Tag Archives: Wichita city council

Reforming economic development in Wichita

In this excerpt from WichitaLiberty.TV: Can we reform economic development in Wichita to give us the growth we need? View below, or click here to view at YouTube. Originally broadcast May 10, 2015.

Continue reading Reforming economic development in Wichita

Empowering and engaging Wichitans, or not

In this excerpt from WichitaLiberty.TV: The Wichita City Manager says “we will continue to empower and engage citizens by providing information necessary to keep them informed on the actions their government is taking on their behalf.” So what actually happens when you ask the city for data, including data that many governmental agencies make freely available? View below, or click here to view at YouTube. Originally broadcast December 13, 2015.

Property rights in Wichita: Your roof

The Wichita City Council will attempt to settle a dispute concerning whether a new roof should be allowed to have a vertical appearance rather than the horizontal appearance of the old.

1500 N. Park Place in Wichita, August 2015. From Google Maps. Click for larger version.
1500 N. Park Place in Wichita, August 2015. From Google Maps. Click for larger version.
Tomorrow the Wichita City Council will be asked to uphold a decision of the Historic Preservation Board (HPB) regarding the characteristics of a roof someone installed on their house. Here’s material from the agenda packet for the meeting:

Analysis: By a 4-0-1 vote, the HPB found the installation of the metal panel roof does encroach upon, damage and destroy the Park Place Fairview Historic District by installing a non-traditional roofing material and altering the horizontal pattern of the roof shingles which is a character-defining feature of the house. Secretary of the Interior’s Standards #2 and #3 specifically deal with the character of the building itself. There is no evidence in historic Sanborn Fire Insurance Maps, historic aerial photographs of the property, or historic building permit records that 1500 North Park Place ever had a metal panel or standing seam metal roof. There is no evidence of the property’s roof structure that this house ever had anything other than cedar shingles or composite singles. The issue is not with the metal material, it is with the metal sheet which gives a vertical appearance given to a roof that had a horizontal appearance. The design guidelines adopted by City Council for this historic district do not mention metal panel roofing material as appropriate material for this district (Section 2.12.1021.1 of the Wichita Code of Ordinances). The applicant did not provide an option to use metal shingles that would have the same appearance as the existing shingle roof.

Since the property is a contributing structure in the WRHP, the RHKP and the NRHP, the metal panel roof cannot proceed without the City Council finding that there are not any “feasible and prudent alternatives” to the metal panel roofing material. (Emphasis added.)

WichitaLiberty.TV: Wichita’s attitude towards empowering citizens, tax credits, and school choice

In this episode of WichitaLiberty.TV: The City of Wichita’s attitude towards empowering citizens, government spending through tax credits, and school choice in Kansas. View below, or click here to view on YouTube. Episode 103, broadcast December 13, 2015.

Wichita checkbook register

A records request to the City of Wichita results in data as well as insight into the city’s attitude towards empowering citizens with data.

I asked the City of Wichita for checkbook spending records and received data for 2015 through September 25, as I asked. I’ve made the data available in a visualization using Tableau Public. Click here to access the visualization. (A visual guide for using the visualization is at the end of this article.)

Analyzing this data requires a bit of local knowledge. For example, there is a vendor named “Visit Wichita” that started to receive monthly payments in March. What about payments for January and February? Those were made to a vendor named “Go Wichita,” which then changed its name to “Visit Wichita.”

Similarly, there are payments made to both “Westar Energy” and “Westar Energy — EDI.” These are the same entities, just as “Visit Wichita” and “Go Wichita” are the same entity. To the city’s credit, the matching pairs have the same vendor number, which is good. But resolving this requires a different level of analysis.

There are interesting entries. For example, the city usually sends a few hundred dollars per month to the Kansas Turnpike Authority. Then in July, the city paid $3.7 million to KTA. A quick search of city council agenda packets didn’t reveal any reason for this.

Of note, it looks like there were 474 checks issued in amounts $20 or less. Bank of America has estimated that the total cost of sending a business check ranges from $4 to $20.

The records request

Wichita spending data from 2013.
Wichita spending data from 2013.
The city supplied this data in an Excel spreadsheet, in an arrangement that can easily be analyzed in Excel or loaded into other programs. This is a step forward. Two years ago, Wichita could supply data of limited utility. What was supplied to me was data in pdf form, and as images, not text. It would be difficult to translate the image data into machine-readable text, and even more difficult to reorganize it to a useful arrangement or format for analysis.

