipping in Wichita, price of sin going up, and what your legislature wants you to know

In this episode of WichitaLiberty.TV: In Wichita, historic value is gone in a flash, a flip-flop on drivers permits, and does the city really believe in transparency or was it just a way to get votes? Then, let’s stop calling a vice a sin, and what does the Kansas Legislature really want you to know? View below, or click here to view on YouTube. Episode 74, broadcast February 8, 2015.

Historic value, gone in a flash

Which buildings in Wichita have historic value can change at the whim of the council.

The Wichita City Council has decided that three historic buildings in Wichita are no longer worthy of preservation. Today the council reversed a decision by the Historic Preservation Board and will allow the property owner to proceed with the demolition of three formerly historic buildings in southern downtown Wichita.

The impetus for the demolition is a request by the new property owners, who also own the nearby WaterWalk development.

For those who believe in property rights, if the owner of a building wants to tear it down, that is their right. The owners should not have to ask anyone’s permission. The owners should not have to overcome regulations created by busybodies who claim rights to property based on their assertion that they know what is the best use of others’ property.

507 South Market Wichita 2013-07-09 001But the city council doesn’t feel that way. Council members feel that they are best judges of what should be done with a property.

So it is strange to see the council consent to the request of these developers. The WaterWalk development has received many millions of taxpayer subsidy and has produced very little benefit so far. Even the editorial board of the Wichita Eagle can see that. I’m almost surprised that the council was not skeptical of the judgment of the property owners.

All members but Janet Miller (district 6, north central Wichita) voted in favor. James Clendenin (district 3, southeast and south Wichita) did not vote.

Wichita city council candidate forum

At a meeting of the Sedgwick County Republican Party, Republican candidates for Wichita city council districts 4 and 5 spoke. January 22, 2015. For district 4 the candidates are Jeff Blubaugh and Josh Shorter. For district 5, Gary Bond and Bryan Frye. Video courtesy Mike Shatz of Kansas Exposed. View below, or click here to view in high definition at YouTube.

WichitaLiberty.TV: Wichita city government and upcoming elections

In this episode of WichitaLiberty.TV: We’ll take a look at how city government and council meetings operate. Then, there are city elections coming up. How can you get involved? How can you decide which candidates to support? View below, or click here to view at YouTube. Episode 71, broadcast January 18, 2015.

Blubaugh, Mayor vote for licenses for undocumented workers to drive to their illegal jobs

The Wichita city council voted to recommend that the Kansas Legislature create drivers permits for undocumented workers so they could drive to their jobs.

In December the Wichita City Council voted to include drivers permits for undocumented workers in its legislative agenda. The item as presented to council members read: “RECOMMEND: The Wichita City Council supports legislation that provides a driver’s permit to undocumented workers for the sole purpose of obtaining vehicle insurance for work-related transportation.”

In his remarks, as presented in the meeting minutes, Wichita Mayor Carl Brewer stated “he has given this a lot of thought and he is the one who has asked for it because he believes it is the right thing to do.”

Wichita City Council Member Jeff Blubaugh
Wichita City Council Member Jeff Blubaugh
The measure passed four to three, with Council Member Jeff Blubaugh (district 4, south and southwest Wichita) voting along with the council’s progressive members.

No matter what one believes about our immigration laws, it is illegal for undocumented workers to hold their jobs. Yet, the city wants to make it legal for them to drive to their illegal jobs.

This also illustrates the problem with resolving our nation’s issues with immigration. We’ve shown that we’re not willing to enforce the laws we have. Here, the Wichita City Council takes steps to help illegal immigrants break our laws. Why do we expect people to respect and obey them?

Wichita city hall falls short in taxpayer protection

An incentives agreement the Wichita city council passed on first reading is missing several items that city policy requires. How the council and city staff handle the second reading of this ordinance will let us know for whose interests city hall works: citizens, or cronies.

This week I presented the Wichita City Council my concerns about an inadequate developer agreement for a TIF district development project, the Mosley Avenue Project.

My presentation centered on the lack of an agreement by the developer to forgo appeals of the tax valuation of the property. The applicant had done this in the past, and it caused a shortfall of TIF revenue that the city had to makeup. The city manager had said that taxpayers would be protected in future deals, but the city did not include this protection in the Mosely agreement.

The omission of this taxpayer protection was not all that was missing. The Downtown Development Incentives Policy, revised by the council on June 10, 2014, calls for several items to be supplied when seeking incentives, including tax increment financing, which was the incentive requested for the Mosely project. As I show below, many significant items related to taxpayer protection were missing.

The council approved the project on first reading, noting that the development agreement would be finalized in time for second reading.

This is insufficient. The second reading of an ordinance is usually handled as part of the consent agenda. This is a grouping of items that are voted on as a group, in bulk. There is no discussion unless a council member specifically requests. The practice of the city is that the text of the ordinances on second reading is not made available in the agenda packet, even though changes may have been made between first reading and second reading. That will certainly be the case with this ordinance, as many things are missing from the development agreement.

It’s not clear why there is a first reading and a second reading of an ordinance. It may be so that details may be corrected. Or, perhaps council members would like to have a chance to reconsider their first vote. City code seems to give no guidance as to how much change to an ordinance is allowable between first and second reading.

The problem we face in Wichita is that the approval of a development plan in a TIF district has a mandated public hearing. It is not optional. But the motion passed by the council this week closed the public hearing. Yet, the city will need to make substantial changes to the ordinance and development agreement if it intends to follow the downtown incentives policy that it created. But the public will have no chance to comment on the new material. If past city practice is followed, the new material will not be made available to the public, and perhaps not to council members.

This is a conflict that I do not believe can be resolved unless the city reopens the public hearing for consideration of the revised ordinance and developer agreement on first reading. Anything else disrespects procedures that are designed to benefit and protect the public.

Except. As with many city council policies, there are loopholes. As outlined below, the council can simply vote to waive the requirements of the downtown incentives policy. That gives the council an easy out. But that makes another mockery of the city’s policies, if the council waives them whenever they are inconvenient.

When I presented the defect in the development agreement to the council I asked: Is this lack of taxpayer protection an oversight, or is it by design? There was no answer.

I did not ask this question, but didn’t any city council member notice the omission of significant items needed to comply with its own policies? What about the city manager? Economic development director? City attorney?

More importantly, who in city hall looking out for the interests of taxpayers? Could the generous campaign contributions of Burk and his wife be a factor in this missing taxpayer protection? Or the generous contributions of Key Construction and its executives? (Key Construction is frequently used by Burk.) This is one more incident illustrating the need for campaign finance reform in Wichita.

