Those seeking favors from Wichita City Hall use campaign contribution stacking to bypass contribution limits. This has paid off handsomely for them, and has harmed everyone else.
Not long ago a person who is politically active wrote a letter that was published in the Wichita Eagle. It criticized the role of campaign contributions in federal elections, noting “Corporations don’t spend money on politics because they are patriotic; rather, the companies expect a financial return.” Later the letter held this: “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.”
The writer is correct, but only superficially. Our campaign contribution limits for city and school board offices are relatively small. What we find, however, is that the cronies, that is, the people who want stuff from city hall, stack contributions using family members and employees.
Here’s how a handful of cronies stack campaign contributions. 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.
The casual observer wouldn’t realize this 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.
So it’s not easy to analyze campaign contributions for Wichita city offices. It takes a bit of effort to unpack the stacking. You have to see a name and investigate who that person is. When you do that, you might find that a man from Valley Center who list his occupation and industry as Manager and Aviation Subcontractor is married to someone who lists her occupation and industry as Director of Marketing. Investigating her reveals that she is an executive of Key Construction.
That company, Key Construction, is a prominent company in Wichita. It is an example of a company that seeks to earn outsized profits through the political system rather than by meeting customer needs in the market. Profits through cronyism, that is. Here’s an example. In August 2011 the Wichita city council voted to award Key Construction a no-bid contract to build the parking garage that is part of the Ambassador Hotel project, now known as Block One. The no-bid cost of the garage was to be $6 million, according to a letter of intent. Later the city decided to place the contract for competitive bid. Key Construction won the bidding, but for a price $1.3 million less.
Let me make sure you understand that. Mayor Carl Brewer, Lavonta Williams, and James Clendenin were willing to spend an extra $1.3 million of your tax money to reward their benefactors through a no-bid contract. Since then reforms have been implemented to prevent this. Hopefully the reforms will work. I am skeptical.
In 2012 there was another incident involving Key Construction that show the need for campaign finance reform. Key and another construction company were engaged in a dispute as to who should build the new Wichita airport. The city council was tasked to act in a quasi-judicial manner to decide the issue. Given all the campaign contributions Key was making at the time, and given the mayor’s well-known friendship with Dave Wells of Key Construction, can you guess who was awarded the contract? And can you guess whose contract was more expensive for taxpayers?
So back to the letter in the newspaper, which held: “Corporations don’t spend money on politics because they are patriotic; rather, the companies expect a financial return.” I’m not going to defend cronyism at the federal level. It exists and it is harmful. But I would like to let the writer of the letter know that cronyism also exists in Wichita city government. In fact, it may be worse in Wichita. At the federal level, Congress usually passes laws that benefit an entire industry — say the sugar industry or banks — to the detriment of consumers and taxpayers. (Sometimes the benefits are quite specific. American Enterprise Institute reports that the just-passed omnibus bill contains a section that provides protection from an Obamacare provision for exactly one entity: Blue Cross Blue Shield. Conservative writer Yuval Levin explained: “This section is, simply put, a special favor for Blue Cross/Blue Shield allowing them to count ‘quality improvement’ spending as part of the medical loss ratio calculation required of them under Obamacare. And it’s made retroactive for four years, saving them loads of money.”)
That’s bad enough. Here in Wichita, however, the cronyism is more concentrated and personal. The links between campaign contributions and handouts from city hall is much more direct. We should insist that the city council stop picking the pocket of your fellow man so it can give the proceeds to campaign contributors. Campaign finance reform can help.
The City of Wichita gives little notice regarding a public hearing, which does not contribute to an open and transparent government that welcomes citizen involvement.
As part of its meeting on December 16, the Wichita City Council will consider issuing a letter of intent for industrial revenue bonds. Whether the bonds are a good or bad idea, the process the city has used in conducting the required public hearing is not contributing to an open and transparent government that welcomes citizen involvement.
Kansas law requires that when cities or counties wish to issue industrial revenue bonds, there must be a public hearing (K.S.A. 12-1749d). Notice must be given.
The archives of The Wichita Eagle show that a legal publication was placed by the city on December 9 that gave notice of the December 16 item. But this notice, like most other legal notices, does not appear on the city’s website — a place where it would be much more useful. The city’s website is also where the city could make the notices available to citizens at very low cost to the city. The city’s website content is also available at no cost to citizens who already have internet access, unlike a subscription to The Wichita Eagle, although the Eagle advertisements are available to view without a subscription.
Here’s the problem that citizens face regarding the item on the December 16 agenda. For most people, the first awareness of this agenda item would have been on Friday December 12 at 2:33 pm. That’s when the agenda packet for this meeting was posted to the city’s website. If anyone had questions about the item, there is little time to resolve them between Friday afternoon and Tuesday morning. Of course, citizens could have inquired for details of the agenda item starting on December 9, when notice was published. But that would require inquiry to city officials, and it is not known if details were available at that time.
This is no way to hold a public hearing.
The city goes to great lengths to invite and solicit citizen involvement in city government. In the run-up to the recent sales tax election, the city continually reminded us of how many public meetings were held, how many surveys were filled out, and how we must come together as a community to solve our problems.
After the election Mayor Brewer started a press conference by, according to his published remarks, “thanking everyone who voted, participated in the community engagement process and took the time to learn about the sales tax proposal.” He also mentioned that the city would “expand and enhance our engagement process.”
But that’s not the case with this item. The notice that the city gave to citizens is deficient. Not legally deficient, but deficient if the city really wants citizens to be involved.
If the city is concerned about citizen involvement, the council should defer this item until next week or another future meeting.
A request to modify an agreement with the City of Wichita raises the question of why, finally, is the city dealing with an apparent oversight?
As I reported earlier this year:
Last year the Wichita City Council selected a development team to build apartments on the West Bank of the Arkansas River, between Douglas Avenue and Second Street. But city leaders may have overlooked a Wichita City Charter Ordinance that sets aside this land to be “open space, committed to use for the purpose of public recreation and enjoyment.”
This week the developers of the apartments seek city council approval of revisions to their plans. As part of the revision, city staff recommends that council approve a resolution that eliminates the restrictions on land use contained in Charter Ordinance No. 144. That ordinance provides that by a two-thirds vote of the council the restrictions may be reduced or eliminated.
A few questions come to mind.
First, Charter Ordinance No. 144, which the council may override, says that the property being used for the apartments “shall be hereafter restricted to and maintained as open space, committed to use for the purpose of public recreation and enjoyment.” Now that the council has turned over the property for private use, we may want to ask: Is this good public policy? The council will have to explicitly decide this issue. When the city conveyed the property without dealing with this ordinance, the issue was not discussed.
Second: Why only now is Charter Ordinance No. 144 and its restrictions being recognized? Why was this ordinance not recognized in August 2013 when the apartment project was approved by the city council? Part of the answer may be that the Wichita city attorney at that time has retired.
Third: If not for the request to modify the agreement would the conflict with Charter Ordinance No. 144 have been recognized? Would it have simply been ignored as an inconvenient rule that doesn’t really need to be followed, as it has been ignored for over one year?
These agencies spend considerable sums of tax money. This week the city will consider funding Go Wichita with a budget of $2,356,851 for 2015. That is not all the taxpayer money this agency will spend, as earlier this year the council voted to increase the city’s hotel tax by 2.75 cents per dollar, with the proceeds going to Go Wichita. City documents indicate that tax is estimated to generate $2.3 million per year.
That is a lot of tax money, and also a high proportion of the agency’s total funding. According to the 2012 IRS form 990 for Go Wichita, the organization had total revenue of $2,609,545. Of that, $2,270,288 was tax money from the city. That’s 87 percent taxpayer-funded. When the surge of higher hotel tax money starts flowing in, that percent will undoubtedly rise, perhaps to 93 percent or more.
Despite being nearly totally funded by taxes, Go Wichita refuses to supply spending records. Many believe that the Kansas Open Records Act requires that it comply with such requests. If the same money was being spent directly by the city, the records undoubtedly would be supplied.
The lack of transparency at Go Wichita is more problematic than this. Earlier this year Go Wichita refused to provide to me its contract with a California firm retained to help with the re-branding of Wichita. When the Wichita Eagle later asked for the contract, it too was refused. If the city had entered into such a contract, it would be a public record. Contracts like this are published each week in the agenda packet for city council meetings. But Go Wichita feels it does not have to comply with simple transparency principles.
The City of Wichita could easily place conditions on the money it gives to these groups, requiring them to show taxpayers how their tax dollars are being spent. But the City does not do this. This is not transparency.
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 agreed with the city’s interpretation of the law.
So let’s talk about good public policy. Let’s recognize that even it is the case that the Kansas Open Records Act does not require Go Wichita, WDDC, and GWEDC to disclose records, the law does not prohibit or prevent them from fulfilling requests for the types of records I’ve asked for. Even if the Sedgwick County District Attorney says that Go Wichita is not required to release documents, the law does not prevent the release of these records.
Once we understand this, we’re left with these questions:
Why does Go Wichita want to keep secret how it spends taxpayer money, as much as $4.6 million next year?
Why is this city council satisfied with this lack of disclosure of how taxpayer funds are spent? Many council members have spoken of how transparency is important. One said: “We must continue to be responsive to you. Building on our belief that government at all levels belongs to the people. We must continue our efforts that expand citizen engagement. … And we must provide transparency in all that we do.” That was Mayor Brewer speaking in his 2011 State of the City address.
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. It costs the city and its agencies nothing, because the open records law lets government charge for filling records requests. I would ask, however, that in the spirit of open transparent government, in respect for citizens’ right to know how tax funds are spent, and as a way to atone for past misdeeds, that Go Wichita fulfill records requests at no charge.