Denver open checkbook.
Denver open checkbook.

I had to pay $24.00 to the city for this data. That’s a problem. It is by now routine for governmental agencies to post spending data like this, but not at the City of Wichita. When I inquired, city officials told me that the present financial management system “does not include many modern system features such as an ‘open checkbook.’” An “open checkbook” refers to a modern web interface where citizens can query for specific data and perhaps perform other analysis. An example is Denver’s open checkbook.

While the next-generation Wichita financial system will probably have such a feature, there’s no reason why citizens can’t experience some of the benefits now. The spreadsheet of spending data like that I paid for could easily be posted on the city’s website on a monthly basis. People like myself will take that data and make it more useful, as I did. There is no reason why this should not be happening.

When I learned of the fee for these records, I asked for a waiver, sending this to the city’s records official:

I’d like to ask for a waiver of the requested fee. I ask this because check register data is an example of records that many governmental agencies make freely available on their websites. The Wichita Public School District and Sedgwick County are two local examples.

I’d like to also call attention to the U.S. Freedom of Information Act, which allows for fee waivers in some circumstances: “…fee waivers are limited to situations in which a requester can show that the disclosure of the requested information is in the public interest because it is likely to contribute significantly to public understanding of the operations and activities of the government and is not primarily in the commercial interest of the requester.”

I suggest that the records I am requesting will indeed “contribute significantly to public understanding of the operations and activities of the government,” and that it is in the public interest of the people of Wichita that these records be freely available.

I received an answer:

Mr. Weeks,

Your request for waiver of fees is denied. KORA allows fees to be collected prior to finding and producing the document you seek. KSA 45-218(f). The extensive statute setting out how fees are to be determined, KSA 45-219, does not contain any provision for waiver in the manner you suggest.

The City will provide the document to you upon payment as invoiced.

Sincerely,
Jay C. Hinkel,
Deputy City Attorney

Mr. Hinkel is absolutely correct. Governmental agencies in Kansas have the right to charge for records, and the Kansas statutes do not mention the waiving of fees as do the federal statutes. But the Kansas Open Records Act does not require cities to charge for providing records, especially for records that the city should already be providing. Especially when citizens are willing to take that data and make it better, at no charge to the city.

Hinkel provided a lawyer’s answer. Here, however, is the public policy the city promotes, from a Wichita city news release from 2013:

“The City Council has stressed the importance of transparency for this organization,” City Manager Robert Layton said. “We’re honored to receive a Sunny Award and we will continue to empower and engage citizens by providing information necessary to keep them informed on the actions their government is taking on their behalf.”

The importance of transparency. The city wants to empower and engage citizens by providing information. Well. I offered to “contribute significantly to public understanding of the operations and activities of the government,” but had to pay to do so.

When I asked city officials for clarification of why I had to pay to receive these records, communications staff told me: “I should note that the City has won multiple awards for openness and citizen participation, but City leaders recognize this work is never done. They strive each and every day to become more open and transparent and will continue to do so.”

I must disagree. This is not “open and transparent.” This is not how to “empower and engage” the people of Wichita. Not even close.

Wichita checkbook register visualization instructions.
Wichita checkbook register visualization instructions.

WichitaLiberty.TV: Wichita outreach, city council, and entrepreneurship

In this episode of WichitaLiberty.TV: A look at Wichita community outreach and communications, rewriting city council history, and entrepreneurship. View below, or click here to view at YouTube. Episode 102, broadcast December 6, 2015.

Shownotes

Cash grants 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 $10,000.

125 N. Emporia, scheduled to receive economic development incentives.
125 N. Emporia, scheduled to receive economic development incentives. Courtesy Google.
This grant is 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?

There is perhaps an even more important question the city needs to recognize and answer, which is this: Why are incentives like this necessary? The city says that without the incentive the project is not economically feasible: “The Office of Urban Development has reviewed the economic (gap) analysis of the project and determined a financial need for incentives based on the current market.”

(In case council members make the argument that the facade improvement is not an incentive, remind them that city economic development officials disagree.)

What is it that makes this project economically unfeasible? Why is investment not possible without taxpayer assistance? These are the questions the city needs to answer before asking taxpayers to make a cash grant to this building’s owners.

Wichita to consider tax abatements

Wichita considers three tax abatements, in one case forcing an “investment” on others that it itself would not accept.

This week the Wichita City Council will consider three tax abatements to companies in the aerospace business. Two are very large companies, and one is in the small business category.

