Tag Archives: Wichita city council

In Wichita, open records relief may be on the way

A new law in Kansas may provide opportunities for better enforcement of the Kansas Open Records Act.

This year the Kansas Legislature passed HB 2256, captioned as “An act concerning public bodies or agencies; relating to the state of Kansas and local units of government; providing certain powers to the attorney general for investigation of violations of the open records act and the open meetings act; attorney general’s open government fund …”

The good part of this law is that it provides additional enforcement options when citizens feel that government agencies are not complying with the Kansas Open Records Law. Before this law, citizens and news organizations had — effectively — two paths for seeking enforcement of KORA. One is private legal action at their own expense. The other is asking the local district attorney for an opinion.

Now the Kansas Attorney General may intervene, as noted in the summary of the new law: “The bill allows the Attorney General to determine, by a preponderance of the evidence after investigation, that a public agency has violated KORA or KOMA, and allows the Attorney General to enter into a consent order with the public agency or issue a finding of violation to the public agency prior to filing an action in district court.”

Not all aspects of this bill are positive, as it also confirms many exceptions to the records act and adds to them. It also adds to the authority of the Attorney General, as have other bills this year.

The City of Wichita has been obstinate in its insistence that the Kansas Open Records Act does not require it to fulfill certain requests for records of spending by its subordinate tax-funded agencies. The city believes that certain exceptions apply and allow the city to keep secret records of the spending of tax funds. The city may be correct in its interpretation of this law.

But the law — even if the city’s interpretation is correct — does not prohibit the city from releasing the records. The city could release the records, if it wanted to.

Fulfilling the legitimate records requests made by myself and others would go a long way towards keeping promises the city and its officials make, even recent promises.

The city’s official page for the mayor holds this: “Mayor Longwell has championed many issues related to improving the community including government accountability, accessibility and transparency …”

During the recent mayoral campaign, Longwell told the Wichita Eagle that he wants taxpayers to know where their money goes: “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.”

In a column in the Wichita Business Journal, Wichita Mayor Jeff Longwell wrote: “First off, we want City Hall to be open and transparent to everyone in the community.”

Following, from 2012, discussion of problems with the City of Wichita and open government.

Wichita, again, fails at open government

The Wichita City Council, when presented with an opportunity to increase the ability of citizens to observe the workings of the government they pay for, decided against the cause of open government, preferring to keep the spending of taxpayer money a secret.

The occasion was consideration of renewing its contract with Go Wichita Convention and Visitors Bureau. I asked, as I have in the past for this agency and also for Wichita Downtown Development Corporation and Greater Wichita Economic Development Coalition, that they consider themselves to be what they are: public agencies as defined in the Kansas Open Records Act.

In the past I’ve argued that Go Wichita is a public agency as defined in the Kansas Open Records Act. But the city disagreed. And astonishingly, the Sedgwick County District Attorney agrees with the city’s interpretation of the law.

So I asked that we put aside the law for now, and instead talk about good public policy. Let’s recognize that even if the law does not require Go Wichita, WDDC, and GWEDC to disclose records, the law does not prohibit them from fulfilling records requests.

Once we understand this, we’re left with these questions:

Why does Go Wichita, an agency funded almost totally by tax revenue, want to keep secret how it spends that money, over $2 million per year?

Why is this city council satisfied with this lack of disclosure of how taxpayer funds are spent?

Why isn’t Go Wichita’s check register readily available online, as it is for Sedgwick County?

For that matter, why isn’t Wichita’s check register online?

It would be a simple matter for the council to declare that the city and its taxpayer-funded partner agencies believe in open government. All the city has to have is the will to do this. It takes nothing more.

Only Wichita City Council Member Michael O’Donnell (district 4, south and southwest Wichita) gets it, and yesterday was his last meeting as a member of the council. No other council members would speak up in favor of citizens’ right to open government.

But it’s much worse than a simple failure to recognize the importance of open government. Now we have additional confirmation of what we already suspected: Many members of the Wichita City Council are openly hostile towards citizens’ right to know.

In his remarks, Wichita City Council Member Pete Meitzner (district 2, east Wichita) apologized to the Go Wichita President that she had become “a pawn in the policy game.” He said it was “incredibly unfair that you get drawn into something like this.”

He added that this is a matter for the Attorney General and the District Attorney, and that not being a lawyer, she shouldn’t be expected to understand these issues. He repeated the pawn theme, saying “Unfortunately there are occasions where some people want to use great people like yourself and [Wichita Downtown Development Corporation President] Jeff Fluhr as pawns in a very tumultuous environment. Please don’t be deterred by that.”

Mayor Brewer added “I would have to say Pete pretty much said it all.”