Actions of the Wichita City Council have shown that campaign finance reform is needed. Citizen groups are investigating how to accomplish this needed reform, since the council has not shown interest in reforming itself.
Consider recent actions by the council and its members:
A minister dabbling in real estate development made a large contribution to his council representative just before he asked the city council for tax increment financing.
The council voted to give a construction company a no-bid contract for a parking garage. When later put out for competitive bid, the same company won the contract, but with a bid 21 percent less costly to taxpayers.
When a group of frequent campaign contributors wanted to win a contest for the right to build an apartment project, the city’s reference-checking process was a sham. City and other government officials were listed as references without their knowledge or consent, and none of the people listed as references were actually contacted.
A frequent campaign contributor, according to the Wichita Eagle, “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.” City officials expressed varying degrees of displeasure. But it wasn’t long before David Burk was receiving taxpayer subsidy again from the city council.
The council voted to grant $703,017 in sales tax forgiveness to frequent campaign contributors and the mayor’s fishing buddy.
What is the common thread running through these incidents? Council members have voted to enrich their significant campaign contributors. Each of these are examples of a “pay-to-play” environment created at Wichita City Hall. It’s harmful to our city in a number of ways.
First, overpriced no-bid contracts and other giveaways to campaign contributors isn’t economic development. It’s cronyism. It’s wasteful.
Second: Citizens become cynical when they feel there is a group of insiders who get whatever they want from city hall at the expense of taxpayers. At one time newspaper editorial pages crusaded against cronyism like this. But no longer in Wichita. The Wichita Eagle has reported on some of these issues — sometimes in depth, sometimes in passing, but some have escaped notice. The editorial page of the newspaper sometimes takes notice, but is rarely critical of the council or mayor.
Third, when it is apparent that a “pay-to-play” environment exists at Wichita City Hall, it creates a toxic and corrosive political and business environment. Companies are reluctant to expand into areas where they don’t have confidence in the integrity of local government. Will I find my company bidding against a company that made bigger campaign contributions than I did? If I don’t make the right campaign contributions, will I get my zoning approved? Will my building permits be slow-walked through the approval process? Will my projects face unwarranted and harsh inspections? Will my bids be subjected to microscopic scrutiny?
We need laws to prohibit Wichita city council members from voting on or advocating for decisions that enrich their significant campaign contributors. A model law for Wichita 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.”
We’d also need to add — as does New Jersey law — provisions that contributions from a business owner’s spouse and children will be deemed to be from the business itself. This is because for Kansas municipal and school district elections, only personal contributions may be made. Additionally the contributions of principals, partners, officers, and directors, and their spouses and children, are considered to be from the business itself for purposes of the law. These provisions are important, as many city council members in Wichita receive campaign contributions from business owners’ family members and employees as a way to skirt our relatively small contribution limits. For two examples of how companies use family members, employees, and friends to stack up campaign contributions, see Campaign contributions show need for reform in Wichita.
Such campaign finance reform would not prohibit anyone from donating as much as they want (up to the current limits) to any candidate. Nor would the law prevent candidates from accepting campaign contributions from anyone.
This reform, however, would remove the linkage between significant contributions and voting to give money to the contributor. This would be a big step forward for Wichita, its government, and its citizens.
Proponents see three paths towards campaign finance reform. One would be to press for a law in the upcoming session of the Kansas Legislature. Such a law would be statewide in scope, and could apply to city councils, county commissions, school boards, townships, and other elective bodies.
A second path would be to use the municipal initiative process. Under this process, a group writes a proposed ordinance. Then, it collects valid signatures on petitions. If a successful petition is verified, the city council must either (a) pass the ordinance as written, or (b) set an election to let the people vote whether the ordinance should become law.
There is also a third path, which is for the Wichita City Council to recognize the desirability of campaign finance reform and pass such an ordinance on its own initiative.
If we take the affected parties at their word, this third path should face little resistance. That’s because politicians who accept these campaign contributions say it doesn’t affect their voting, and those who give the contributions say they don’t do it to influence votes.
If politicians and contributors really mean what they say, there should be no opposition to such a law. Citizens should ask the Wichita City Council to pass a campaign finance reform ordinance that prohibits voting to enrich significant campaign contributors.
In 2008 the Wichita City Council approved a no- and low-interest loan to Bill Warren and his partners. Reported the Wichita Eagle: “Wichita taxpayers will give up as much as $1.2 million if the City Council approves a $6 million loan to bail out the troubled Old Town Warren Theatre this week. That’s because that $6 million, which would pay off the theater’s debt and make it the only fully digital movie theater in Kansas, would otherwise be invested and draw about 3 percent interest a year.”
When questioned about election donations:
“I would never do anything because of a campaign contribution,” said [former council member Sharon] Fearey, who received $500 from David Burk and $500 from David Wells.
“I don’t think $500 buys a vote,” said [former council member Sue] Schlapp.
“One has nothing to do with the other,” [Wichita Mayor Carl] Brewer said.
Also in 2008, the Reverend Dr. Kevass J. Harding wanted to spruce up the Ken-Mar shopping center at 13th and Oliver, now known as Providence Square. Near the end of June, Kevass Harding and his wife contributed a total of $1,000, the maximum allowed by law, to the campaign of Wichita City Council Member Lavonta Williams (district 1, northeast Wichita). This was right before Harding appeared before the city council in July and August as an applicant for tax increment district financing (TIF).
These campaign contributions, made in the maximum amount allowable, were out of character for the Hardings. They had made very few contributions to political candidates, and they appear not to have made many since then.
But just before the Ken-Mar TIF district was to be considered for approval, the Hardings made large contributions to Williams, who is the council member representing Ken-Mar’s district. Harding would not explain why he made the contributions. Williams offered a vague and general explanation that had no substantive meaning.
In August 2011 the council voted to award Key Construction a no-bid contract to build the parking garage that is part of the Ambassador Hotel project, now known as Block One. The no-bid cost of the garage was to be $6 million, according to a letter of intent. Later the city decided to place the contract for competitive bid. Key Construction won the bidding, but for a price $1.3 million less.
The no-bid contract for the garage was just one of many subsidies and grants given to Key Construction and Dave Burk as part of the Ambassador Hotel project. In Wichita city elections, individuals may contribute up to $500 to candidates, once during the primary election and again during the general election. As you can see in this table compiled from Wichita City Council campaign finance reports, spouses often contribute as well. So it’s not uncommon to see the David and DJ Burk family contribute $2,000 to a candidate for their primary and general election campaigns. That’s a significant sum for a city council district election campaign cycle. Click here for a compilation of campaign contributions made by those associated with the Ambassador Hotel project.
Council Member Jeff Longwell (district 5, west and northwest Wichita), in his second term as council member, led the pack in accepting campaign contributions from parties associated with the Ambassador Hotel project. For his most recent election, he received $4,000 from parties associated with Key Construction, and $2,000 from David Burk and his wife. Total from parties associated with the Ambassador Hotel project: $6,000. When Longwell ran for Sedgwick County Commission this summer, these parties donated generously to that campaign, too.
Council Member Lavonta Williams (district 1, northeast Wichita) received $5,000 from parties associated with the Ambassador Hotel: $3,000 from parties associated with Key Construction, and $2,000 from David Burk and his wife.
Wichita Mayor Carl Brewer received $5,000 from parties associated with the Ambassador Hotel: $4,500 from parties associated with Key Construction, and $500 DJ Burk, David Burk’s wife.
Council Member and Vice Mayor Janet Miller (district 6, north central Wichita) received $3,500 during her 2009 election campaign from parties associated with the Ambassador Hotel: $1,500 from parties associated with Key Construction, and $2,000 from David Burk and his wife.
For his 2011 election campaign, Council Member Pete Meitzner (district 2, east Wichita) received $3,500 from parties associated with the Ambassador Hotel: $2,500 from parties associated with Key Construction, and $1,000 from David Burk and his wife.
For his 2011 election campaign, Council Member James Clendenin (district 3, southeast and south Wichita) received $1,500 from parties associated with the Ambassador Hotel: $1,000 from parties associated with Key Construction, and $500 from David Burk and his wife.
What citizens need to know is that the Wichita City Council was willing to spend an extra $1.3 million of taxpayer money to reward a politically-connected construction firm that makes heavy campaign contributions to council members. Only one council member, Michael O’Donnell, voted against this no-bid contract. No city bureaucrats expressed concern about this waste of taxpayer money.
Of interest to current mayoral politics: In 2012 while Jeff Longwell was campaigning for the Sedgwick County Commission, campaign contributions from parties associated with Walbridge, a Michigan-based construction company appeared on Longwell’s campaign finance reports. Why would those in Michigan have an interest in helping a Wichita City Council member fund his campaign for a county office? Would the fact that Walbridge is a partner with Key Construction on the new Wichita Airport terminal provide a clue?
These contributions are of interest because on July 17, 2012, the Wichita City Council, sitting in a quasi-judicial capacity, made a decision in favor of Key and Walbridge that will cost some group of taxpayers or airport customers an extra $2.1 million. Five council members, including Longwell, voted in favor of this decision. Two members were opposed.
On July 16 — the day before the Wichita City Council heard the appeal that resulted in Key Construction apparently winning the airport contract — John Rakolta, Chairman and Chief Executive Officer of Walbridge and his wife contributed $1,000 to Longwell’s campaign for Sedgwick county commissioner.