In two cases the tax abatements are implemented through industrial revenue bonds. Under this program the city is not lending money. Instead, the program is a vehicle, created by under Kansas law, for companies to avoid paying property tax. In some cases companies may also avoid paying sales tax.

In another case the property tax abatement is conveyed through the city’s Economic Development Tax Exemption (“EDX”) program, which allows the city to forgive the payment of property taxes. In many instances, the issuance of Industrial Revenue Bonds is required by law in order to achieve tax forbearance. The EDX program does away with the often meaningless issuance of bonds, and lets the city implement, in a streamlined fashion, the primary economic goal: Granting permission to skip the payment of property taxes.

The goal of the industrial revenue bonds, however, is often obscured by news media and the city itself. For example, in the agenda material for the Cessna IRBs, the city states “Bond proceeds will be utilized to finance capital investment in the Wichita facilities.”

But later in the same document, we see “The IRBs will be purchased by Cessna and will not be offered to the public.” So the IRBs — the bonds the city is authorizing — aren’t really financing anything. By buying the bonds itself, Cessna is self-financing the purchases or obtaining the funds in some other way. The IRBs are merely a device to grant tax abatements. Nothing more than that — except that the bond program obfuscates the true economic meaning of the transaction, adds costs to the applicant company, and adds cost to the city (offset to some degree by fees paid by the applicant company).

Regardless of the cost and hassle to Cessna, the program has a payoff. City documents state that Cessna could save as much as $317,357 per year in property taxes.

For the Bombardier Learjet IRBs, the city tells us that “Bond-financed purchases are also exempt from state and local sales taxes.” The amount of abated taxes is not given.

For Perfekta, an aerospace supplier, the city is using the EDX program to convey a property tax abatement, with the estimated value of the tax exemption in the first full year being approximately $110,792, according to the agenda packet.

In this case, the city did not award a 100 percent tax abatement. This is due to the city’s policy of requiring a benefit-cost ratio of 1.3 to one, although there are exceptions the city may use. In this case, the city adjusted the amount of tax abatement down until the 1.3 benchmark was achieved, as described in city documents: “To achieve the ratio of benefits to costs of at least 1.3 to 1.0 as required in the City/County Economic Development Policy, the percentage abatement should be reduced to an 89% tax exemption on a five-plus-five year basis.”

The benefit-cost ratio is calculated by the Center for Economic Development and Business Research (CEDBR) at Wichita State University based on data supplied by the applicant company and the city. The rationale behind these calculations is a matter of debate. Even if valid, calculating the ratio with such precision is folly, reminding us of the old saw “Economists use a decimal point to remind us they have a sense of humor.”

Of note, while the city wants to “earn” a 1.3 ratio of benefits to costs, it forces a lower ratio on two overlapping jurisdiction, as shown in city documents:

City of Wichita 1.34 to 1
City of Wichita General Fund 1.30 to 1
Sedgwick County 1.24 to 1
USD 259 1.17 to 1
State of Kansas 7.94 to 1

The county and school district have no choice but to accept the decision made by the city and accept a “return” lower than the city would accept for itself.

The city presents a benefit-cost ratio to illustrate that by giving up some property taxes, it gains even more tax revenue from other sources. But a positive benefit-cost ratio is not remarkable. Economic activity generally spawns more economic activity, which government then taxes. The question is: Did the city, county, school district, and state need to give up tax revenue in order to make these investments possible?

The problem with these actions

Part of the cost of these companies’ investment, along with the accompanying risk, is spread to a class of business firms that can’t afford additional cost and risk. These are young startup firms, the entrepreneurial firms that we need to nurture in order to have real and sustainable economic growth and jobs. But we can’t identify which firms will be successful. So we need an economic development strategy that creates an environment where these young entrepreneurial firms have the greatest chance to survive. The action the Wichita city council is considering this week works against entrepreneurial firms. (See Kansas economic growth policy should embrace dynamism and How to grow the Kansas economy.)

A major reason why these tax abatements are harmful to the Wichita economy is its strangling effect on entrepreneurship and young companies. As these companies and others escape paying taxes, others have to pay. This increases the burden of the cost of government on everyone else — in particular on the companies we need to nurture.

There’s plenty of evidence that entrepreneurship, in particular young business firms, are the key to economic growth. But Wichita’s economic development policies, as evidenced by this action, are definitely stacked against the entrepreneur. As Wichita props up its established industries, it makes it more difficult for young firms to thrive. Wichita relies on targeted investment in our future. Our elected officials and bureaucrats believe they have the ability to select which companies are worthy of public investment, and which are not. It’s a form of centralized planning by government that shapes the future direction of the Wichita economy.