Missing items

Section D of the incentives policy states “parties requesting Downtown Development Incentives must submit the information listed below.” Significant missing items included the following:

CEDBR Fiscal Impact Model
The idea behind the city’s use of economic development incentives is that the city receives more than it spends or forgoes in future tax revenue. An analysis performed by the Center for Economic Development and Business Research (CEDBR) at Wichita State University is used to make this decision. This appears to have not been done for this project.

Guarantee for a proportional share of public revenue shortfall
This was not present in the developer agreement.

Economic analysis confirms that the project is infeasible “but for” public investment
This was not present in the developer agreement.

Minimum private to public capital investment ratio of 2 to 1
Information necessary to make this judgment was not included in the agenda presentation.

Pro Forma
The incentives policy states: “Pro Forma — The project pro forma will be evaluated on the following criteria:
a. Rate of private investment return
b. Rents/prices consistent with performance of comparables
c. Projected rate of absorption consistent with performance of comparables
d. Long-term project solvency”
It appears that this analysis was not performed.

“Gap” Financing Requirement
The downtown incentives policy states: “Approval of Downtown Development Incentives will require a financial analysis demonstrating that the project would not otherwise be possible without the use of the requested development incentive (“gap” analysis). Parties requesting Downtown Development Incentives will be required to provide the City pro forma cash flow analyses and sources and uses of funds in sufficient detail to demonstrate that reasonably available conventional debt and equity financing sources are not available to fund the entire cost of the project and still provide the developer a reasonable market rate of return on investment.”

There is no evidence that this analysis was performed and made available to the council.

Waiver
The incentives policy contains a loophole. If the council believes it is “inappropriate to evaluate a particular request for Downtown Development Incentives” using the policy, it may vote to waive the requirements.

Wichita drops taxpayer protection clause

To protect itself against self-defeating appeals of property valuation in tax increment financing districts, the City of Wichita once included a protective clause in developer agreements. But this consideration is not present in two proposed agreements.

When the Wichita Eagle reported that a downtown developer represented himself as an agent of the city in order to cut his taxes on publicly owned property he leases in the Old Town Cinema Plaza, city officials were not pleased.

The property in question is located in a tax increment financing district. Incremental tax revenue from the property is earmarked for paying off bonds that were issued for the property’s benefit. If tax revenue is reduced from original projections — perhaps because the tax valuation was appealed — the tax revenue might be insufficient to pay the bonds. City taxpayers are then on the hook.

This is what happened, according to later Eagle reporting: “A special tax district formed by Wichita to assist in the development of the Old Town cinema project can’t cover its debt payments because the developers — including the city itself — petitioned a state court and got their property taxes reduced, records show.”

This week the Wichita city council considers approving a project plan for part of a TIF district in Old Town, the Mosley Avenue Project. It’s contained within the Old Town Cinema Redevelopment District, a tax increment financing (TIF) district. The developer is Mosley Investments, LLC, a development group comprised of David Burk and Steve Barrett, according to city documents.

The involvement of Burk and Barrett is problematic. The downtown developer who the Wichita Eagle said represented himself as an agent of the city without the city’s knowledge or consent was David Burk. Barrett was a partner on the project.

To protect itself when Burk was involved in another TIF-financed project in 2011, the city added language to the developer agreement that prevented appeals of tax valuation, although there was a large loophole included.

But for the Mosley project, there is no such language prohibiting appeals of tax valuation. For another TIF project plan the city will consider the same day, the Union Station project, there is also no such language.

A question posed to city hall but not yet answered is this: Is lack of taxpayer protection an oversight, or is it by design?

More importantly, who in city hall looking out for the interests of taxpayers? Could the generous campaign contributions of Burk and his wife be a factor in this missing taxpayer protection? Or the generous contributions of Key Construction and its executives? (Key Construction is frequently used by Burk.)

Past action by Burk on property in TIF district

In February 2010 the Wichita Eagle reported on the activities of Burk with regard to property he owns in Old Town. Citizens reading these articles might have been alarmed at his actions. Certainly some city hall politicians and bureaucrats were.

The opening sentence of the Wichita Eagle article (Developer appealed taxes on city-owned property) raises the main allegation against Burk: “Downtown Wichita’s leading developer, David Burk, represented himself as an agent of the city — without the city’s knowledge or consent — to cut his taxes on publicly owned property he leases in the Old Town Cinema Plaza, according to court records and the city attorney.”

A number of Wichita city hall officials were not pleased with Burk’s action. According to the Eagle reporting, Burk was not authorized to do what he did: “Officials in the city legal department said that while Burk was within his rights to appeal taxes on another city-supported building in the Cinema Plaza, he did not have authorization to file an appeal on the city-owned parking/retail space he leases. … As for Burk signing documents as the city’s representative, ‘I do have a problem with it,’ said City Attorney Gary Rebenstorf, adding that he intends to investigate further.”

Council member Jeff Longwell was quoted by the Eagle: “‘We should take issue with that,’ he said. ‘If anyone is going to represent the city they obviously have to have, one, the city’s endorsement and … two, someone at the city should have been more aware of what was going on. And if they were, shame on them for not bringing this to the public’s attention.'”

Council member Lavonta Williams was not pleased, either: “‘Right now, it doesn’t look good,’ she said. ‘Are we happy about it? Absolutely not.'”

In a separate article by the Eagle on this issue, we can learn of the reaction by two other city hall officials: “Vice Mayor Jim Skelton said that having city development partners who benefit from tax increment financing appeal for lower property taxes ‘seems like an oxymoron.’ City Manager Robert Layton said that anyone has the right to appeal their taxes, but he added that ‘no doubt that defeats the purpose of the TIF.'”

The manager’s quote is most directly damaging. In the most common form of a tax increment financing (TIF) district, the city borrows money to pay for things that directly enrich the developers, in this case Burk and his partners. Then their increased property taxes — taxes they have to pay anyway — are used to repay the borrowed funds. In essence, a TIF district allows developers to benefit exclusively from their property taxes. For everyone else, their property taxes go to fund the city, county, school district, state, fire district, etc. But not so for property in a TIF district.

This is what is most astonishing about Burk’s action: Having been placed in a rarefied position of receiving many millions in benefits, he still thinks his own taxes are too high.

In response to Burk’s action, the city included a special provision in the agreement for a project in which Burk was involved the next year. This project is the Ambassador Hotel, known at the time as the Douglas Place project. This project is also located within a TIF district and receives the benefit of TIF financing. City documents explained that protests of taxes would not be allowed, but there is a loophole: “In addition, the Developer agrees not to protest the taxes on the building unless the valuation reflects a capitalization rate that exceeds the average rate for boutique hotels as determined by a nationally-recognized hotel appraisal firm.” (Wichita City Council agenda packet, September 13, 2011, page 26.) The agreement and the loophole were expressed in more detail in the agreement on page 138 of the same document.