Then on July 20, three days after the council’s decision in favor of Key/Walbridge, other Walbridge executives contributed $2,250 to Longwell’s campaign. Besides the Walbridge contributions, Key Construction and its executives contributed $6,500 to Longwell’s county commission campaign. Key and its executives have been heavy contributors to Longwell’s other campaigns, as well as to Wichita Mayor Carl Brewer and many other Wichita City Council members.
Wichita has laws that seem clear. But the city attorney said they don’t mean what they seem to say. Will our next mayor stand up for ethics?
Wichita has a city code that seems to give guidance to council members (the mayor is a council member) on ethical behavior. The code says, in part, “[Council members] shall refrain from making decisions involving business associates, customers, clients, friends and competitors.”
But Mayor Carl Brewer and many council members have done just that. Many times, in fact. And the Wichita city attorney said that the city code doesn’t really need to be followed.
Following, from July 2013, what Wichita city code says and what the city attorney said about that law. We have a new city attorney this year, so maybe things will change. But I have a feeling that change must be started from the top, which is the mayor. The city attorney, indirectly, works for the mayor and council.
Wichita city code seemingly ignored
When a city has laws that it doesn’t enforce, what are citizens to do?
Here’s a section from the Wichita city code as passed in 2008 (full section below):
“[Council members] shall refrain from making decisions involving business associates, customers, clients, friends and competitors.”
When asked about a specific application of this city law, the Wichita city attorney supplied this interpretation:
Related to the Mayor’s participation in the item, yes, City Code advises Council members to “refrain from making decisions involving business associates, customers, clients, friends and competitors. … ” but the Code does not provide definitions or limits to these broad categories of constituents. Further, the City Code clearly requires Council members to “vote on all matters coming before the City Council except in those particular cases of conflict of interest. …” The city Code does not define what constitutes a conflict but the Council has historically applied the State law for that definition.
Applying that State law specific to local municipalities, the Mayor does not have any substantial interest in Douglas Place LLC, and therefore no conflict. Under the State ethics law, there was no requirement that the Mayor recuse himself from voting on the Ambassador Project.
So we have statutory language that reads “shall refrain,” but the city attorney interprets that to mean “advises.”
We also have statutory language that reads “business associates, customers, clients, friends and competitors.” But the city attorney feels that these terms are not defined, and therefore the mayor and city council members need not be concerned about compliance with this law.
I wonder whose interests the city attorney represents. The people of Wichita, who want to be governed in a fair and ethical manner? It doesn’t seem so.
If the city attorney’s interpretation of this law is controlling, I suggest we strike this section from the city code. Someone who reads this — perhaps a business owner considering Wichita for expansion — might conclude that our city has a code of ethics that is observed by the mayor and council members and enforced by its attorneys.
Giving that impression, though, would be false — and unethical.
Here’s the Wichita city code:
Sec. 2.04.050. — Code of ethics for council members.
Council members occupy positions of public trust. All business transactions of such elected officials dealing in any manner with public funds, either directly or indirectly, must be subject to the scrutiny of public opinion both as to the legality and to the propriety of such transactions. In addition to the matters of pecuniary interest, council members shall refrain from making use of special knowledge or information before it is made available to the general public; shall refrain from making decisions involving business associates, customers, clients, friends and competitors; shall refrain from repeated and continued violation of city council rules; shall refrain from appointing immediate family members, business associates, clients or employees to municipal boards and commissions; shall refrain from influencing the employment of municipal employees; shall refrain from requesting the fixing of traffic tickets and all other municipal code citations; shall refrain from seeking the employment of immediate family members in any municipal operation; shall refrain from using their influence as members of the governing body in attempts to secure contracts, zoning or other favorable municipal action for friends, customers, clients, immediate family members or business associates; and shall comply with all lawful actions, directives and orders of duly constituted municipal officials as such may be issued in the normal and lawful discharge of the duties of these municipal officials.
Council members shall conduct themselves so as to bring credit upon the city as a whole and so as to set an example of good ethical conduct for all citizens of the community. Council members shall bear in mind at all times their responsibility to the entire electorate, and shall refrain from actions benefiting special groups at the expense of the city as a whole and shall do everything in their power to ensure equal and impartial law enforcement throughout the city at large without respect to race, creed, color or the economic or the social position of individual citizens.
The evaluation of economic development incentives requires thinking at the margin, not the entirety.
When considering the effect of economic development incentives, cities like Wichita use a benefit-cost analysis to determine whether the incentive is in the best interests of the city. The analysis usually also considers the county, state, and school districts, although these jurisdictions have no say over whether the incentive is granted, with a few exceptions. The idea is that by paying money now or forgiving future taxes, the city gains even more in increased tax collections. This is then pitched as a good deal for taxpayers: The city gets more jobs (usually) and a profit, too.
Economic activity usually generates tax revenue that flows to governmental agencies. When people work, they pay income taxes. When they buy stuff, they pay sales taxes. When they create new property, it is taxed. This happens whether or not the economic activity is a result of government incentive.
When calculating benefit-cost ratios, government takes credit for the increase in tax revenue from a company receiving economic development incentives. Government often says that without the incentive, the company would not have located in Wichita. Or, without the incentive, it would not have expanded in Wichita. Now, it is claimed that incentives are necessary to persuade companies to consider remaining in Wichita rather than moving somewhere else.
But there are a few problems with the arguments that cities and their economic development agencies promote. One is that the increase in tax revenue happens regardless of whether the company has received incentives. What about all the companies that locate to or expand in Wichita without receiving incentives? How do we calculate the benefit-cost ratio when a company receives no incentives? The answer is it can’t be calculated, as there is no government cost. Instead, there is only benefit.
Then, we don’t often ask why do some companies need incentives, and others do not? Do the companies that receive incentives really need them? Why do some companies receive incentives multiple times?
Related is that jurisdictions may grant relatively small incentives and then take credit for the entire deal. I’ve been told that when economic development agencies learn of a company moving to an area or expanding their Wichita operations, they swoop in with small incentives and take credit for the entire deal. The agency is then able to point to a small incentive and take credit for the entire deal. As you can imagine, it’s difficult to get the involved parties to speak on the record about this.
Further, governments may not credit the contribution of other governments. In the past when the Wichita economic development office presented information about an incentive it proposed to offer to a company, it would sometimes list the incentives the company is receiving from other governments. As an example, when the city offered incentives to NetApp in 2012, the city’s contribution was given as a maximum of $418,000. The agenda material mentioned — obliquely — that the State of Kansas was involved in the incentive package. Inquiry to the Kansas Department of Commerce revealed that the state had promoted incentives worth $35,160,017 to NetApp. Wichita’s incentive contribution is just 1.2 percent of what the state offered, which makes us wonder if the Wichita incentive was truly needed.
The importance of marginal thinking
When evaluating economic development incentives, we often fail to properly evaluate the marginal gains. Here’s an example of the importance of looking at marginal gains rather than the whole. In 2012, the City of Wichita developed a program called New HOME (New Home Ownership Made Easy). The crux of the program is to rebate Wichita city property taxes for five years to those who buy newly-built homes in certain neighborhoods under certain conditions.
The important question is how much new activity this program will induce. Often government takes credit for all economic activity that takes place. This ignores the economic activity that was going to take place naturally — in this case, new homes that are going to be built even without this subsidy program. According to data compiled by Wichita Area Builders Association and the WSU Center for Economic Development and Business Research — this is the data that was current at the time the Wichita city council made its decision to authorize the program — in 2011 462 new homes were started in the City of Wichita. The HOME program contemplated subsidizing 1,000 homes in a period of 22 months. That’s a rate of 545 homes per year — not much more than the present rate of 462 per year. But, the city has to give up collecting property tax on all these homes — even the ones that would be built anyway.
What we’re talking about is possibly inducing a small amount of additional activity over what would happen naturally and organically. But we have to subsidize a very large number of houses in order to achieve that. The lesson is that we need to evaluate the costs of this program based on the marginal activity it may induce, not all activity. For more, see Wichita new home tax rebate program: The analysis.
In this episode of WichitaLiberty.TV: While chair of the Wichita Metro Chamber of Commerce, a Wichita business leader strikes a deal that’s costly for taxpayers. A Kansas University faculty member is under attack from groups that don’t like his politics. Then, how can classical liberalism help us all get along with each other? View below, or click here to view at YouTube. Episode 68, broadcast December 14, 2014.
Does the Wichita Metro Chamber of Commerce support free markets, capitalism, and economic freedom, or something else?
Very often, local chambers of commerce support crony capitalism instead of pro-growth policies that allow free enterprise and genuine capitalism to flourish.
We saw this in Wichita this year, where the Wichita Metro Chamber of Commerce campaigned for a sales tax increase. The Chamber recommended that Wichitans vote in favor of a sales tax of one cent per dollar, with some of the proceeds to be dedicated for a jobs fund. (Other uses were to be for a new water supply, expanded bus transit, and accelerated neighborhood street repair.) Chamber leaders told the Wichita city council that if the jobs fund was not included in the package presented to voters, the Chamber would not support the sales tax.
Not long ago the Wichita Chamber was opposed to higher sales taxes. In March 2010, as chair of the Wichita Chamber, Sam Williams submitted a letter to the Wichita Eagle in which he wrote “Tax increases and government spending will not create employment or revive the state’s economic engine. Increasing the costs of goods and services will only lead to fewer purchases, more business closures, higher unemployment and less taxes being paid.”
In April of same year, he wrote again to the Eagle, advising Wichitans this: “Simply put, raising taxes hurts business, costs jobs and ultimately leads to fewer taxpayers and fewer taxes being paid to fund state and local government.”