These targeted economic development efforts fail for several reasons. First is the knowledge problem, in that government simply does not know which companies are worthy of public investment. This lack of knowledge, however, does not stop governments from creating policies for the awarding of incentives. This “active investor” approach to economic development is what has led to companies receiving grants or escaping hundreds of millions in taxes — taxes that others have to pay. That has a harmful effect on other business, both existing and those that wish to form. Young entrepreneurial companies are particularly vulnerable.

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

In the same paper, Hall writes this regarding “benchmarking” — the bidding wars for large employers: “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.'”

(For a summary of the peer-reviewed academic research that examines the local impact of targeted tax incentives from an empirical point of view, see Research on economic development incentives. A sample finding is “General fiscal policy found to be mildly effective, while targeted incentives reduced economic performance (as measured by per capita income).”)

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 for everyone is an example of such a policy. Abating taxes for specific companies through programs like the Wichita city council is considering this week is an example of precisely the wrong policy.

In explaining the importance of dynamism, Hall wrote: “Generally speaking, dynamism represents persistent, annual change in about one-third of Kansas jobs. Job creation may be a key goal of economic development policy but job creation is a residual economic outcome of business dynamism. The policy challenge centers on promoting dynamism by establishing a business environment that induces business birth and expansion without bias related to the size or type of business.”

We need to move away from economic development based on this active investor approach, especially the policies that prop up our established companies to the detriment of dynamism. 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.

Wichita water and sewer rates proposed to rise

At its Tuesday December 1, 2015 meeting the Wichita City Council is scheduled to consider new water and sewer rates. The following table from the agenda packet shows the proposed changes for different classes of customers.

Wichita Combined Monthly Water and Sewer Bills for 2016
Wichita Combined Monthly Water and Sewer Bills for 2016. Click for larger version.

For Wichita’s mayor, too many public hearings

Is the Wichita city council burdened with too many public hearings? Wichita’s mayor seems to think so.

Bob Weeks Facebook post 2015-10-20It’s not like the Wichita City Council is overburdened with citizens wanting to speak at public hearings. Sure, once in a while when the council is considering something really important like renaming the airport, many will want to speak.

But by and large, the routine business of the council is conducted with little input from the public. (This includes the dishing out of grants, tax abatements, and other favors worth millions to council members’ campaign contributors and cronies.) Many public hearings draw no speakers. For others, maybe one or two citizens will appear and offer an opinion.

Yet, it has become commonplace for the new mayor and council members to carp about the length of city council meetings.

City of Wichita Facebook post.
City of Wichita Facebook post.
This is in a city that just last week received an award for, in part, “community engagement.” Which tells us a lot about the worth and validity of these awards.

But for Wichita Mayor Jeff Longwell, too many public hearings means, well, too much community engagement. Or, maybe too much of his time wasted. He didn’t say which, but I think we know what he meant.

Oh, and the public hearing where the mayor brought up his concern about wasting time with too many public hearings? No one wanted to speak. Video below.

Wichita water optimization contract award should be reconsidered

Seeking an objective analysis of water and sewer utilities, Wichita considers a firm that has obstacles to objectivity.

This week the Wichita City Council will consider awarding a contract for “optimization” of the city’s water and sewer utilities. The firm that city staff is recommending for the contract should not be chosen.

The city says there were three criteria it used in selecting a firm: Long term or short term need, required expertise, and objectivity. Having expertise in the subject matter is, of course, important. Right after that is objectivity. But in making the case for awarding the contract to a company named CH2M Hill, the city lists a number of local projects the company was involved with. The city promotes these as “knowledge of the local situation.” Also mentioned are the local residents already working for CH2M Hill.

Having local Wichita residents as employees and having been responsible for creating some of Wichita’s water and sewer utility infrastructure are factors that work against an objective analysis. Can we imagine this company objectively analyzing the ASR project after having built or managed a substantial portion of the project?

This is vitally important, as the ASR project has been underperforming and shows little progress.

Wichita city document, excerpt.
Wichita city document, excerpt.

Wichita to consider three tax abatements

When considering whether to grant three property tax abatements, the Wichita city council is unlikely to ask this question: Why can’t these companies expand if they have to pay the same taxes everyone else pays?

This week the Wichita City Council will consider property tax abatements for three different companies.