At the time, city manager Layton told the Wichita Eagle that taxpayers would be protected in future deals: “We’ve taken several safeguards based on the city’s development experience over the last few years, as well as the advice from Goody Clancy and their business partners based on their experience.” He added “We think we’re set to encourage downtown development in a way that provides protection to the taxpayer.”

Now this week Dave Burk comes again before the city council asking for TIF money. But there appears to be nothing in the current agreement to protect taxpayers, as there was in the Douglas Place agreement.

Curiously, Burk is not mentioned by name in the documents prepared for the public hearing on January 6.

Wichita TIF projects: some background

Tax increment financing disrupts the usual flow of tax dollars, routing funds away from cash-strapped cities, counties, and schools back to the TIF-financed development. TIF creates distortions in the way cities develop, and researchers find that the use of TIF means lower economic growth.

The consideration this week by the Wichita City Council of two project plans in tax increment financing districts offers an opportunity to examine the issues surrounding TIF.

How TIF works

A TIF district is a geographically-defined area. In Kansas cities establish the borders. After the TIF district is defined, cities then approve one or more project plans that authorize the spending of TIF funds in specific ways.

Figure 1.
Figure 1.
Before the formation of the TIF district, the property pays taxes to the city, county, school district, and state as can be seen in figure 1. Because property considered for TIF is purportedly blighted, the amount of tax paid is usually small. Whatever it is, that level is called the “base.”

Figure 2.
Figure 2.
After approval of one or more TIF project plans the city borrows money and gives it to the project or development. The city now has additional debt in the form of TIF bonds that require annual payments. Figure 2 illustrates. (There is now another form of TIF known as “pay-as-you-go” that works differently, but produces much the same economic effect.)

Figure 3.
Figure 3.
Figure 3 shows the flow of tax revenue after the formation of the TIF district and after the completion of a project or development. Because buildings were built or renovated, the property is worth more, and the property tax is now higher. The development now has two streams of property tax payments that are handled in different ways. The original tax — the “base” — is handled just like before, distributed to city, state, school district, and the state, according to their mill levy rates. The difference between the new tax and the base tax — the “increment” — is handled differently. It goes to only two destinations: The State of Kansas, and repayment of the TIF bonds.

Figure 4.
Figure 4.
Figure 4 highlights the difference in the flow of tax revenues. The top portion of the illustration shows development outside of TIF. We see the flows of tax payments to city, county, school district, and the state. In the bottom portion, which shows development under TIF, the tax flows to city, county, and school district are missing. No longer does a property contribute to the support of these three units of government, although the property undoubtedly requires the services of them. This is especially true for a property in Old Town, which consumes large amounts of policing.

(Cities, counties, and school districts still receive the base tax payments, but these are usually small, much smaller than the incremental taxes. In non-TIF development, these agencies still receive the base taxes too, plus whatever taxes result from improvement of the property — the “increment,” so to speak. Or simply, all taxes.)

This rerouting of property taxes under TIF goes against the grain of the way taxes are usually rationalized. We use taxation as a way to pay for services that everyone benefits from, and from which we can’t exclude people. An example would be police protection. Everyone benefits from being safe, and we can’t exclude people from benefiting from police protection.

So when we pay property tax — or any tax, for that matter — people may be comforted knowing that it goes towards police and fire protection, street lights, schools, and the like. (Of course, some is wasted, and government is not the only way these services, especially education, could be provided.)

But TIF is contrary to this justification of taxes. TIF allows property taxes to be used for one person’s (or group of persons) exclusive benefit. This violates the principle of broad-based taxation to pay for an array of services for everyone. Remember: What was the purpose of the TIF bonds? To pay for things that benefited the development. Now, the development’s property taxes are being used to repay those bonds instead of funding government.

One more thing: Defenders of TIF will say that the developers will pay all their property taxes. This is true, but only on a superficial level. We now see that the lion’s share of the property taxes paid by TIF developers are routed back to them for their own benefit.

It’s only infrastructure

In their justification of TIF in general, or specific projects, proponents may say that TIF dollars are spent only on allowable purposes. Usually a prominent portion of TIF dollars are spent on infrastructure. This allows TIF proponents to say the money isn’t really being spent for the benefit of a specific project. It’s spent on infrastructure, they say, which they contend is something that benefits everyone, not one project specifically. Therefore, everyone ought to pay.

This attitude is represented by a comment left at Voice for Liberty, which contended: “The thing is that real estate developers do not invest in public streets, sidewalks and lamp posts, because there would be no incentive to do so. Why spend millions of dollars redoing or constructing public streets when you can not get a return on investment for that”

This perception is common: that when we see developers building something, the City of Wichita builds the supporting infrastructure at no cost to the developers. But it isn’t quite so. About a decade ago a project was being developed on the east side of Wichita, the Waterfront. This project was built on vacant land. Here’s what I found when I searched for City of Wichita resolutions concerning this project:

Figure 5. Waterfront resolutions.
Figure 5. Waterfront resolutions.
Note specifically one item: $1,672,000 for the construction of Waterfront Parkway. To anyone driving or walking in this area, they would think this is just another city street — although a very nicely designed and landscaped street. But the city did not pay for this street. Private developers paid for this infrastructure. Other resolutions resulted in the same developers paying for street lights, traffic signals, sewers, water pipes, and turning lanes on major city streets. All this is infrastructure that we’re told real estate developers will not pay for. But in order to build the Waterfront development, private developers did, with a total cost of these projects being $3,334,500. (It’s likely I did not find all the resolutions and costs pertaining to this project, and more development has happened since this research.)

In a TIF district, these things are called “infrastructure” and will be paid for by the development’s own property taxes — taxes that must be paid in any case. Outside of TIF districts, developers pay for these things themselves.

If not for TIF, nothing will happen here

Generally, TIF is justified using the “but-for” argument. That is, nothing will happen within a district unless the subsidy of TIF is used. Paul F. Byrne explains:

“The but-for provision refers to the statutory requirement that an incentive cannot be awarded unless the supported economic activity would not occur but for the incentive being offered. This provision has economic importance because if a firm would locate in a particular jurisdiction with or without receiving the economic incentive, then the economic impact of offering the incentive is non-existent. … The but-for provision represents the legislature’s attempt at preventing a local jurisdiction from awarding more than the minimum incentive necessary to induce a firm to locate within the jurisdiction. However, while a firm receiving the incentive is well aware of the minimum incentive necessary, the municipality is not.”