Having espoused these anti-tax sentiments just four years ago, it’s curious that the Wichita Chamber would support and campaign for a sales tax for Wichita this year. This spills over to mayoral politics. As far as I saw, Sam Williams, — the Chamber’s chair in 2010 — did not take a public position on the sales tax this year. Except for this: Williams is chair of the Wichita Downtown Development Corporation, and that organization endorsed the sales tax.
Regarding mayoral politics: Did you know that Sam Williams is running for mayor? And that it appears he has the support of the Wichita Chamber?
I have a request. If you see Sam Williams, would you ask him about his position on raising sales taxes?
Your chamber of commerce
Most people probably think that local chambers of commerce — since their membership is mostly business firms — support pro-growth policies that embrace limited government and free markets. But that’s usually not the case. Here, in an excerpt from his article “Tax Chambers” economist Stephen Moore explains:
The Chamber of Commerce, long a supporter of limited government and low taxes, was part of the coalition backing the Reagan revolution in the 1980s. On the national level, the organization still follows a pro-growth agenda — but thanks to an astonishing political transformation, many chambers of commerce on the state and local level have been abandoning these goals. They’re becoming, in effect, lobbyists for big government.
In as many as half the states, state taxpayer organizations, free market think tanks and small business leaders now complain bitterly that, on a wide range of issues, chambers of commerce deploy their financial resources and lobbying clout to expand the taxing, spending and regulatory authorities of government. This behavior, they note, erodes the very pro-growth climate necessary for businesses — at least those not connected at the hip with government — to prosper. Journalist Tim Carney agrees: All too often, he notes in his recent book, “Rip-Off,” “state and local chambers have become corrupted by the lure of big dollar corporate welfare schemes.”
In the states, chambers have come to believe their primary function is to secure tax financing for sports stadiums, convention centers, high-tech research institutes and transit boondoggles. Some local chambers have reportedly asked local utilities, school administrators and even politicians to join; others have opened membership to arts councils, museums, civic associations and other “tax eater” entities.
“I used to think that public employee unions like the NEA were the main enemy in the struggle for limited government, competition and private sector solutions,” says Mr. Caldera of the Independence Institute. “I was wrong. Our biggest adversary is the special interest business cartel that labels itself ‘the business community’ and its political machine run by chambers and other industry associations.”
From Stephen Moore in the article “Tax Chambers” published in The Wall Street Journal February 10, 2007. The full article can be found here.
At the same time the city council voted to rent to High Touch up to 180 parking stalls at monthly rent of $35. These are located in the garage at 215 S. Market. The condition of the garage had deteriorated so much that it had been closed. In March 2014 the city council decided to rehabilitate the garage. According to city documents, the cost to rehabilitate the garage is $9,685,000, which creates 550 parking stalls. This is a cost per stall of $17,609.
A question is this: Who was the biggest beneficiary of this transaction: High Touch and its owners, or city taxpayers?
To evaluate real estate investments, a common metric is capitalization rate. The formula is
capitalization rate = annual net operating income / cost (or value)
For a parking stall in this garage as rented to High Touch, the capitalization rate is
($35 per stall per month * 12 months per year) / $17,609 cost = 2.4 percent
How do we place this number in context? Is this a good or bad deal for taxpayers? To answer this question, we need to find an appropriate capitalization rate. In major cities the capitalization rate for parking garages is lower than for other types of real estate, perhaps five percent. Local sources say the rate in Wichita for parking garages could be seven or eight percent, but there are no recent parking lot transactions to help gauge what the market wants for a capitalization rate. Taxpayers may remember when the city evaluated the Union Station project in October, part of which is a parking garage, the city used a capitalization rate of nine percent. That’s the capitalization rate the city felt the investor deserved to earn, and the city used that rate to justify taxpayer subsidy.
But on the 215 S. Market garage the city, on behalf of taxpayers, accepted a cap rate of just 2.4 percent.
What if the city wanted to earn a capitalization rate of nine percent for taxpayers? The annual rent for each parking stall would have to be $1,585, or $132 per month. At seven percent capitalization rate, the monthly rent would be $103.
But the city is renting the spaces for just $35, not $132 or $103.
It’s actually a better deal for High Touch — and a correspondingly worse deal for city taxpayers — than these numbers show. If High Touch was to build a parking garage itself, it would encounter expenses such as insurance, lighting, cleaning and sweeping, repairs and maintenance, and security. Not to mention taxes, which the city does not pay. But the city will pay these other expenses, except for insurance, as the city self-insures. That has an implicit cost that taxpayers bear.
All of these costs are contained in the $35 monthly rent the city will collect from High Touch. It’s a great deal for High Touch, and a bad deal for city taxpayers. It also establishes a template whereby private sector developers are unlikely to develop parking in downtown Wichita when there is a competitor that can undercut their rates, using taxpayer dollars to do so.
Taxpayers might remember that the biggest subsidy for High Touch — the property and sales tax breaks — started when the company CEO dropped hints that the company might add jobs elsewhere than Wichita. Chambers told the Wichita Business Journal that he considered moving the office to another city. All this happened while he was working his way up the leadership ladder to become chair of the Wichita Chamber.
Now that the proposed Wichita sales tax has failed, how should Wichita pay for a future water supply?
At the December 2 meeting of the Wichita city council, discussion by Council member Pete Meitzner (district 2, east Wichita) referred to the recent election in which Wichita voters rejected a proposed sales tax. (Video below, or click here to view at YouTube.) The major portion of the tax, $250 million collected over five years, would have been used to expand the ASR system as a way of providing for Wichita’s future water needs.
One of the arguments advanced by opponents of the sales tax such as myself is that water users should pay for future water supply. Advocates of the sales tax disagreed, arguing that Wichitans and visitors should pay higher sales taxes to fund a new water supply.
What does the arithmetic look like if we pay for a water supply though water bills? (Some use the term rates.) First, let’s set aside the questions of when the city needs an expanded water supply and how that water should be supplied.
Meitzner’s questioning of city public works director Alan King elicited how many water meters or accounts the water department has, which King said is almost 140,000. Meitzner then proceeded to ask if the cost of a new water supply — $250 million — was born equally by each of these customers, how much would that add to water bills? King said it would be in the range of “23, almost 24 dollars per bill, and at the high end something closer to 30 dollars per bill. That would be each month, you would have to pay that for 60 months.”
Meitzner then ran through computations that resulted in a cost of $1,500 per meter over five years to pay for the cost of a new water supply. He then compared that to sales tax opponents who said that the cost of the additional sales tax per family would be $160 per year. Meitzner said that would be an additional cost of $800 over five years to pay for everything the proposed sales tax was dedicated to, not just a new water supply.
The line of reasoning followed by Meitzner is superficially appealing but economically unsound. It is true that water bills would have to rise by quite a bit in order to raise $250 million over five years. But it seems unlikely that the city would decide to spread that cost equally among its water customers. Would the city ask its largest industrial customers to contribute the same amount each month as small households that do no outside irrigation? I don’t think that most people would think this is reasonable. But Meitzner’s arithmetic implies that the city would, or could, do exactly this.
There are many ways the city could apportion the cost of a new water supply among water users. First, the city could simply raise the price of a gallon of water. That would let water users participate in the funding of a new water supply in proportion to the amount of water they use.
Second, the city could add a fixed amount to each water bill, that money reserved for a future water supply. The city already has a fixed cost for water service. It’s referred to in the rate ordinance as the “minimum monthly” charge. It varies from $11.95 per month for the smallest hookups to $478.78 per month for the largest wholesale users. This amount could be increased by equal portion — say ten percent — for everyone. Or, if the city wants to reduce the burden on small households, it could leave the rate for small hookups as it is, and raise it for larger hookups.
Third, the city could decide to raise the price of a gallon of water by different amounts for different classes of water users. Wichita, like many cities, use a tiered structure of rates that separates summer irrigation water usage from household usage inside the home. How does Wichita’s tiered structure of rates compare to other cities? A recent Black & Veatch survey found for that the 50 cities in the survey, considering only the water portion of bills, the average cost for using 3,750 gallons per month is $19. For using 15,000 gallons, the cost is $65. That’s a ratio of 3.4 to 1. For Wichita, the survey reported costs of $18 and $36, for a ratio of 2.0 to 1.
These are two important numbers: 3.4 and 2.0. They mean that while the price per gallon of Wichita water becomes marginally more expensive as more water is used, the slope is as steep as the average. It means that Wichita households that use low amounts of water pay about average rates, but those Wichita households using a lot of water pay rates much less than average. This is something the city could easily adjust. It would also have the benefit of encouraging conservation, which is something the city says is important for our future.
We need to be aware of the cost of water
It’s important to have water users pay for a new water supply. The benefit is that water users will become acutely aware of the costs of a new water supply. That awareness is difficult to achieve. Many citizens are surprised to learn that the city has spent $247 million over the past decade on a water project, the ASR program. Nearly all that was paid by using long-term debt, the same type of debt that the city urged citizens to avoid during the sales tax campaign.
Paying for a new water supply through water bills would let commercial and industrial users participate in paying the cost of the project. These water users usually don’t pay a lot of sales tax. A restaurant, for example, does not pay sales tax on the food ingredients it purchases. An aircraft manufacturer does not pay sales tax on the raw materials and component parts it buys. But these companies have a water bill. Yet, the city recommended that low income households pay more sales tax on their groceries. The city said this is the best way to pay for a new water supply to protect our lawns and golf courses during a drought.
As Wichita enters campaign season for mayor and city council, will any candidates call for implementing a reform that we desperately need in Wichita? Following, from 2012, explains.
In the wake of scandals some states and cities have passed “pay-to-play” laws. These laws may prohibit political campaign contributions by those who seek government contracts, prohibit officeholders from voting on laws that will benefit their campaign donors, or the laws may impose special disclosure requirements.