Wichita Urban DevelopmentOne is a new request for property tax relief under the city’s Economic Development Tax Exemption (EDX) program. The company is a supplier to the aerospace industry.

The second is a request for a five-year extension of a five-year property tax abatement. The company met the goals established five years ago. This company is a supplier to the aerospace industry.

The third is another request for a five-year extension of a five-year property tax abatement. The company met the goals established five years ago. This company is a supplier to the oil and gas industry.

To justify the cost of the tax abatements, the city presents benefit-cost ratio calculations. The city requires that the ratio be at least 1.3 to one, although there are exceptions. In each of these three cases the benefit-cost ratio for the school district is less than 1.3 to one. The city, in other words, is forcing school districts to accept investments that the city itself would not make, unless it invoked an exception. The school districts have no ability to limit their participation in these tax abatements other than lobbying the city.

For all the information provided in city documents, some important questions remain unanswered. Perhaps the most important question is this: Are these tax abatements necessary for these companies to carry out their expansion plans? City documents are silent on this question.

Was it a question of feasibility? Some economic development programs require that the applicant demonstrate the necessity of an incentive. Often the city presents a “gap” analysis that purportedly shows a gap between available financing and what is necessary to make the project feasible. But these arguments were not advanced. If they had — that is, if the companies say that if they have to pay property taxes then they can’t afford to expand — then we would be stuck with this question: Why are Wichita industrial property taxes so high that investments like this are not feasible?

The city presents a benefit-cost ratio showing that by giving up some property taxes, it gains even more tax revenue from other sources. But a positive benefit-cost ratio is not remarkable. Economic activity generally spawns more economic activity, which government then taxes. The question is: Did the city, county, school district, and state need to give up tax revenue in order to make this investment possible? (That’s right. The action by the city affected three other jurisdictions.)

Part of the cost of these companies’ investment, along with the accompanying risk, is spread to a class of business firms that can’t afford additional cost and risk. These are young startup firms, the entrepreneurial firms that we need to nurture in order to have real and sustainable economic growth and jobs. But we can’t identify which firms will be successful. So we need an economic development strategy that creates an environment where these young entrepreneurial firms have the greatest chance to survive. The action the Wichita city council took this week works against entrepreneurial firms. (See Kansas economic growth policy should embrace dynamism and How to grow the Kansas economy.)

The problem with these actions

A major reason why these tax abatements are harmful to the Wichita economy is its strangling effect on entrepreneurship and young companies. As these companies and others escape paying taxes, others have to pay. This increases the burden of the cost of government on everyone else — in particular on the companies we need to nurture.

There’s plenty of evidence that entrepreneurship, in particular young business firms, are the key to economic growth. But Wichita’s economic development policies, as evidenced by this action, are definitely stacked against the entrepreneur. As Wichita props up its established industries, it makes it more difficult for young firms to thrive. Wichita relies on targeted investment in our future. Our elected officials and bureaucrats believe they have the ability to select which companies are worthy of public investment, and which are not. It’s a form of centralized planning by the state that shapes the future direction of the Wichita economy.

These targeted economic development efforts fail for several reasons. First is the knowledge problem, in that government simply does not know which companies are worthy of public investment. This lack of knowledge, however, does not stop governments from creating policies for the awarding of incentives. This “active investor” approach to economic development is what has led to companies receiving grants or escaping hundreds of millions in taxes — taxes that others have to pay. That has a harmful effect on other business, both existing and those that wish to form. Young entrepreneurial companies are particularly vulnerable.

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

In the same paper, Hall writes this regarding “benchmarking” — the bidding wars for large employers: “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.'”

(For a summary of the peer-reviewed academic research that examines the local impact of targeted tax incentives from an empirical point of view, see Research on economic development incentives. A sample finding is “General fiscal policy found to be mildly effective, while targeted incentives reduced economic performance (as measured by per capita income).”)

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 for everyone is an example of such a policy. Abating taxes for specific companies through programs like the Wichita city council used this week is an example of precisely the wrong policy.

In explaining the importance of dynamism, Hall wrote: “Generally speaking, dynamism represents persistent, annual change in about one-third of Kansas jobs. Job creation may be a key goal of economic development policy but job creation is a residual economic outcome of business dynamism. The policy challenge centers on promoting dynamism by establishing a business environment that induces business birth and expansion without bias related to the size or type of business.”

We need to move away from economic development based on this active investor approach, especially the policies that prop up our established companies to the detriment of dynamism. 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.