It’s often thought that when a but-for justification is required in order to receive an economic development incentive, financial figures can be produced that show such need. Now, recent research shows that the but-for justification is problematic. In Does Chicago’s Tax Increment Financing (TIF) Programme Pass the ‘But-for’ Test? Job Creation and Economic Development Impacts Using Time-series Data, author T. William Lester looked at block-level data regarding employment growth and private real estate development. The abstract of the paper describes:

“This paper conducts a comprehensive assessment of the effectiveness of Chicago’s TIF program in creating economic opportunities and catalyzing real estate investments at the neighborhood scale. This paper uses a unique panel dataset at the block group level to analyze the impact of TIF designation and investments on employment change, business creation, and building permit activity. After controlling for potential selection bias in TIF assignment, this paper shows that TIF ultimately fails the ‘but-for’ test and shows no evidence of increasing tangible economic development benefits for local residents.” (emphasis added)

In the paper, the author clarifies:

“To clarify these findings, this analysis does not indicate that no building activity or job crea-tion occurred in TIFed block groups, or resulted from TIF projects. Rather, the level of these activities was no faster than similar areas of the city which did not receive TIF assistance. It is in this aspect of the research design that we are able to conclude that the development seen in and around Chicago’s TIF districts would have likely occurred without the TIF subsidy. In other words, on the whole, Chicago’s TIF program fails the ‘but-for’ test.

Later on, for emphasis:

“While the findings of this paper are clear and decisive, it is important to comment here on their exact extent and external validity, and to discuss the limitations of this analysis. First, the findings do not indicate that overall employment growth in the City of Chicago was negative or flat during this period. Nor does this research design enable us to claim that any given TIF-funded project did not end up creating jobs. Rather, we conclude that on-average, across the whole city, TIF was unsuccessful in jumpstarting economic development activity — relative to what would have likely occurred otherwise.” (emphasis in original)

The author notes that these conclusions are specific to Chicago’s use of TIF, but should “should serve as a cautionary tale.”

The paper reinforces the problem of using tax revenue for private purposes, rather than for public benefit: “Essentially, Chicago’s extensive use of TIF can be interpreted as the siphoning off of public revenue for largely private-sector purposes. Although, TIF proponents argue that the public receives enhanced economic opportunity in the bargain, the findings of this paper show that the bargain is in fact no bargain at all.”

TIF is social engineering

TIF represents social engineering. By using it, city government has decided that it knows best where development should be directed. In particular, the Wichita city council has decided that Old Town and downtown development is on a superior moral plane to other development. Therefore, we all have to pay higher taxes to support this development. What is the basis for saying Old Town developers don’t have to pay for their infrastructure, but developers in other parts of the city must pay?

TIF doesn’t work

Does TIF work? It depends on what the meaning of “work” is.

If by working, do we mean does TIF induce development? If so, then TIF usually works. When the city authorizes a TIF project plan, something usually gets built or renovated. But this definition of “works” must be tempered by a few considerations.

Does TIF pay for itself?
First, is the project self-sustaining? That is, is the incremental property tax revenue sufficient to repay the TIF bonds? This has not been the case with all TIF projects in Wichita. The city has had to bail out two TIFs, one with a no-interest and low-interest loan that cost city taxpayers an estimated $1.2 million.

The verge of corruption
Second, does the use of TIF promote a civil society, or does it lead to cronyism? Randal O’Toole has written:

“TIF puts city officials on the verge of corruption, favoring some developers and property owners over others. TIF creates what economists call a moral hazard for developers. If you are a developer and your competitors are getting subsidies, you may simply fold your hands and wait until someone offers you a subsidy before you make any investments in new development. In many cities, TIF is a major source of government corruption, as city leaders hand tax dollars over to developers who then make campaign contributions to re-elect those leaders.”

We see this in Wichita, where the regular recipients of TIF benefits are also regular contributors to the political campaigns of those who are in a position to give them benefits. The corruption is not illegal, but it is real and harmful, and calls out for reform. See In Wichita, the need for campaign finance reform.

The effect of TIF on everyone
Third, what about the effect of TIF on everyone, that is, the entire city or region? Economists have studied this matter, and have concluded that in most cases, the effect is negative.

An example are economists Richard F. Dye and David F. Merriman, who have studied tax increment financing extensively. Their article Tax Increment Financing: A Tool for Local Economic Development states in its conclusion:

“TIF districts grow much faster than other areas in their host municipalities. TIF boosters or naive analysts might point to this as evidence of the success of tax increment financing, but they would be wrong. Observing high growth in an area targeted for development is unremarkable.”

So TIF districts are good for the favored development that receives the subsidy — not a surprising finding. What about the rest of the city? Continuing from the same study:

“If the use of tax increment financing stimulates economic development, there should be a positive relationship between TIF adoption and overall growth in municipalities. This did not occur. If, on the other hand, TIF merely moves capital around within a municipality, there should be no relationship between TIF adoption and growth. What we find, however, is a negative relationship. Municipalities that use TIF do worse.

We find evidence that the non-TIF areas of municipalities that use TIF grow no more rapidly, and perhaps more slowly, than similar municipalities that do not use TIF.” (emphasis added)

In a different paper (The Effects of Tax Increment Financing on Economic Development), the same economists wrote “We find clear and consistent evidence that municipalities that adopt TIF grow more slowly after adoption than those that do not. … These findings suggest that TIF trades off higher growth in the TIF district for lower growth elsewhere. This hypothesis is bolstered by other empirical findings.” (emphasis added)

The Wichita city council is concerned about creating jobs, and is easily swayed by the promises of developers that their establishments will create jobs. Paul F. Byrne of Washburn University has examined the effect of TIF on jobs. His recent report is Does Tax Increment Financing Deliver on Its Promise of Jobs? The Impact of Tax Increment Financing on Municipal Employment Growth, and in its abstract we find this conclusion regarding the impact of TIF on jobs:

“This article addresses the claim by examining the impact of TIF adoption on municipal employment growth in Illinois, looking for both general impact and impact specific to the type of development supported. Results find no general impact of TIF use on employment. However, findings suggest that TIF districts supporting industrial development may have a positive effect on municipal employment, whereas TIF districts supporting retail development have a negative effect on municipal employment. These results are consistent with industrial TIF districts capturing employment that would have otherwise occurred outside of the adopting municipality and retail TIF districts shifting employment within the municipality to more labor-efficient retailers within the TIF district.” (emphasis added)

These studies and others show that as a strategy for increasing the overall wellbeing of a city, TIF fails to deliver prosperity, and in fact, causes harm.

Wichita loan agreement subject to interpretation

In 2009 the City of Wichita entered into an ambiguous agreement to grant a forgivable loan, and then failed to follow its own agreement. Worse yet, there has been no improvement to similar contracts. Such agreements empower the city to grant favor at its discretion.

In 2009 the City of Wichita granted a forgivable loan of $25,000 to a company named Premier Processing. In a separate transaction, Sedgwick County did the same. A forgivable loan starts with a grant of cash to a company. The company agrees to conditions or benchmarks, commonly to employ a certain number of people for the period of the loan, usually five years. If these benchmarks are met, the company does not need to repay the loan or any interest. Hence, “forgivable.” If benchmarks are not met, contracts may have “clawback” provisions that are designed to protect taxpayers from the effects of a bad investment in an economic development incentive.