Many people make campaign contributions to candidates whose ideals and goals they share. This is an important part of our political process. But when reading campaign finance reports for members of the Wichita City Council, one sees the same names appearing over and over, often making the maximum allowed contribution to candidates.
And when one looks at the candidates these people contribute to, you notice that often there’s no common thread linking the political goals and ideals of the candidates. Some people contribute equally to liberal and conservative council members. But then, when these people appear in the news after having received money from the Wichita City Council, it snaps into place: These campaign donors are not donating to those whose political ideals they agree with. Instead, they’re donating so they can line their own pockets. These donors are opportunists.
As another example, for the 2008 campaign for a bond issue for USD 259 (Wichita public school district), my analysis found that 72 percent of the contributions, both in-kind and cash, was given by contractors, architects, engineering firms, and others who directly stand to benefit from school construction. Do these companies have an especially keen interest in the education of children? I don’t think so. They are interested in themselves.
Some states and cities have taken steps to reduce this harmful practice. New Jersey is notable for its Local Unit Pay-To-Play Law. The law affects many local units of government and the awarding of contracts having a value of over $17,500, requiring that these contracts be awarded by a “fair and open process,” which basically means a contract process open to bidding.
Cities, too, are passing pay-to-pay laws. Notably, a recently-passed law in Dallas was in response to special treatment for real estate developers — the very issue Wichita is facing now as it prepares to pour millions into the pockets of a small group of favored — and highly subsidized — downtown developers who are generous with campaign contributions to almost all council members. Not that this is new to Wichita, as the city has often done this in the past.
Smaller cities, too, have these laws. A charter provision of the city of Santa Ana, in Orange County, California, 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.”
But Kansas has no such law. Certainly Wichita does not, where pay-to-play is seen by many citizens as a way of life.
In Kansas, campaign finance reports are filed by candidates and available to citizens. But many politicians don’t want campaign contributions discussed, at least in public. Recently Wichita Council Member Michael O’Donnell expressed concern over the potential award of a $6 million construction contract without an open bidding process. The contractor the city wanted to give the contract to was Key Construction, a firm that actively makes political contributions to city council members, both conservative and liberal.
For expressing his concern, O’Donnell was roundly criticized by many council members, and especially by Mayor Carl Brewer.
Here’s what’s interesting: Brewer and city council members say the campaign contributions don’t affect their votes. Those who regularly make contributions say they don’t do it to influence the council. Therefore, it seems that there should be no opposition to a pay-to-play law in Wichita — or the entire state — like the one in Santa Ana.
But until we get such a law, I can understand how Wichita city council members don’t want to discuss their campaign contributions from those they’re about to vote to give money to. It’s not about supporting political ideologies — liberal, moderate, or conservative. It’s about opportunists seeking money from government.
The practice stinks. It causes citizens to be cynical of their government and withdraw from participation in civic affairs. It causes government to grow at the expense of taxpayers. Pay-to-play laws can help reverse these trends.
In this episode of WichitaLiberty.TV: A look at some elements of Wichita’s legislative agenda for state government, in particular special tax treatment for special artists, problems with the city’s numbers regarding airfares, and why we should abandon the pursuit of passenger rail. Then, why are people not more involved in political affairs? View below, or click here to view at YouTube. Episode 67, broadcast December 7, 2014.
The City of Wichita’s legislative agenda regarding the Affordable Airfares subsidy program seems to be based on data not supported by facts.
As the City of Wichita prepares its legislative agenda for the Kansas Legislature, the first issue gets off to a rocky start with figures that are not aligned with facts. Probably the largest whopper is the claim of how much has been saved in airfares. The Wichita document states this: “Since 2002, Affordable Airfares has provided $1.446 billion in savings for Wichita Mid-Continent air travelers.”
That is a lot of money. It is certainly exaggerated. We don’t really know how much the subsidy program has saved, as we can not know what would have happened had there been no subsidy program. So we estimate, and here two estimates.
So if we use, say, $35 million as the annual savings, then for the 12 years from 2002 to 2014 the savings sum to $420 million. The city claims $1,446 million, or 3.4 times as much. Wichitans might want to ask city hall why there is such a large difference.
The city’s legislative agenda also mentions a presentation given by William S. Swelbar, an aviation industry analyst, reporting “The Wichita airport performance is acknowledged for its unique performance in growth and capacity (Bill Swelbar presentation at WSU Economic Conference).” There are several curious aspects of this presentation.
The slide that shows growth in traffic at the Wichita airport needs to be interpreted with caution. First, note that the scale of the vertical axis does not start with zero. This is something that needs to be recognized. Here’s why: The bars for departures appear to be rapidly rising. The bar for 2013 looks about twice as tall as the bar for 2102. This leads to the impression that whatever it is that these bars represent, it has doubled from 2012 to 2013. That’s because bars on a chart traditionally represent a quantity of something, starting from zero.
When we examine the entire vertical axis of the chart, we see that it does not start with zero. Instead, it starts at the value 12,050, and the entire axis represents a range of 250 passengers per year. This means that the increase in departures from 2012 to 2013, which looks like an impressive jump in Swelbar’s chart — a doubling in value — is an increase from 12,120 to 12,195. This represents a growth of departures of 75 per year, which is 0.62 percent. Or, about 6 flights per month. This is better than a decline, but not by much. (I’m reading the chart and interpreting the height of the bars against the scale, so these numbers could be off a bit.)
It is not deceptive to start a bar chart from a point other than zero, as long as readers are aware of that and interpret the numbers cautiously and appropriately. But that wasn’t made clear in this presentation. These numbers need to be placed in meaningful context. Otherwise, city council members and bureaucrats might jump on this chart and use it as evidence of dramatic changes happening at the Wichita airport when in reality the change is quite mild. This is what has happened.
What about the increase in departures from 2013 to 2014? The presentation by Swelbar was given in October 2014 and would have been based on data available only through June or July. But somehow, Swelbar told the audience how many departures the Wichita Airport would experience in all 2014. I can understand presenting an estimate for 2014, but the number is not presented as such.
The data for the years that are complete also appear to be questionable. For departures, Swelbar shows departures rising from 12,120 for 2012 to 12,195 for 2013 (again, estimating from the heights of bars on the chart). The Bureau of Transportation Statistics shows departures from Wichita in 2012 as 12,037, then declining to 11,984 for 2013. (Click here to view these statistics.) The statistics from the Wichita airport don’t directly report the number of scheduled departures. For what it’s worth, the airport reports passenger count of 1,509,206 in 2012, which fell to 1,508,872 in 2013.
These are problems found on the first page of the city’s presentation. The agenda was presented to the council during a workshop on November 25. The council will vote on adoption of the agenda on December 9, having postponed the vote from December 2.
The Wichita city council has been busy with economic development items, and more are upcoming.
At the November 25 meeting of the Wichita City Council, on the consent agenda, the council passed these items.
Approved a sublease in a warehouse. This action was necessary as the incentivized warehouse pays no property taxes due to a subsidy program. Given tax costs and industrial building rents, this policy gives these incentivized buildings a cost advantage of about 20 to 25 percent over competitors. That’s very high, and makes it difficult for existing buildings to compete. This lease is for 40,500 square feet for annual rent of $196,425.00, which is $4.85 per square foot. Competing warehouse space might be able to charge rent of $4.25 plus property tax of about $1.00, for a total rent of $5.25 per square foot to the tenant. In the case of the subsidized building, the landlord collects $4.85 instead of $4.25, and the tenant pays $4.85 instead of $5.25. Everyone’s happy. Everyone, that is, except for existing industrial landlords in Wichita — especially those with available space to rent — who must be wondering why they attempt to stay in business when city hall sets up subsidized competitors with new buildings and a large cost advantage. Then, other commercial tenants must be wondering why they don’t get discounted rent. Taxpayers must be wondering why they have to make up the difference in taxes that the subsidized tenants aren’t paying. (On second thought, these parties may not be wondering about this, as we don’t have a general circulation newspaper or a business newspaper that cares to explain these things.) See Wichita speculative industrial buildings.
Set January 6 as the date for a public hearing on a TIF district project plan. This is the plan for Union Station in downtown Wichita. The public hearing for the formation of its tax increment financing district has already been held, and it passed. The project plan will consider and authorize the actual project and spending of taxpayer funds to reimburse the developer for various items. Unlike the formation of the TIF district, the county and school district have no ability to object to the project plan.
Set December 16 as the date for the public hearing on the formation of a community improvement district. This district is for the benefit of the River Vista project, the proposed apartments on the west bank of the Arkansas River between Douglas and First streets. CIDs redirect sales tax revenue from general government to the developers of the project. Say, does anyone remember Charter Ordinance No. 144, which says this land “shall be hereafter restricted to and maintained as open space”? See In Wichita, West Bank apartments seem to violate ordinance.
On its December 2 agenda, the council has these items:
Property tax and sales tax exemptions for Bombardier Learjet. The council may grant property tax discounts worth as much as $268,548 per year for up to ten years, according to city documents. This will be split among taxing jurisdictions as follows: City $72,389, State $3,340, County $65,415, and USD 259 $127,404. The purchased items may also receive an exemption from sales tax, but city documents give no amount. Bombardier boasts of “Investing in the communities where we do business to ensure we have strong contexts for our operations” and “We support our home community through donations, sponsorships and our employee volunteering program.” Evidently this commitment to investment and support does not extend to shouldering the same tax burden that everyone else does.