We’ve learned that city council members rely on — as Randy Brown told the council last year — facile legal reasoning to avoid oversight: “It may not be the obligation of the City of Wichita to enforce the Kansas Open Records Act legally, but certainly morally you guys have that obligation. To keep something cloudy when it should be transparent I think is foolishness on the part of any public body, and a slap in the face of the citizens of Kansas. By every definition that we’ve discovered, organizations such as Go Wichita are subject to the Kansas Open Records Act.”

But by framing open government as a legal issue — one that only lawyers can understand and decide — Wichita city government attempts to avoid criticism for their attitude towards citizens.

It’s especially absurd for this reason: Even if we accept the city’s legal position that the city and its quasi-governmental taxpayer-funded are not required to fulfill records request, there’s nothing preventing from doing that — if they wanted to.

In some ways, I understand the mayor, council members, and bureaucrats. Who wants to operate under increased oversight?

What I don’t understand is the Wichita news media’s lack of interest in this matter. Representatives of all major outlets were present at the meeting.

I also don’t understand what Council Member Lavonta Williams (district 1, northeast Wichita) suggested I do: “schmooze” with staff before asking for records. (That’s not my word, but a characterization of Williams’ suggestion made by another observer.)

I and others who have made records requests of these quasi-governmental taxpayer-funded organizations have alleged no wrongdoing by them. But at some point, citizens will be justified in wondering whether there is something that needs to be kept secret.

The actions of this city have been noticed by the Kansas Legislature. The city’s refusal to ask its tax-funded partners to recognize they are public agencies as defined in the Kansas Open Records Act is the impetus for corrective legislation that may be considered this year.

Don’t let this new law be known as the “Wichita law.” Let’s not make Wichita an example for government secrecy over citizens’ right to know.

Unfortunately, that bad example has already been set, led by the city’s mayor and city council.

How to turn $399,000 into $65,000 in downtown Wichita

Once embraced by Wichita officials as heroes, real estate listings for two floors of a downtown Wichita office building illustrate the carnage left behind by two developers.

Broadway Plaza Building, Wichita, KSA decade ago the “Minnesota Guys” were the darlings of downtown Wichita. With a controversial form of real estate ownership — tenancy in common — they promised to revive downtown Wichita. City officials and civic leaders praised them. The city council found them so endearing that it awarded the Minnesota Guys over $10 million in tax increment financing — later increased at their request — although the developers were never able to tap into those funds. Now the two developers are facing numerous felony charges relating to securities violations.

This week the Wichita Business Journal reports that two floors of a prominent downtown office building are for sale at very low prices. The building is Broadway Plaza at 105 S. Broadway.

In 2007 the fourth floor of this building had an appraised value of $388,000, according to Sedgwick County records. The value fell to $210,900 the next year and stayed at that value for five years. Now the appraised value is $98,000.

The value of the eleventh floor followed a similar trajectory, being valued at $399,000 in 2007, falling to $160,100 for four years, and now appraised at $82,300.

Now the asking price for each floor is $65,000. At attempt at sale at auction earlier this year failed to produce any bids. The asking price represents a cost of about $13 per square foot. That’s less than the annual rent for class A office space in Wichita, downtown and suburban.

In 2011 I reported on how some downtown Wichita properties are plummeting in value:

A strategy of Real Development — the “Minnesota Guys” — in Wichita has been to develop and sell floors of downtown office buildings as condominiums. Some of these floors have been foreclosed upon and have come back on the market. Some once carried mortgages of $400,000 or more, meaning that at one point a bank thought they were worth at least that much. But now four floors in the Broadway Plaza Building, three floors of the Petroleum Building, two floors of Sutton Place, and one floor of the Orpheum Office Center are available for sale at prices not much over $100,000, ranging from $14 to $25 per square foot. Other downtown office buildings — very plain properties — are listed at much higher prices. For example, one downtown property is listed at $82 per square foot. … Some of these floors have had declining appraisals. According to the Sedgwick County Treasurer, the fifth floor of Sutton Place, which is listed for sale at $135,000, was appraised in 2008 for $530,900. In 2009 the appraised value dropped to $215,000.

Cash incentives in Wichita still in use

Wichita is moving away from the use of cash incentives for economic development, except for this.

We’ve been told that the city is not going to use cash incentives for economic development. But an item the Wichita City Council will consider this week includes a cash grant of $30,000. It follows a similar project the council considered two weeks ago that included a grant of $10,000.

The building at 100 S. Market as it appeared in 2009. This building is slated to receive a grant of $30,000 to improve its exterior.
The building at 100 S. Market as it appeared in 2009. This building is slated to receive a grant of $30,000 to improve its exterior.
These grants are part of the city’s facade improvement program. Under it, properties in certain parts of the city can apply to use special assessment financing to pay for the improvement of their outside appearance. The city borrows the funds and advances them to the property owner. The bonds are repaid through special assessment taxes that are added to the property’s tax bill.