Campaign contribution changes in Wichita

A change to Wichita city election law is likely to have little practical effect.

Currently Wichita city code prohibits certain entities from making campaign contributions to candidates for city council and mayor: “Contributions by political committees as defined by K.S.A. 25-4143, as amended, corporations, partnerships, trusts, labor unions, business groups or other such organizations are expressly prohibited.”

The intent of this law is to limit the influence of businesses and unions on city elections. This week the Wichita City Council will consider striking this portion of city code. The contribution limit of $500 to a candidate for the primary election, and $500 again for the general election, is proposed to be retained.

The practical effect of removing the restriction on campaign contributions from corporations and other entities is likely to be minor. Here’s why.

Last year, lamenting the role of money in national elections, a Wichitan wrote in the Wichita Eagle “Locally, I understand that elections for the Wichita City Council underwent ideal, nonpartisan campaign-finance reform years ago, and that these limits are scrupulously practiced.” This view is naive and doesn’t reflect the reality of current campaign finance practice in Wichita. That is, the stacking of contributions from multiple members of interested groups. For example, a frequent practice is that a business might have several of its executives and their spouses make contributions to a candidate. Because the contributions are made by multiple people, the money is contributed within the campaign finance limitation framework. But the net effect is a lot of money going to a candidate’s campaign in order to advance the interests of the business, thereby circumventing the intent of campaign finance restrictions.

Stacked campaign contributions received by James Clendenin from parties associated with Key Construction. Click for larger version.
Stacked campaign contributions received by James Clendenin from parties associated with Key Construction. Click for larger version.
Here’s how a handful of self-interested groups stack campaign contributions.

Stacked campaign contributions to Lavonta Williams from Key Construction associates. Click for larger version.
Stacked campaign contributions to Lavonta Williams from Key Construction associates. Click for larger version.
In 2012 council members James Clendenin (district 3, southeast and south Wichita) and Lavonta Williams (district 1, northeast Wichita) were preparing to run again for their offices in spring 2013. Except for $1.57 in unitemized contributions to Clendenin, two groups of related parties accounted for all contributions received by these two incumbents for an entire year. A group associated with Key Construction gave a total of $7,000 — $4,000 to Williams, and $3,000 to Clendenin. Another group of people associated with movie theater owner Bill Warren gave $5,000, all to Clendenin.

Stacked campaign contributions to Jeff Longwell from Key Construction associates. Click for larger version.
Stacked campaign contributions to Jeff Longwell from Key Construction associates. Click for larger version.
In July 2012, as Wichita Mayor Jeff Longwell (then a city council member) was running for the Sedgwick County Commission, his campaign received a series of contributions from a Michigan construction company. Several executives and spouses contributed. At the time, Longwell was preparing to vote in a matter involving a contract that the Michigan company and its Wichita partner wanted. That partner was Key Construction, a company that actively stacks contributions to city council candidates.

Longwell has also received stacked contributions from Key Construction.

The casual observer might not detect the stacking of campaign contributions by looking at campaign finance reports. That’s because for city offices, the name of the company a contributor works for isn’t required. Industry and occupation are required, but these aren’t of much help. Further, contribution reports are not filed electronically, so the information is not easy to analyze. Some reports are even submitted using handwriting, and barely legible handwriting at that.

The campaign finance reform that Wichita really needs is quite simple. It’s called a pay-to-play law, and it can be a simple as this: “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.”

In other words, you can make contributions to candidates. You can ask the council to give you contracts and other stuff. But you can’t do both. It’s a reform we need, but our elected officials are not interested.

Raises for Wichita mayor, council proposed

This week (Tuesday November 10, 2015) the Wichita City Council will consider pay raises for the mayor and council members. City documents give the details in agenda item IV-6:

Currently, salaries for Council Members vary from $36,167 to $36,998. Had salaries been consistently adjusted each year since 2009 to reflect the CPI-U Index, all Council Members would have salaries at $38,723. The Mayor’s salary also reflects voluntary deferrals and is currently $87,712. Staff is recommending setting base salaries at $40,000 for Council Members and $90,000 for the Mayor. This would approximate the same General Pay Adjustment afforded to City Employees in 2015 and 2016.

The effect of this is pay raises ranging from 8.1 percent to 10.6 percent for council members, and 2.6 percent for the mayor.

Also:

Adjustments for City Council members’ salaries will no longer be tied to the CPI-U. This index was cumbersome for staff to implement. The amendments provide that City Council members will receive the same yearly general pay adjustment granted to exempt City employees.