Property tax exemptions for Cessna Aircraft Company. The council may grant property tax discounts worth as much as $302,311 per year for up to ten years, according to city documents. This will be split among taxing jurisdictions as follows: City $81,491, County $73,639, State $3,760, and USD 259 $143,421. Generally, items purchased with proceeds of the IRB program also receive sales tax exemption, but city documents do not mention this. Cessna speaks of its commitment to the communities where it operates, but evidently this commitment does not extend to shouldering the same tax burden that everyone else does.
Property tax exemptions for High Touch. This is an extension of tax breaks first granted last year. See In Wichita, the case for business welfare. Did you know the CEO of this company is also chair of the Wichita Metro Chamber of Commerce? And that while campaigning for higher sales taxes in Wichita, including higher taxes on groceries for low-income households, he sought and received a sales tax exemption for his company?
Forgivable loan to Apex Engineering International. The Wichita Eagle reported that this company “has been growing briskly and adding employees.” Still, the company seeks incentives, in this case a forgivable loan from the city of $90,000. It will ask Sedgwick County for the same amount. These loans are grants of cash that do not need to be repaid as long as goals are met. Three years ago Apex received $1,272,000 in tax credits and grants under programs offered by the State of Kansas. It is not known at this time if Apex is receiving additional subsidy from the state. According to a company news release, “AEI was nominated for the Wichita Metro Chamber of Commerce 2012 Small Business Awards. This prestigious award recognizes two companies each year who are selected based on specific criteria including: entrepreneurship, employee relations, diversity, community contribution and involvement, and leadership and performance.” Maybe we can justify this grant as repayment for Apex’s community contribution. This forgivable loan may receive resistance from some council members. Current council member and mayoral candidate Jeff Longwell (district 5, west and northwest Wichita) was recently quoted in the Wichita Eagle as wanting a “moratorium on forgivable loans right now until we can reassess the way that we do economic development.” While campaigning for his current office, Council member Pete Meitzner (district 2, east Wichita) told an audience “I am not for forgivable loans.” He noted the contradiction inherent in the terms “forgivable” and “loan,” calling them “conflicting terms.” Meitzner has said he will run for his current office again.
Set January 6 as the date for the public hearing regarding the project plan for the Mosely Avenue Project TIF district in Old Town. This TIF district is a project of David Burk and Steve Barrett. Burk has received millions of taxpayer dollars in subsidy. But he’s not finished.
Consider whether to raise water bills by about 5 percent.
Consider a new lease agreement with Museum of World Treasures, Inc. which will, among other things, reduce the museum’s rent paid to the city from $60,000 per year to $1.
Consider passing the legislative agenda. See above for more on this topic.
The City of Wichita wishes to preserve the many economic development incentives it has at its disposal.
The proposed legislative agenda for the City of Wichita holds this regarding economic development incentives:
ISSUE: The State of Kansas provides economic development incentives through a variety of programs.
RECOMMEND: The Wichita City Council supports the continuation of state economic incentive programs that assist local governments in their efforts to improve their local economies.
That’s all the agenda holds. In the presentation for the previous year, the request was more complete, naming specific programs. It’s useful to revisit that list, as Wichita leaders often complain that Wichita doesn’t have enough “tools in the toolbox” to compete effectively in economic development.
In a way, I don’t blame the city for omitting the list this year. Part of the campaign for the proposed sales tax was that Wichita doesn’t have enough incentives to compete for jobs. In making that argument, city leaders use a narrow definition of incentive that doesn’t count the programs listed below. Given the poor results of the city’s economic development machinery, you can see why city leaders minimize the number of incentive programs and the amounts of money that are available.
Wichita government spending on economic development leads to imagined problems that require government intervention and more taxpayer contribution to resolve. The cycle of organic rebirth of cities is then replaced with bureaucratic management.
As the City of Wichita prepares its legislative agenda for 2015, an issue arises for the first year. It seems that the success of government spending on development has created rising property values, which creates higher tax bills, and that is a burden for some. Here’s the issue the city has identified: “Cultural arts enterprises in certain areas are threatened by rising property values and the resulting tax burden.”
Here’s the solution the city proposes: “The Wichita City Council supports state legislation that would allow local governments to use innovative measures to protect cultural arts enterprises from circumstantial increases in property taxes. The intent is to nurture and preserve arts activity throughout the City of Wichita and the State of Kansas.”
What are the “innovative measures” the city wants to use? Nothing special; just allowing a special group of people to shirk paying the same taxes that everyone else has to pay. The city wants to be able to use tax abatements for up to ten years. The percentage of taxes that could be forgiven could be as high as 80 percent.
So there’s really nothing innovative to see here. The city merely wants to broaden the application of tax forgiveness. Which means the tax base shrinks, and the people who still find themselves unlucky enough to still be part of the tax base face increasing demands for their tax payments.
The city manager said that artists from Commerce Street came to the city looking for a solution to their problem. Which is about the same problem that everyone else has: high taxes.
Here’s the nub of the problem, as explained by the city manager: “The more successful that we are with the redevelopment, the higher the value of the properties, and therefore harder for them who are on thin margins to begin with to stay in the districts, so they lose their charm of being the artistic or art districts.”
The proposed solution, which will require a change to state law, is that a government bureaucrat will decide the boundaries of one or more cultural arts districts. The bureaucrat will also decide which types of business firms qualify for discounts on their taxes. Besides Commerce Street, the manager identified Delano, Old Town, and the Douglas Design District as possible districts where artists might receive 80 percent discounts on their property taxes.
After this, other taxpayers have to make up the lost tax revenue from the artists. That is, unless the city decides to reduce spending by the amount of the tax discounts. I’ve proposed that to the city in other similar circumstances, and the idea was rejected. I believe council members thought I was delusional.
There are many people and business firms that operate on the same “thin margins” that the city manager wants to help artists escape. We see them come to city hall seeking special treatment. As a result, the city plans and manages an increasing share of the economy, and economic freedom, entrepreneurship, and the potential for a truly dynamic economy decline.
Who will stake out the next frontier?
There are many problems with the idea the city is proposing.
One is that the city is asking poor people to pay their full share of property taxes while granting artists a discount. This is a serious problem of equity, which is that people in similar circumstances should be treated the same. Just because someone chooses art as a business or vocation doesn’t mean they should be treated specially with respect to the taxes they pay.
Another problem is that the process of establishing arts districts will interrupt the dynamism of the way cities develop. Arts districts develop because artists want (or need) places with cheap rent. Unless they can persuade city hall to grant property tax discounts, this generally means artists rent space in “bad” parts of town, that is, parts of town that are run down, blighted, and may have high crime rates. Thus, cheap rent.
If things go well, that is, the artists are successful and a community develops, things get fixed up. Rents rise. Taxes rise. The artists can’t afford the higher rent and taxes and have to move on. Which means the cycle repeats. The artists on the cutting edge find other places to move to, and the cycle repeats. Other parts of the city are reborn — organically — through the benefits of markets, not government bureaucracy. This is good.
Except: The City of Wichita is proposing to end the cycle by granting discounts on taxes to artists so they may remain where they are.
We replace dynamism with stagnation by bureaucracy. The city says this is innovative.
Instead of calling for the expansion of Amtrak — perhaps the worst of all federal agencies — the City of Wichita should do taxpayers a favor and call for an end to government subsidy of Amtrak everywhere.
The City of Wichita’s legislative calls for the pursuit of money to pay for the funding of an environmental study of the proposed passenger rail extension to Oklahoma City. Not an actual rail line, just an environmental study.
Amtrak is very expensive. In most parts of the country it relies on massive taxpayer subsidy. For example, for the line from Fort Worth to Oklahoma City — the line proposed for extension to Wichita – taxpayers pay a subsidy of $26.76 per passenger for the trip. And that’s a short trip.
Being expensive, Amtrak is usually pitched as an economic development driver. Yes, taxpayers pay for passengers to ride, but once in your town they spend money there! Never mind that so few people travel on trains (outside the Northeast Corridor) that they are barely noticed. In 2012 intercity Amtrak accounted for 6,804 million passenger-miles of travel. Commercial air racked up 580,501 million passenger-miles, or 85 times as many.
For him and the local business leaders he’s spoken with, it’s all about productive hours. Meitzner says the people who are interested in regional train travel for business are often people who are currently driving to their destinations instead. They’re equipped with smartphones, tablet computers and other technologies, but they can’t use them much, or at all, while they’re driving. Sitting on trains, businesspeople could get work done, he says. He suggests the rise of new mobile technology is one reason passenger rail travel is on the rise. ( Meitzner says there’s a business case for passenger rail in Wichita, Wichita Business Journal, July 18, 2012)
Unfortunately for Meitzner’s business case, at about this time the New York Times published a piece detailing the extreme frustration Amtrak riders had with on-train wi-fi service, reporting “For rail travelers of the Northeast Corridor, the promise of Wi-Fi has become an infuriating tease.” Contemporary new stories report that Amtrak is still planning to upgrade its wi-fi systems.
Considering the speed at which government works, by the time a passenger rail line could be established between Wichita and Oklahoma City, it’s quite likely that driverless cars will be a reality. (Remember, we’ve been trying to raise money just for an environmental impact study for many years.) Then, workers can be in their car, use their computers for business productivity, and travel directly to their destination instead of to a train station. Plus, they will be able to do this on their own schedule, not Amtrak’s schedule. That is invaluable, as only one train each day is contemplated.
Furthermore, if there really is a business case for travel between Wichita and Oklahoma City, I imagine that some of the entrepreneurs who have built a new industry around inter-city bus travel might establish service. These new companies use buses with wi-fi, first class accommodations, and other amenities. Buses are much lower cost than rail, are more flexible, and most importantly, are operated by private sector entrepreneurs rather than government.