This process is similar to the way the city finances improvements such as street, water, and sewer infrastructure in new neighborhoods or commercial developments. Except: The infrastructure in new development becomes the property of the city. For a facade improvement project, the improvements remain private property.

Are facade improvement cash grants an exception to the new era of economic development in Wichita? Or when will we start implementing these new policies? Some might say that the grants are not for the purposes of economic development. If not, then how does the city justify these grants?

With tax exemptions, what message does Wichita send 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. From June 2014.

Tomorrow the Wichita City Council considers whether to grant property and sales tax exemptions to a proposed speculative industrial building in north central Wichita. If approved, this will be the second project undertaken under new economic development policies that allow for this type of tax exemption.

Those with tax abatementsCity documents estimate that the property tax savings for the first year will be $312,055. This exemption will be granted for five years, with a second five year period possible if performance goals are met.

The city documents also state that the project will also apply for a sales tax exemption, but no estimate of these tax savings are given. It’s common for a project of this type to have about half its cost in purchases subject to sales tax. With “site work and building” at $10,350,000, sales tax in Wichita on half that amount is $370,012. Undoubtedly a rough estimate, it nonetheless gives an idea of how much sales tax the developers will avoid paying.

(If city hall has its way, the sales tax in Wichita will soon increase by one cent per dollar, meaning the developers of this project would save $421,762 in sales tax. While others will hurry to make purchases before the higher sales tax rate takes effect — if it does — these developers will be in no hurry. Their sales tax is locked in at zero percent. In fact, once having a sales tax or property tax exemption, these developers are now in a position to root for higher sales and property tax rates, as that increases costs for their competitors, thereby giving these tax-exempt developers a competitive advantage.)

City documents give the benefit-cost ratios for the city and overlapping jurisdictions:

City of Wichita General Fund 1.30 to one
Sedgwick County 1.18 to one
USD 259 1.00 to one
State of Kansas 12.11 to one

It’s not known whether these ratios include the sales tax forgiveness.

Wichita City Budget Cover, 1992While the City of Wichita insists that projects show a benefit-cost ratio of 1.3 to one or better (although there are many exceptions), it doesn’t apply that standard for overlapping jurisdictions. Here, Sedgwick County experiences a benefit-cost ratio of 1.18 to one, and the Wichita school district (USD 259) 1.00 to one. These two governmental bodies have no input on the decision the city is making on their behalf. The school district’s share of the forgiven taxes is 47.4 percent.

When the city granted a similar tax exemption to a speculative warehouse in southwest Wichita, my estimates were that its landlord has a cost advantage of about 20 percent over other property owners. Existing industrial landlords in Wichita — especially those with available space to rent and those who may lose tenants to this new building — 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 property taxes

Property taxes in Wichita are high for industrial buildings, and even higher for commercial buildings. See Wichita property taxes compared. So it’s difficult to blame developers for seeking relief. But instead of offering tax relief to those who ask and to those city hall approves of, it would be better to have lower taxes for everyone.

Targeted economic development incentives

The targeted economic development efforts of governments like Wichita fail for several reasons. First is the knowledge problem, in that government simply does not know which companies are worthy of public investment. In the case of the Wichita, do we really know which industries should be targeted? Is 1.3 to one really the benchmark we should seek, or would we be better off by insisting on 1.4 to one? Or should we relax the requirement to 1.2 to one so that more projects might qualify?

This assumes that these benefit-costs ratios have validity. This is far from certain, as follows:

1. The benefits that government claims are not really benefits. Instead, they’re in the form of higher tax revenue. This is very different from the profits companies earn in voluntary market transactions.

2. Government 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.

3. Why is it that most companies are able to grow without incentives, but only a few companies require incentives? What is special about these companies?

4. If the relatively small investment the city makes in incentives is solely responsible for such wonderful outcomes in terms of jobs, why doesn’t the city do this more often? If the city has such power to create economic growth, why is anyone unemployed?

Do incentives work?

The uncontroverted peer-reviewed research tells us that targeted economic development incentives don’t work, if we consider the entire economy. See: Research on economic development incentives. Some of the conclusions of the studies listed there include:

No evidence of incentive impact on manufacturing value-added or unemployment”

Small reduction in employment by businesses which received Ohio’s tax incentives”

No evidence of large firm impacts on local economy”

No permanent employment increase across a quasi-experimental panel of all Cabela’s stores”

“Employment impact of large firms is less than gross job creation (by about 70%)”

These research programs illustrate the fallacy of the seen and the unseen. It is easy to see the jobs being created by economic development incentives. It’s undeniable that jobs are created at firms that receive incentives, at least most of the time. But these jobs are easy to see. It’s easy for news reporters to find the newly-hired and grateful workers, or to show video footage of a new manufacturing plant.