Unfortunately, Premier Processing was not able to meet the conditions of the loan, and at the end of the five year loan period, it repaid the loan principal to both the city and county. That was due to a clawback provision contained in the loan contract.

But the loan contract is confusing. The loan contract, as explained below, appears to call for the payment of interest in case the company is not able to meet the benchmarks. But the city doesn’t interpret the contract that way.

Further, a person reading the contract could reasonably assume that the performance of the company compared to the benchmarks is evaluated each year, and clawback provisions enforced at that time if needed. But that is not the city’s interpretation of the contract.

Is this confusing? Yes, it is. And things haven’t improved. A forgivable loan made by the city last month holds the same language, and also the same potential for confusion.

Clawbacks are problematic. When a company has not achieved its benchmarks, it is likely because the company is not performing well financially and economically. So the company may not have the capacity to make the clawback payments. If a company is struggling financially, aggressively pursuing clawbacks might be the factor that forces a company to shut down. That means fewer jobs. Would it be better to let the company retain its incentives and the city forgo enforcement of clawbacks, even though the company hasn’t met the benchmarks? It is presumably providing some good, after all.

There’s also the consideration that if clawback provisions are strict and cities boast that they will aggressively pursue clawback payments, will companies be discouraged from applying for incentives?

Finally, during the sales tax campaign we were promised greater transparency of economic development activities if the sales tax passed. If transparency would be good in that case, it is also good right now, and should have been provided in the past. But the city made no effort to let citizens know of this episode in our economic development history. In fact, obtaining information about this matter has been difficult.

The confusing loan contract

The relevant pages of the city council agenda packet from August 2009, including the contract controlling the terms of the loan, may be viewed here. Of note is the schedule of forgiveness of debt.

Premier Processing forgiveness of debt schedule.
Premier Processing forgiveness of debt schedule.

Here’s a table of yearly employment benchmarks as supplied by Sedgwick County. (The city was not willing to produce the data it had regarding this.)

Premier Processing schedule of benchmarks from Sedgwick County.
Premier Processing schedule of benchmarks from Sedgwick County.

(Note: In the 2009 agreement, for cumulative wages promised in 2013, the city document has the value $3,618,000. In the data from the county, $2,615,000 is used. The city’s number is probably a typographical error, as the county-supplied number is more in line with a smooth progression from year to year. In either case, actual cumulative wages were less, which is the controlling factor. The amount by which the benchmark was missed does not figure into the calculation.)

In the “FORGIVABLE LOAN AGREEMENT and PROMISSORY NOTE” dated August 11, 2009, Section 2 creates a schedule of employment and wage goals, as shown above. This section also establishes the “first anniversary date” as being August 11, 2010. It also speaks of “each scheduled anniversary thereafter.” Using the customary meaning of “anniversary” that seems to establish August 11 for each succeeding year as an anniversary date.

Section (16) (a) (i) of the agreement holds this language: “If, on the scheduled anniversary, employment levels are below the minimums specified in item (2) of this Agreement, the following repayment is required within thirty (30) days:
a) the outstanding principal balance will be divided by the number of remaining anniversary dates, to produce the principal amount due, plus
b) interest accrued since the previously scheduled anniversary date.”

Looking at the plain meaning of section 16, it seems like for each anniversary date the city would perform this analysis: Based on the calculation specified in section (16) (a) (i), on the 2010 anniversary date, first, calculate “outstanding principal balance will be divided by the number of remaining anniversary dates, to produce the principal amount due.” This calculation is $25,000 / 4 = $6,250.

Then calculate “interest accrued since the previously scheduled anniversary date.” Section 16 (A) (iv) (a) gives 12 percent as the interest rate to be applied in case of default. 12 percent of $6,250 is $750.

Based on the default condition that existed on the first anniversary date, the borrower should have repaid $6,250 + $750 = $7,000. Similar calculations could be made for the following anniversary dates, as on each date the borrower was in default.

But this is not what happened. For one, the city did not collect interest. Correspondence with Tim Goodpasture of the city’s economic development office explained: “The company did not meet the stated objectives. The agreement states that if it does not it may have to repay the principal plus accrued interest. The interest rate defined in this agreement is 0.0% per annum.”

In a telephone call with Goodpasture, I explained my understanding of the contract with payments required on each anniversary date if benchmarks were not met. He said that the clawbacks were enforced. Since the company is still in operation in Wichita, no interest is due.

Goodpasture further explained that the city monitors performance each year. At the end of the loan period, the city looks back at the entire loan, examining year-by-year whether the terms were met. Since the company was not in compliance in any year, it repaid the entire loan. But since the company was still in operation in Wichita, there is no interest due, he explained.

It seems that the confusion derives from the meaning of “anniversary date.” The city seems to follow a policy that at the end of the loan period, which is five years in this case, there will be a retrospective examination that looks at employment levels on each anniversary date.

But the plain language of the contract says “If, on the scheduled anniversary, employment levels are below the minimums specified in item (2) of this Agreement, the following repayment is required within thirty (30) days.” (emphasis added) This seems to establish a yearly examination of the borrowing company, and if the benchmarks are not met, then repayment is required then (within 30 days). Not at the end of the loan term.

But there is this language in section 2 of the contract: “2) Forgiveness of Debt: The Borrower promises to create and maintain minimum employment levels at the Wichita, Kansas facility by August 11, 2014 as shown in the following schedule.” This seems to indicate an examination of the benchmarks at the end of the five-year loan period, which is what the city did. (Except it didn’t charge interest, which it the contract calls for.)

Year in Review: 2014

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

January

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

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

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

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

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

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

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

February

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

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

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

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

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

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

March

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

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

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

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

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

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

April

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

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

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

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

May

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

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

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

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

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

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

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

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

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

June

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

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

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

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

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

July

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

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

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

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

August

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

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

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

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

September

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

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

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

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

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

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

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

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

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

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

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

October

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

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

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

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

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

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

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

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

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

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

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

November

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

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

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

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

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

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

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

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

December

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

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

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

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

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

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

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

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

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

Economic development in Sedgwick County

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


Excerpt from the meeting

Discussion

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

In Wichita, running government like a business

In Wichita and Sedgwick County, can we run government like a business? Should we even try? Do our leaders think there is a difference?

Sedgwick County Working for YouAs Wichita considers the future of its economy, a larger role for government is contemplated. The views of the people leading the effort to expand government management of the local economy are important to explore. Consider Gary Schmitt, who is an executive at Intrust Bank. Following is an excerpt from the minutes of the May 22, 2013 meeting of the Board of Sedgwick County Commissioners. The topic was a forgivable loan to Starwood Hotels and Resorts Worldwide Inc. These loans are equivalent to a cash grant, as long as conditions are met. At the time of this meeting Schmitt was vice chair of Greater Wichita Economic Development Coalition.