The effect of the latter amendment is that the mayor and council members will receive annual pay increases without having to bother to vote to raise their salary.

WichitaLiberty.TV: Wichita’s regulations and economic development

In this episode of WichitaLiberty.TV: Do Wichita’s many laws and regulations accomplish their goals? Then, are Wichita’s economic development policies likely to work? Episode 98, broadcast October 18, 2015. View below, or click here to view in high definition at YouTube.

Entrepreneurship in Wichita

As Wichita seeks to reboot its spirit of entrepreneurship, we should make sure we do things that have a chance of working. The Kauffman Foundation has conducted research. One paper is Guidelines for Local and State Governments to Promote Entrepreneurship. In its introduction, it holds this:

In this paper, we begin with a critical overview of two of the most commonly used strategies to promote entrepreneurship: creating public venture funds and business incubators. We then explain that these strategies often neglect an essential principle: connectivity and learning by entrepreneurs. Next, we describe ways in which public venture funds and incubators can be reorganized based on the connectivity principle before concluding with several other recommendations for how cities and states can promote entrepreneurship and begin to see real results that transform economies and provide new opportunities to residents.

Kauffman also has many videos based on its research into this topic. An example is Myth-busting Entrepreneurship.

Wichita city council should have skipped this proclamation

The Wichita city council issues a proclamation for a controversial medical issue.

Do you advocate for a condition that is not a “distinct, predictably identifiable disease with a reasonable pathophysiological mechanism,” favoring a method of treatment that is not “appropriate and effective,” and your method of treatment has been repudiated by The American Academy of Ophthalmology, American Academy of Pediatrics, American Association for Pediatric Ophthalmology and Strabismus and American Association of Certified Orthoptists because it has no scientific basis? 1

If so, the Wichita City Council and Wichita Mayor Jeff Longwell may issue a proclamation for you.

City of Wichita tweet Irlen 2015-10-13

  1. Wikipedia, (2015). Scotopic sensitivity syndrome. Available at: en.wikipedia.org/wiki/Scotopic_sensitivity_syndrome Accessed 13 Oct. 2015.

Wichita cheers its planned economy

While success in growing a company is welcome in Wichita, there are broader issues that affect the rest of the metropolitan area.

Tweet from Wichita city officials
Tweet from Wichita city officials
This week the Wichita City Council extended a property tax abatement for a manufacturing company in Wichita. The tax abatement was granted under the city’s Industrial Revenue Bonds program. Under this program no city money is lent to the company. The sole reason for the bonds is the accompanying property tax exemption, and in some cases, a sales tax exemption.

City documents from 2008 estimate the company will avoid paying $239,051 in property taxes for the first year. Savings for subsequent years are probably similar. This week’s action by the city council extends this benefit for another five years.

While the city’s economic development staff cheers the company’s success, important questions are not addressed. Perhaps the most important question is this: Was this tax abatement necessary for this expansion to proceed? City documents are silent on this question. At the 2008 council meeting the necessity of the tax abatement was not mentioned or discussed.

Why were the bonds necessary? The company did not lack access to credit, as city documents state the company purchased the bonds itself. The company either had cash, or access to credit.

Was it a question of feasibility? Some economic development programs require that the applicant demonstrate the necessity of an incentive. Often the city presents a “gap” analysis that purportedly shows a gap between available financing and what is necessary to make the project feasible. Something like this.

But no such claim was made for this matter.

Perhaps this proposed expansion just barely missed being economically feasible, and if the company could avoid paying the same property taxes that most everyone else pays, the project would be feasible.

But this argument was not advanced. If it had been, then we would be stuck with the question of why are Wichita industrial property taxes so high that investments like this are not feasible?

The city presents a benefit-cost ratio showing that by giving up some property taxes, it gains even more tax revenue from other sources. But a positive benefit-cost ratio is not remarkable. Economic activity generally spawns more economic activity, which government then taxes. The question is: Did the city, county, school district, and state need to give up tax revenue in order to make this investment possible? (That’s right. The action by the city affected three other jurisdictions.)

No one made that argument.

Part of the cost of this company’s investment, along with the accompanying risk, is spread to a class of business firms that can’t afford additional cost and risk. These are young startup firms, the entrepreneurial firms that we need to nurture in order to have real and sustainable economic growth and jobs. But we can’t identify which firms will be successful. So we need an economic development strategy that creates an environment where these young entrepreneurial firms have the greatest chance to survive. The action the Wichita city council took this week works against entrepreneurial firms. (See Kansas economic growth policy should embrace dynamism and How to grow the Kansas economy.)