But it’s very difficult to find specific instances of the harm that government intervention produces. It is, generally, dispersed. People who lose their jobs usually don’t know the root cause of why they are now unemployed. Businesses whose sales decline often can’t figure out why.

But evidence tells us this is true: These incentives, along with other forms of government interventionism, do more harm than good.

WichitaLiberty.TV: Arts funding, property taxes, uninformed officials, tax increment financing, and social security

In this episode of WichitaLiberty.TV: Is Wichita risking a Soviet-style future? A look at Wichita property taxes, uninformed and misinformed elected officials, tax increment financing, and social security. View below, or click here to view on YouTube. Episode 86, broadcast June 7, 2015.

In Wichita, campaigning for a tax, then asking for exemption from paying

Having contributed $5,000 to persuade Wichita voters to raise the sales tax, a company now seeks exemption from paying any sales tax.

This week the Wichita City Council will consider an economic development incentive for Foley Industries, Inc. The company is asking to be relieved from paying nearly all property taxes on a proposed expansion, and also asks to avoid sales taxes on purchases related to the expansion.

The action the council will consider is a “letter of intent,” not the actual granting of the incentive. In practice, these letters are as good as having the actual ordinance in hand. Specifically, Foley asks for industrial revenue bonds, which carry a property tax exemption. (The city is not lending any money and has no responsibility to repay the bonds. In fact, Foley itself will purchase the bonds, according to city documents. The bonds are simply a mechanism for receiving tax exemptions.)

In this case, the city has decided Foley qualifies for a 95.5 percent five-year tax exemption on the IRB-financed real property improvements. After five years, the council may approve an additional five years if Foley meets employment targets. Details of the tax forgiveness are at the end of this article.

Foley is also applying for an exemption from paying sales tax on purchases related to the expansion. No dollar amount is given for the value of this. It could easily be worth over a million dollars.

Contribution by Foley Industries to Yes Wichita, the group that campaigned for a Wichita sales tax.
Contribution by Foley Industries to Yes Wichita, the group that campaigned for a Wichita sales tax.
Of note, Foley contributed $5,000 to the “Yes Wichita” group that campaigned in favor of a one cent per dollar sales tax last year. Now, it asks to avoid paying all sales tax.

Also, city policy is that incentives must have a benefit-cost ratio of 1.3 to one or greater, although there are many loopholes the city can use to grant incentives if this benchmark is not met. For the city, this benchmark is met, just barely. For Sedgwick County the ratio is 1.27 to one, and for the Wichita school district, the ratio is 1.05 to one, barely in positive territory. These two local jurisdictions might ask the city why it forces an incentive on them that violates the city’s own policy. The ratio for the school district is especially relevant, as 46 percent of the taxes that will be abated would go to it.

City documents indicate the expansion will allow Foley to add 12 employees over a five year period and retain 153 positions. This is an example of the city using incentives primarily to retain jobs. (Foley has dangled the threat of building its expanded facility in another city.)

It’s likely that Foley has applied to the Kansas Department of Commerce for benefits from programs such as PEAK (or Promoting Employment Across Kansas), HPIP, and others. Inquiry to the department produced this response: “As the Department does not have signed contracts with Foley Industries, we cannot share information about potential incentives.”

This request for property and sales tax relief reveals a 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.

Civic leaders say that our economic development policies must be reformed. In particular, 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 2

Tax exemptions like this also disrupt the theory of taxation. We’ve often told by civic leaders that we pay taxes in order to receive all the wonderful service the city provides. It’s like paying club dues, they say, or the price of a civilized society. But when someone doesn’t pay, but continues to receive services, is it because they don’t like the services the city provides? Or doesn’t the company like being in the club?

Details

City documents say that the estimated tax value of exempted property for the first full year of the fully completed project would be $448,334, distributed as follows:

City of Wichita: $124,731
Sedgwick County: $112,606
State of Kansas: $5,730
USD 259: $205,267

The benefit-cost ratios are as follows:

City of Wichita General Fund 1.30 to one
City of Wichita Debt Service Fund 1.74 to one
Sedgwick County 1.27 to one
USD 259 1.05 to one
State of Kansas 9.07 to one

  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/
  2. The Continuing Saga of Non-Taxable Grants, Incentives, and Inducements. Americanbar.org,. 2015. http://www.americanbar.org/content/dam/aba/events/taxation/taxiq-fall11-breaks-saga-slides.authcheckdam.pdf.

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.

Wichita city council candidates

Voice for Liberty Radio 150x150On March 31, 2015 Coalition for a Better Wichita held a candidate forum for candidates for Wichita city council districts 4 and 5. For district 4 the candidates are Jeff Blubaugh and Josh Shorter. Blubaugh was unable to attend. For district 5, the candidates are Gary Bond and Bryan Frye. Jennifer Baysinger was the moderator. Mason Baysinger was the timer.

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.