This discourse shows the value of elected officials like Karl Peterjohn, and also Richard Ranzau, as he too contributed to the understanding of this matter. When Michael O’Donnell served on the Wichita City Council, he also contributed in this way.

Here’s what Schmitt told the commissioners, based on the meeting minutes: “I know at the bank where I work, if we had a $1 invested and get a return of over $2.40, we would consider that a very good investment in the future.”

Shortly after that he said “Very similar what we do at the bank when we negotiate loan amounts or rates. So it is very much a business decision to try to figure out how to bring 900 jobs to our community without overspending or over committing.”

Wichita leaders need to understand businessThe problem is that when the bank Schmitt works for makes a loan, there are several forces in play that are not present in government. Perhaps the most obvious is that a bank loans money and expects to be repaid. In the case of the forgivable loan the commission was considering, the goal is that the loan is not repaid. These loans, remember, are a grant of cash, subject to a few conditions. If the recipient company is required to repay the loan, it is because it did not meet conditions such as job count or capital investment. In these circumstances, the company is probably not performing well economically, and therefore may not be able to repay the loan.

Another example of how a bank is different from government is that at a bank, both parties enter the loan transaction voluntarily. The bank’s shareholders and depositors are voluntary participants. Perhaps not explicitly for each loan, but if I do not like the policies or loans my bank has made, I can easily move my shares and deposits to another bank. But for these government loans, I personally have appeared several times before governmental bodies asking that the loan not be made. I did not consent. And changing government is much more difficult than changing banks.

Another difference between Schmitt’s bank and government is that bank’s goal is to earn a profit. Government doesn’t calculate profit. It is not able to, and when it tries, it efforts fall short. For one thing, government conscripts its capital. It faces no market test as to whether it is making good investments. It doesn’t have to compete with other institutions for capital, as a private bank does. Ludwig von Mises taught us that government can’t calculate profit and loss, the essential measure that lets us know if a business is making efficient use of resources. Thomas DiLorenzo elaborated, writing: “There is no such thing as real accounting in government, of course, since there are no profit-and-loss statements, only budgets. Consequently, there is no way of ever knowing, in an accounting sense, whether government is adding value or destroying it.”

An example of this lack of accounting for capital comes from the same governmental body making this forgivable loan. In Intrust Bank Arena depreciation expense is important, even today, I explain that proper attention given to the depreciation expense of Intrust Bank Arena in downtown Wichita would recognize and account for the sacrifices of the people of Sedgwick County and its visitors to pay for the arena. But the county doesn’t do that, at least not in its most visible annual reporting of the arena’s financial results.

Governments locally do have a measure of what they consider to be “profit.” It’s the benefit-cost ratio calculated by the Center for Economic Development and Business Research (CEDBR) at Wichita State University. This is the source of the “$1 invested and get a return of over $2.40″ that Schmitt referenced. But the “benefits” that go into this calculation are quite different from the profits that business firms attempt to earn. Most importantly, the benefits that government claims are not really benefits. Instead, they’re in the form of additional tax revenue paid to government. This is very different from the profits companies earn in voluntary market transactions.

Government usually claims that in order to get these “benefits,” the incentives must be paid. But often the new economic activity (expansion, etc.) would have happened anyway without the incentives. There is much evidence that economic development incentives rank low on the list of factors businesses consider when making investments. A related observation is that if the relatively small investment government makes in incentives is solely or even partially responsible for such wonderful outcomes in terms of jobs, why doesn’t government do this more often? If the Sedgwick County Board of Commissioners has such power to create economic growth, why is anyone unemployed?

Those, like Gary Schmitt, who are preparing to lead Wichita’s efforts in stimulating its economy believe that government should take on a larger role. We need to make sure that these leaders understand the fundamental differences between government and business, and how government can — and can’t — help business grow.

Following is an excerpt from the meeting minutes:

Chairman Skelton said, “Okay, thank you. Anybody else who wishes to speak today? Please state your name and address for the record.”

Mr. Gary Schmitt, (address redacted to respect privacy) greeted the Commissioners and said, “I work at Intrust Bank and I am the Vice-Chair of GWEDC. Thank you for the opportunity to speak to you today. I want to thank all of you also for just saving the county $700,000 by refinancing the bond issue. I think that was a great move. I think that’s exactly what we need to do to help support our county.

Mr. Schmitt said, “Also want to say I think Starwood coming to Wichita with 900 jobs in the very near future is a big win for Wichita, for Sedgwick County and our community. And I just want to encourage you to support the $200,000 investment. I know at the bank where I work, if we had a $1 invested and get a return of over $2.40, we would consider that a very good investment in the future. And I think having 900 people employed in basically starter jobs, or jobs to fill the gap in their financial needs for their families is very important also. So thank you very much for the opportunity to speak. I encourage you to support positive vote on this.”

Chairman Skelton said, “Commissioner Peterjohn.”

Commissioner Peterjohn said, “Mr. Schmidt, I thank you for coming down and speaking today and your efforts on behalf of GWEDC. One of the things I struggle with these issues when they come before the Commission is what is the, how do we come up with an optimum number? I mean, why is $200,000 the right figure for the county’s contribution. And also, I mean, other than the fact that the city approved a similar amount yesterday, and when this comes to us and the calculations are coming from a, I think, a basic input and output model that fluctuates, depending on what assumptions you feed into it, I struggle with, you know, how do we determine, when you get a proposal at the bank, somebody comes in and says, hey, I would like to borrow x number of dollars for this project, we expect a net present value or rate of return of so much, and based on a loan cost of a certain interest rate, we get those very specific calculations. Can you provide any insight, in terms of why $200,000 is the optimal number for this forgivable loan over 5 years, and help me out on that point?”

Mr. Schmitt said, “I’ll try. GWEDC basically is a cooperation between businesses, business community leaders and also the city and the county government. We sort of have all the players at the table. And it’s very similar to what we do at the bank, when somebody comes in and asks for a proposal, we have to understand what our capacity is, what our expectations are, and we analyze all that. By using WSU calculate return on investment, that’s similar to what we do at the bank to calculate our return on investment. Now, I’m sure Starwood would be very excited if we said we will give you $2 million instead of $200,000, but we negotiated a number that we thought was acceptable to Starwood and also us.

“Very similar what we do at the bank when we negotiate loan amounts or rates. So it is very much a business decision to try to figure out how to bring 900 jobs to our community without overspending or over committing. So, Mr. Peterjohn, I think we’ve tried to do everything we can to bring the best deal to the community we possibly can.”