I understand that leaders like Pete Meitzner and others in city hall see federal money being spent elsewhere, and they want that money also spent here. It doesn’t really matter to them whether the spending is worthwhile, they just want it spent here. This greed for federal tax dollars contributes to the cycle of rising spending. We end up buying and building a lot of stuff that doesn’t really work except for lining the pockets of special interest groups. And, in the case of Meitzner’s pet project, we do this with borrowed money.
We expect this behavior from the progressive members of the council. But conservatives are supposed to stand for something else.
Those who call for an end to subsidy for one industry are often asked why they don’t oppose subsidy for all industry. It’s a fair question, although it distracts from the main issue, which is why it is raised. So, let’s end subsidies for all forms of transportation. Let’s try to match relevant user fees such as motor fuel taxes as closely as possible with the compatible expenditures.
The scope of Amtrak subsidy
In 2010 I reported that Subsidyscope, an initiative of the Pew Charitable Trusts, published a study about the taxpayer subsidy flowing into Amtrak. For the Heartland Flyer route, which runs from Fort Worth to Oklahoma, and is proposed by taxpayer-funded rail supporters to extend into Kansas through Wichita and Kansas City, we find these statistics about the finances of this operation:
Amtrak reports a profit/loss per passenger mile on this route of $-.02, meaning that each passenger, per mile traveled, resulted in a loss of two cents. Taxpayers pay for that.
But this number, as bad as it is, is not correct. Subsidyscope calculated a different number. This number, unlike the numbers Amrak publishes, includes depreciation, ancillary businesses and overhead costs — the types of costs that private sector businesses bear and report. When these costs are included, the Heartland Flyer route results in a loss of 13 cents per passenger mile, or a loss of $26.76 per passenger for the trip from Fort Worth to Oklahoma City.
Subsidy to Amtrak compared to other forms of transporation
According to the U.S. Bureau of Transportation Statistics, after adjusting for inflation to 2011 dollars, subsidies to domestic air travel averaged about $14 billion a year between 1995 and 2007. Considering that the airlines carried an average of more than 500 billion passenger miles a year during those years, average subsidies work out to about 2.8 cents per passenger mile (see Figure 2).
Using Bureau of Transportation Statistics’ numbers, highway subsidies over the same time period averaged about $48 billion a year. Highways carried about 4.1 trillion passenger miles per year, for an average subsidy of 1.1 cents per passenger mile. While 95 percent of the airline subsidies came from the federal government, all of the highway subsidies came from state and local governments.
By comparison, federal Amtrak subsidies over the same time period averaged 25 cents per passenger mile.11 State subsidies averaged another 2.8 cents. Per-passenger-mile subsidies to Amtrak were nearly times subsidies to air travel and nearly 22 times subsidies to highway travel.
The deficit in what Amtrak collects in revenue and what it spends every year cannot even be taken at face value. Unlike most firms, Amtrak does not count maintenance as an operating cost and instead considers it a capital cost. This allows it to treat routine maintenance like long-term investments in new rail and carrier capacity, pushing these costs off its balance sheet.
As candidates spring up for Wichita mayor and city council, voters need to know that many, such as current district 2 council member Pete Meitzner and mayoral candidate Jeff Longwell, have been openly hostile towards citizens’ right to know how taxpayer money is spent. Following is a news story by Craig Andres of KSN News. View video below, or click here. For more on this issue, see Open government in Kansas.
Transparency groups want to know where Wichita tax money is going to promote Wichita
WICHITA, Kansas — Public or private? GoWichita, Wichita Downtown Development Corporation and the Greater Wichita Economic Development Coalition get more than three million dollars a year. Some of that is taxpayer money.
“Why are their records not public?” asks Randy Brown with the Sunshine Coalition. “It’s ridiculous because we ought to know. These are largely tax supported entities. It’s our money that’s being used. There’s no reason in the world these things shouldn’t be open.”
The Sunshine Coalition is not alone. Bob Weeks with the Voice For Liberty is asking the same questions.
“I have asked several times for complete open records on these three entities,” says Weeks.” But the mayor and city council have not been interested.”
Vice Mayor Pete Meitzner talked with KSN. We asked if the ledgers not being 100% public could be a problem.
“Okay, it could smell like that. But it’s not because we get boards. They have review boards,” says Meitzner. “They have review boards that are members of this community that would not allow it.”
Meitzner says the public doesn’t need to know about day-to-day spending.
“The people that would be looking at that on a daily basis would be our peer city competitors,” explains Meitzner. “Oklahoma, Tulsa, Kansas City and Omaha, they would want to know everything that we are doing to get people downtown.”
Still, watchdog groups say they want to know more.
“The Mayor and the City Manager say all the time that we must be transparent, that we value giving records and information to the citizen,” says Bob Weeks with the Voice For Liberty. “But when it comes down to it they really don’t act in the same way that they say.”
In Sedgwick County, an unlikely hero emerges in the battle for capitalism over cronyism.
Now that the result of the 2014 general election is official, Richard Ranzau has notched four consecutive election victories over candidates endorsed by the Wichita Eagle and often by the Wichita Metro Chamber of Commerce. It’s interesting and useful to look back at what the Wichita Eagle wrote during each campaign as it endorsed Ranzau’s opponent.
In its endorsements for the 2010 Republican Party primary, the Eagle editorial board wrote:
In a district reaching from downtown Wichita north to include Maize, Valley Center and Park City, Republican voters would do well to replace retiring Commissioner Kelly Parks with the commissioner he unseated in 2006, Lucy Burtnett. Her business experience and vast community involvement, as well as her understanding of the issues and thoughtful voting record during her two years on the commission, make her the pick in this primary. She would like to see a new life for the Kansas Coliseum site, perhaps including a year-round RV park, and favors the county’s continued role in Fair Fares and the National Center for Aviation Training.
The other candidate is Richard Ranzau , a physician assistant retired from the Army Reserves who believes government is out of control, who would submit all tax increases to voters, and who opposes the county’s investments in air service and aviation training.
The Wichita Metro Chamber of Commerce political action committee contributed to Burtnett.
In this election, Ranzau received 55 percent of the vote.
Then for the general election in November 2010, the Eagle editorial board wrote this:
State Sen. Oletha Faust-Goudeau, D-Wichita, is by far the better choice in the race to replace Republican Kelly Parks, who is stepping down after one term representing the county’s north-central district. Her legislative experience, civic engagement and constituent service have prepared her for a seat on the county commission, where she wants to help attract businesses and jobs and would support efforts such as the new National Center for Aviation Training. “That’s a must,” she said. It’s a concern that Faust-Goudeau has been slow to address code violations at a house she owns, but the fact that neighbors have stepped up to help says a lot about her as a person and public servant. The first African-American woman elected to the Kansas Senate, Faust-Goudeau would make a hardworking and effective county commissioner.
Republican Richard Ranzau, a physician assistant retired from the Army Reserves, holds inflexible anti-tax, free-market views that would be disastrous for the county’s crucial efforts to support economic development and invest in affordable air service and aviation training.
In this election, Ranzau again earned 55 percent of the vote.
In the August 2014 Republican Party primary, the Eagle editorial board wrote:
Carolyn McGinn is the clear choice to represent this district that includes part of north Wichita as well as Maize, Park City and Valley Center. McGinn served on the commission from 1998 through 2004. Since then, she has served in the Kansas Senate, including as past chairwoman of the Senate Ways and Means Committee. As a result, McGinn knows state and local issues well and understands how they intersect. She is concerned about the region’s stagnant economic growth. In order to get businesses to come and grow here, the county needs a stable government structure that provides essential services, she argues. McGinn is a productive problem solver who could have an immediate positive impact on the commission.
Her opponent is incumbent Richard Ranzau, who is completing his first term. He has been a fierce advocate for the Judge Riddel Boys Ranch and for fiscal responsibility. But he also frequently badgers county staff and delivers monologues about federal government problems. He argued that a planning grant was an attempt by President Obama “to circumvent the will of Congress, the states and the people.”
The Wichita Metro Chamber of Commerce also endorsed McGinn.
In this election, Ranzau received 54 percent of the vote.
For the 2014 general election, here’s what the Eagle editorial board had to say:
Democrat Melody McCray-Miller is the clear choice to represent District 4, which includes north Wichita, Maize, Park City and Valley Center. A former county commissioner and four-term state representative and a business owner, McCray-Miller understands government at both the state and local levels and how it affects communities, families and businesses. Her priorities include economic development and community livability and engagement. “I would like to put the public back in public policy,” she said, accusing her opponent of representing his ideological views and not the full district. McCray-Miller believes in a balanced, collaborative approach to dealing with issues and people, focusing on “what’s best for the county.” She also would not turn down federal funds, as her opponent has voted to do, and supports using economic incentives to attract and retain businesses.
Republican incumbent Richard Ranzau is completing his first term, which has not been productive. Though he has done some good work watchdogging county spending, Ranzau frequently badgers county staff and other presenters at commission meetings. He also has used his position as an ideological platform to rant about the federal government, including by claiming that a federal planning grant was an attempt by President Obama “to circumvent the will of Congress, the states and the people.” McCray-Miller would be a better, more-constructive commissioner.
The Wichita Metro Chamber of Commerce also endorsed McCray-Miller.
This election was closer, with Ranzau gathering 51 percent of the vote to McCray-Miller’s 49 percent.
As a private entity, the Wichita Eagle is free to print whatever it wants. So too is the Wichita Metro Chamber of Commerce free to contribute to and endorse anyone.
But these two institutions appear to be out of touch with voters.