The problem with this action

A major reason why this action is harmful to the Wichita economy is its strangling effect on entrepreneurship and young companies. As this company and others escape paying taxes, others have to pay. This increases the burden of the cost of government on everyone else — in particular on the companies we need to nurture.

There’s plenty of evidence that entrepreneurship, in particular young business firms, are the key to economic growth. But Wichita’s economic development policies, as evidenced by this action, are definitely stacked against the entrepreneur. As Wichita props up its established industries, it makes it more difficult for young firms to thrive. Wichita relies on targeted investment in our future. Our elected officials and bureaucrats believe they have the ability to select which companies are worthy of public investment, and which are not. It’s a form of centralized planning by the state that shapes the future direction of the Wichita economy.

These targeted economic development efforts fail for several reasons. First is the knowledge problem, in that government simply does not know which companies are worthy of public investment. This lack of knowledge, however, does not stop governments from creating policies for the awarding of incentives. This “active investor” approach to economic development is what has led to companies receiving grants or escaping hundreds of millions in taxes — taxes that others have to pay. That has a harmful effect on other business, both existing and those that wish to form. Young entrepreneurial companies are particularly vulnerable.

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

In the same paper, Hall writes this regarding “benchmarking” — the bidding wars for large employers: “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.'”

(For a summary of the peer-reviewed academic research that examines the local impact of targeted tax incentives from an empirical point of view, see Research on economic development incentives. A sample finding is “General fiscal policy found to be mildly effective, while targeted incentives reduced economic performance (as measured by per capita income).”)

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 for everyone is an example of such a policy. Abating taxes for specific companies through programs like the Wichita city council used this week is an example of precisely the wrong policy.

In explaining the importance of dynamism, Hall wrote: “Generally speaking, dynamism represents persistent, annual change in about one-third of Kansas jobs. Job creation may be a key goal of economic development policy but job creation is a residual economic outcome of business dynamism. The policy challenge centers on promoting dynamism by establishing a business environment that induces business birth and expansion without bias related to the size or type of business.”

We need to move away from economic development based on this active investor approach, especially the policies that prop up our established companies to the detriment of dynamism. 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.

WichitaLiberty.TV: Lack of information sharing by government, community improvement districts, and the last episode of “Love Gov”

In this episode of WichitaLiberty.TV: Do our governmental agencies really want to share data and documents with us? Community Improvement Districts and homeowners compared. And, the last episode of “Love Gov” from the Independent Institute. View below, or click here to view in high definition at YouTube. Episode 95, broadcast September 20, 2015.

Wichita’s demolition policy

Wichita homeowners must pay for demolition of their deteriorating homes, but the owners of a long-festering and highly visible commercial property get to use tax funds for their demolition expense.

Tomorrow the Wichita City Council will consider condemnation of two houses in Wichita. In both cases the Board of Building Code Standards and Appeals recommends demolition of the buildings, at the owner’s expense.

Location of one of the houses recommended for demolition. The city's primary wastewater treatment plant is in the background.
Location of one of the houses recommended for demolition. The city’s primary wastewater treatment plant is in the background.
Action like this is common for residential property in Wichita. But we don’t often see commercial property demolished by city council action. Tomorrow’s proposed — and likely — action is in contrast with action taken a few weeks ago by the council. Then, the council allowed the owner of blighted commercial property located near the airport to collect additional sales tax from future customers in order to pay for demolition of a hotel and restaurant.

From Google Earth, a view of the restaurant and hotel on the subject property. If a house this blighted had been owned by a poor inner-city resident, the city would have long ago condemned and demolished the buildings, at the homeowner's expense.
From Google Earth, a view of the blighted restaurant and hotel on the property near the airport. If a house this blighted had been owned by a poor inner-city resident, the city would have long ago condemned and demolished the buildings, at the homeowner’s expense.
As reported in the Wichita Eagle, the restaurant had been vacant for about a decade. Supporters, say the newspaper, refer to the property as “blighted.” The council member that represents the area says it is “dilapidated” and “vacant for a long time.” It was described as contributing to an unsightly first impression of the city.

So why is the city likely to demolish two obscure houses while it let a long-time blighted commercial property languish in a highly visible location?

And why does the city charge homeowners for demolition, but allows a commercial property owner to pay for its demolition with tax money?