Commissioner Peterjohn said, “Well then help me out, in terms of the point that was raised over, we’ve got a forgivable loan for five years, but the calculation, in terms of return and so on are over 10 years. So basically our clawback provisions don’t exist from year 6 through 10.”

Mr. Schmitt said, “Well…”

Commissioner Peterjohn said, “And then you’ve got that disparity.”

Mr. Schmitt said, “You know, the other interesting thing is they have a 15 year lease out there on the building. So our expectation is they will be a minimum of 15 years. So do we do it on 5, 10, or 15 years. So, I understand your question. I don’t know the answer to that.”

Commissioner Peterjohn said, “Okay. Thank you for coming down and providing…” Mr. Schmitt said, “You are welcome. Thank you.”

Economic development in Wichita: Looking beyond the immediate

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

Critics of the economic development policies in use by the City of Wichita are often portrayed as not being able to see and appreciate the good things these policies are producing, even though they are unfolding right before our very eyes. The difference is that some look beyond the immediate — what is seen — and ask “And then what will happen?” — looking for the unseen.

Thomas Sowell explains the problem in a passage from the first chapter of Applied economics: thinking beyond stage one:

When we are talking about applied economic policies, we are no longer talking about pure economic principles, but about the interactions of politics and economics. The principles of economics remain the same, but the likelihood of those principles being applied unchanged is considerably reduced, because politics has its own principles and imperatives. It is not just that politicians’ top priority is getting elected and re-elected, or that their time horizon seldom extends beyond the next election. The general public as well behaves differently when making political decisions rather than economic decisions. Virtually no one puts as much time and close attention into deciding whether to vote for one candidate rather than another as is usually put into deciding whether to buy one house rather than another — or perhaps even one car rather than another.

The voter’s political decisions involve having a minute influence on policies which affect many other people, while economic decision-making is about having a major effect on one’s own personal well-being. It should not be surprising that the quantity and quality of thinking going into these very different kinds of decisions differ correspondingly. One of the ways in which these decisions differ is in not thinking through political decisions beyond the immediate consequences. When most voters do not think beyond stage one, many elected officials have no incentive to weigh what the consequences will be in later stages — and considerable incentives to avoid getting beyond what their constituents think and understand, for fear that rival politicians can drive a wedge between them and their constituents by catering to public misconceptions.

The economic decisions made by governing bodies like the Wichita City Council have a large impact on the lives of Wichitans. But as Sowell explains, these decisions are made by politicians for political reasons.

Sowell goes on to explain the danger of stopping the thinking process at stage one:

When I was an undergraduate studying economics under Professor Arthur Smithies of Harvard, he asked me in class one day what policy I favored on a particular issue of the times. Since I had strong feelings on that issue, I proceeded to answer him with enthusiasm, explaining what beneficial consequences I expected from the policy I advocated.

“And then what will happen?” he asked.

The question caught me off guard. However, as I thought about it, it became clear that the situation I described would lead to other economic consequences, which I then began to consider and to spell out.

“And what will happen after that?” Professor Smithies asked.

As I analyzed how the further economic reactions to the policy would unfold, I began to realize that these reactions would lead to consequences much less desirable than those at the first stage, and I began to waver somewhat.

“And then what will happen?” Smithies persisted.

By now I was beginning to see that the economic reverberations of the policy I advocated were likely to be pretty disastrous — and, in fact, much worse than the initial situation that it was designed to improve.

Simple as this little exercise may sound, it goes further than most economic discussions about policies on a wide range of issues. Most thinking stops at stage one.

We see stage one thinking all the time when looking at government. In Wichita, for example, a favorite question of city council members seeking to justify their support for government intervention such as a tax increment financing (TIF) district or some other form of subsidy is “How much more tax does the building pay now?” Or perhaps “How many jobs will (or did) the project create?”

These questions, and the answers to them, are examples of stage one thinking. The answers are easily obtained and cited as evidence of the success of the government program.

But driving by a store or hotel in a TIF district and noticing a building or people working at jobs does not tell the entire story. Using the existence of a building, or the payment of taxes, or jobs created, is stage one thinking, and nothing more than that.

Fortunately, there are people who have thought beyond stage one, and some concerning local economic development and TIF districts. And what they’ve found should spur politicians and bureaucrats to find ways to move beyond stage one in their thinking.

An example are economists Richard F. Dye and David F. Merriman, who have studied tax increment financing extensively. Their article Tax Increment Financing: A Tool for Local Economic Development states in its conclusion:

TIF districts grow much faster than other areas in their host municipalities. TIF boosters or naive analysts might point to this as evidence of the success of tax increment financing, but they would be wrong. Observing high growth in an area targeted for development is unremarkable.

So TIF districts are good for the favored development that receives the subsidy — not a surprising finding. What about the rest of the city? Continuing from the same study:

If the use of tax increment financing stimulates economic development, there should be a positive relationship between TIF adoption and overall growth in municipalities. This did not occur. If, on the other hand, TIF merely moves capital around within a municipality, there should be no relationship between TIF adoption and growth. What we find, however, is a negative relationship. Municipalities that use TIF do worse.

We find evidence that the non-TIF areas of municipalities that use TIF grow no more rapidly, and perhaps more slowly, than similar municipalities that do not use TIF.

In a different paper (The Effects of Tax Increment Financing on Economic Development), the same economists wrote “We find clear and consistent evidence that municipalities that adopt TIF grow more slowly after adoption than those that do not. … These findings suggest that TIF trades off higher growth in the TIF district for lower growth elsewhere. This hypothesis is bolstered by other empirical findings.”

Here we have an example of thinking beyond stage one. The results are opposite of what one-stage thinking produces.

Some city council members are concerned about creating jobs, and are swayed by the promises of developers that their establishments will employ a certain number of workers. Again, this thinking stops at stage one. But others have looked farther, as has Paul F. Byrne of Washburn University. The title of his recent report is Does Tax Increment Financing Deliver on Its Promise of Jobs? The Impact of Tax Increment Financing on Municipal Employment Growth, and in its abstract we find this conclusion regarding the impact of TIF on jobs:

Increasingly, municipal leaders justify their use of tax increment financing (TIF) by touting its role in improving municipal employment. However, empirical studies on TIF have primarily examined TIF’s impact on property values, ignoring the claim that serves as the primary justification for its use. This article addresses the claim by examining the impact of TIF adoption on municipal employment growth in Illinois, looking for both general impact and impact specific to the type of development supported. Results find no general impact of TIF use on employment. However, findings suggest that TIF districts supporting industrial development may have a positive effect on municipal employment, whereas TIF districts supporting retail development have a negative effect on municipal employment. These results are consistent with industrial TIF districts capturing employment that would have otherwise occurred outside of the adopting municipality and retail TIF districts shifting employment within the municipality to more labor-efficient retailers within the TIF district.

While this research might be used to support a TIF district for industrial development, TIF in Wichita is primarily used for retail development. And, when thinking beyond stage one, the effect on employment — considering the entire city — is negative.

It’s hard to think beyond stage one. It requires considering not only the seen, but also the unseen, as Frederic Bastiat taught us in his famous parable of the broken window. But over and over we see how politicians at all levels of government stop thinking at stage one. This is one of the many reasons why we need to return as much decision-making as possible to the private sector, and drastically limit the powers of politicians and governments.

The odd ethics of Wichita Mayor Carl Brewer

The Wichita city council should repeal a law that the council doesn’t follow.

As he has done previously, Wichita Mayor Carl Brewer decided not to vote on a matter involving Spirit Aerosystems at the November 4, 2014 meeting of the Wichita City Council.

The mayor didn’t give a specific reason for recusing himself, but it’s probably because he was formerly an employee at Spirit. So it’s good that he did this. But if we’re going to observe ethics protocols like this — and we should — let’s go all the way. The mayor should have announced at the start of this agenda item that he had to recuse himself, and then he should have left the bench and probably also the council chambers. Instead, Brewer presided over the presentation and discussion of the item, and then stated he wouldn’t be voting. It’s a small matter, but we might as well do things right.

What is much more important — and equally difficult to understand — is this: Brewer feels he can’t vote on an item involving a company where he was an employee long ago, but he has no qualms about voting on matters that send taxpayer money to his fishing buddy, even through overpriced no-bid contracts.

Even more curious: Brewer thought it was ethical to vote to send taxpayer money to the movie theater owner who also sells his barbeque sauce.

Add this to the confusing mix of ethical judgments: The mayor feels he can’t shop for his personal automobile in Wichita because he doesn’t want to be accused of getting a “special deal,” in his words.

If someone can explain this line of reasoning by the mayor and/or the city, I’d appreciate being enlightened.

It’s good to know that Mayor Carl Brewer is concerned about ethical behavior when shopping for a car or voting on matters concerning his former employer. But I’m surprised, as this concern for virtue doesn’t match the behavior of the mayor and many members of the Wichita City Council. Shall we run down the list?

Exhibit 1: In August 2011 the Wichita City Council voted to award Key Construction a no-bid contract to build the parking garage that is part of the Ambassador Hotel project, now known as Block One. The no-bid cost of the garage was to be $6 million, according to a letter of intent. Later the city decided to place the contract for competitive bid. Key Construction won the bidding, but for a price $1.3 million less.

Wichita mayor Carl Brewer with major campaign donor Dave Wells of Key Construction.

The no-bid contract for the garage was just one of many subsidies and grants given to Key Construction and Dave Burk as part of the Ambassador Hotel project. Both of these parties are heavy campaign contributors to nearly all city council members. Brewer and the head of Key Construction are apparently friends, embarking on fishing expeditions.

What citizens need to know is that Brewer and the Wichita City Council were willing to spend an extra $1.3 million of taxpayer money to reward a politically-connected construction firm that makes heavy campaign contributions to council members. Only one council member, Michael O’Donnell, voted against this no-bid contract. At the time, no city bureaucrats expressed concern about this waste of taxpayer money.

Exhibit 2: In July 2012 Brewer participated in a decision to award the large contract for the construction of the new Wichita airport to Key Construction, despite the fact that Key was not the low bidder. The council was tasked to act in a quasi-judicial manner, to make decisions whether discretion was abused or whether laws were improperly applied. Brewer’s judgment was in favor of Key Construction, even though its bid had the same defect as the lower bid. This decision cost taxpayers and airport users an extra $2 million, to the benefit of a major campaign donor and fishing buddy.

Exhibit 3: In a Wichita Eagle story that reported on “city-financed downtown parking garages that spiraled well over budget” we learned this: “The most recent, the 2008 WaterWalk Place garage built by Key Construction, an original partner in the WaterWalk project, came in $1.5 million over budget at almost $8.5 million. That’s the biggest parking garage miss, according to figures from the city’s office of urban development, although the 2004 Old Town Cinema garage built by Key Construction came in almost $1 million over budget at $5.225 million.”

Despite this personal experience, Brewer wrote a letter recommending Key Construction (and only Key), observing “Key is known for their consistent quality construction, budget control and on schedule delivery.”

Exhibit 4: In 2008 the Wichita City Council approved a no- and low-interest loan to movie theater owner Bill Warren and his partners. Reported the Wichita Eagle: “Wichita taxpayers will give up as much as $1.2 million if the City Council approves a $6 million loan to bail out the troubled Old Town Warren Theatre this week. That’s because that $6 million, which would pay off the theater’s debt and make it the only fully digital movie theater in Kansas, would otherwise be invested and draw about 3 percent interest a year.”

Warren Theater Brewer's Best 2013-07-18

Warren’s theaters and other business ventures have received other financial benefits from the city under Brewer’s leadership, too. Then — and I swear I am not making this up — when Brewer started manufacturing and selling barbeque sauce, it was sold at Warren’s theaters.

Exhibit 5: Given all this, Mayor Brewer saw it fit to praise Wells and Burk at the city council meeting on December 16, 3014. Effusively praise the two, that is. Also, Bill Warren –the owner of the movie theater that sells the mayor’s barbeque sauce — is a partner in this apartment project.

Really. All this happened.

What can we say about a mayor who is concerned about the appearance of impropriety when voting on economic development incentives for his former employer, but is not able to understand the problems with his own behavior in office?

How can a person decide he must shop for a car outside the city, but votes for overpriced no-bid contracts for campaign contributors and friends?

Why would an elected official decline to vote on a tax break to his former employer, but votes to give millions to a campaign contributor, and then sells his barbeque sauce in that person’s business?

How can someone justify participating in a quasi-judicial hearing involving his campaign contributors and friend involving a large city contract?

It’s difficult to understand or reconcile these decisions.

We have a law, maybe

Presentation by city attorney to Wichita city council, November 2013.
Presentation by city attorney to Wichita city council, November 2013.
There is a law in Wichita. There is a city code that reads “[Council members] shall refrain from making decisions involving business associates, customers, clients, friends and competitors.” Mayor Brewer voted for that law in 2008. But the former city attorney felt that council members did not need to follow that law.

When someone called attention to this law at a city council meeting when the mayor was about to award incentives to his fishing buddy, he threatened to sue the speaker. See Wichita Mayor Carl Brewer on public trust in government.

If the former city attorney’s interpretation of this law is correct and city council members do no need to follow this law, the city needs to do something. The council needs to repeal this section of the city code. There’s no need to have such a law if council members don’t have to obey. Also, someone who reads this — perhaps a business owner considering Wichita for expansion — might conclude that our city has a code of ethics that is observed by the mayor and council members and enforced by its attorneys. But giving that impression would be false.