Do you sense a pattern? Ranzau’s opponents are thoughtful, would make hardworking and effective county commissioners, are productive problem solvers, understand government at both the state and local levels, and have a balanced, collaborative approach to dealing with issues and people.
Ranzau, according to the Eagle, believes government is out of control and holds inflexible anti-tax, free-market views. He frequently badgers county staff. (Believe me, they deserve scrutiny, which the Eagle calls “badgering.”) Oh, and he’s ideological, too. That simply means he has “a system of ideas and ideals, especially one that forms the basis of economic or political theory and policy.” As long as those ideals are oriented in favor of capitalism, economic freedom, and personal liberty, this is good. And that’s the way it is with Richard Ranzau. Would that the Wichita Eagle shared the same ideology.
I know what it is like to be on the losing side of issues year after year. Advocating for free markets and capitalism against the likes of the Wichita Eagle, the Wichita Metro Chamber of Commerce, most members of the Sedgwick County Commission, and all current members of the Wichita city council is a lonely job.
This makes it all the more remarkable that Richard Ranzau has won four consecutive elections running against not only his opponent, but also against the city’s entrenched establishment. Running against the crony establishment, that is, the establishment that campaigns against capitalism in favor of a “business-friendly” environment. The establishment that has presided over decades of sub-standard economic performance. The establishment that insisted on a sales tax that it hoped would gloss over the miserable results produced over the last two decades.
Thank goodness that defenders of capitalism are able to win an election now and then — or four in a row.
In this episode of WichitaLiberty.TV: We’ll look at the results of the Wichita sales tax election and what might happen next. Then, we’ll evaluate the Wichita Eagle’s coverage during the campaign. Also, this election raised issues of the privacy of voter data. View below, or click here to view at YouTube. Episode 65, broadcast November 16, 2014.
Here’s a map I created of the “No” vote percentage by council district for the November 4, 2014 Wichita sales tax issue. To use an interactive version of this map, click here. On the interactive map you may scroll and zoom, and you may click on a district for more information.
Wichita Mayor Carl Brewer and the city council are proud of their citizen engagement efforts. Should they be proud?
The day after the November 2014 election in which Wichita voters rejected a proposed city sales tax, Mayor Carl Brewer and most members of the Wichita City Council held a press conference to discuss the election. A theme of the mayor is that the city reached out to citizens, gathered feedback, and responded. Here are a few of his remarks:
As elected officials, it’s our duty and responsibility to listen to citizens each and every day. And certainly any and every thing that they have to say, whether we agree or disagree, is important to each and every one of us. Anytime they are able to provide us that, we should continue to try to reach out and try to find ways to be able to talk to them. …
We appreciate the engagement process of talking to citizens, finding out what’s important to them. Last night was part of that process. …
We will certainly be engaging them, the individuals in opposition. As you heard me say, the city of Wichita — the city council members — we represent everyone in the entire city. From that standpoint, everyone’s opinion is important to us. As you heard me say earlier, whether we agree or disagree, or just have a neutral position on whatever issue that may be, it is important to us, and we’re certainly willing to listen, and we certainly want their input.
So just how does Wichita city government rate in citizen involvement and engagement? As it turns out, there is a survey on this topic. Survey respondents were asked to rate “the job Wichita does at welcoming citizen involvement.” The results are shown in the nearby chart created from data in the most recent version of the Wichita Performance Measure Report. The numbers are the percent of respondents giving “excellent” or “good” as their response to the question.
The report says this performance is “much below” a benchmark set by the National Research Center National Citizen Survey. It also tells us that the city expects to re-survey citizens in 2014. For that year, the city has given itself the lofty target of 40 percent of citizens rating the job Wichita does at welcoming citizen involvement as excellent or good.
In the press conference Mayor Brewer also said “We did the Facebook and we did the Twitter.” Except, the city ignored many questions about the sales tax that were posted on its Facebook wall.
Here’s another example of how the mayor and council welcome citizen involvement. Wichita participates in a program designed to produce lower air fares at the Wichita airport. It probably works. But I’ve done research, and there is another effect. As can be seen in the nearby chart, the number of flights and the number of available seats is declining in Wichita. These measures are also declining on a national level, but they are declining faster in Wichita than for the nation. See also Wichita airport statistics: the visualization and Kansas Affordable Airfares program: Benefits and consequences.
About this time Sedgwick County Commissioner Karl Peterjohn had appointed me to serve on the Wichita Airport Advisory Board. That required city council approval. Only one council member vote to approve my appointment. In its reporting, the Wichita Eagle said: “Mayor Carl Brewer was clear after the meeting: The city wants a positive voice on the airport advisory board, which provides advice to the council on airport-related issues. ‘We want someone who will participate, someone who will contribute,’ Brewer said. ‘We want someone who will make Affordable Airfares better, who will make the airport better. You’ve seen what he does here,’ Brewer went on, referencing Weeks’ frequent appearances before the council to question its ethics and spending habits. ‘So the question becomes, ‘Why?'”
As far as I know, I am the only person who has done this research on the rapidly declining availability of flights and seats available in Wichita. You might think the city would be interested in information like this, and would welcome someone with the ability to produce such research on a citizen board. But that doesn’t matter. From this incident, we learn that the city does not welcome those who bring inconvenient facts to the table.
“I don’t normally spend this much time having a conversation with you because I know it doesn’t do any good.”
— Wichita Mayor Carl Brewer to conservative blogger Bob Weeks as the two argued over cronyism during Tuesday’s City Council meeting
“I really wasn’t offended today … because the mayor’s been ruder to better people than me.”
— Weeks’ response when asked about the exchange after the meeting
At least Mayor Brewer didn’t threaten to sue me. As we’ve seen, if you ask the mayor to to live up to the policies he himself promotes, he may launch a rant that ends with you being threatened with a lawsuit.
Despite the stunning defeat of Wichita Mayor Carl Brewer’s proposed sales tax increase, and the fact that in April, Brewer’s term limit will expire, he and the City Council are determined to take action in financing the projects that the Wichita voters just shot down.
The sales tax increase was defeated by an overwhelming 62-38 percentage margin, signifying very low support for the Mayor’s plan, largely due to a severe lack of transparency in regards to economic development, and the fact that the four proposed projects (water, transit, street maintenance, and job incentives) were bundled together, forcing voters to either approve or deny the entire package.
Citizens want to trust their hometown newspaper as a reliable source of information. The Wichita Eagle has not only fallen short of this goal, it seems to have abandoned it.
The Wichita Eagle last week published a fact-check article titled “Fact check: ‘No’ campaign ad on sales tax misleading.” As of today, the day before the election, I’ve not seen any similar article examining ads from the “Yes Wichita” group that campaigns for the sales tax. Also, there has been little or no material that examined the city’s claims and informational material in a critical manner.
Someone told me that I should be disappointed that such articles have not appeared. I suppose I am, a little. But that is balanced by the increasing awareness of Wichitans that the Wichita Eagle is simply not doing its job.
It’s one thing for the opinion page to be stocked solely with liberal columnists and cartoonists, considering the content that is locally produced. But newspapers like the Eagle tell us that the newsroom is separate from the opinion page. The opinion page has endorsed passage of the sales tax. As far as the newsroom goes, by printing an article fact-checking one side of an issue and failing to produce similar pieces for the other side — well, readers are free to draw their own conclusions about the reliability of the Wichita Eagle newsroom.
As a privately-owned publication, the Wichita Eagle is free to do whatever it wants. But when readers see obvious neglect of a newspaper’s duty to inform readers, readers are correct to be concerned about the credibility of our state’s largest newspaper.
Citizens want to trust their hometown newspaper as a reliable source of information. The Wichita Eagle has not only fallen short of this goal, it seems to have abandoned it.
Here are some topics and questions the Eagle could have examined in fact-checking articles on the “Yes Wichita” campaign and the City of Wichita’s informational and educational campaign.
The Wichita Eagle could start with itself and explain why it chose a photograph of an arterial street to illustrate a story on a sales tax that is dedicated solely for neighborhood streets. The caption under the photo read “Road construction, such as on East 13th Street between Oliver and I-135, would be part of the projects paid for by a city sales tax.”
Issues regarding “Yes Wichita”
The “Yes Wichita” campaign uses an image of bursting wooden water pipes to persuade voters. Does Wichita have any wooden water pipes? And isn’t the purpose of the sales tax to build one parallel pipeline, not replace old water pipes? See Fact-checking Yes Wichita: Water pipe(s).
The “Yes Wichita” campaign group claims that the sales tax will replace old rusty pipes that are dangerous. Is that true?
The City and “Yes Wichita” give voters two choices regarding a future water supply: Either vote for the sales tax, or the city will use debt to pay for ASR expansion and it will cost an additional $221 million. But the decision to use debt has not been made, has it? Wouldn’t the city council have to vote to issue those bonds? Is there any guarantee that the council will do that?
The “Yes Wichita” group says that one-third of the sales tax will be paid by visitors to Wichita. But the city’s documents cite the Kansas Department of Revenue which gives the number as 13.5 percent. Which is correct? This is a difference of 2.5 times in the estimate of Wichita sales tax paid by visitors. This is a material difference in something used to persuade voters.
The city’s informational material states “The City has not increased the mill levy rate for 21 years.” In 1994 the Wichita mill levy rate was 31.290, and in 2013 it was 32.509. That’s an increase of 1.219 mills, or 3.9 percent. The Wichita City Council did not take explicit action, such as passing an ordinance, 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 taxation by the city. While the city doesn’t have control over the assessed value of property, it does have control over the amount it decides to spend. Whatever the cause, the mill levy has risen. See Fact-checking Yes Wichita: Tax rates.
“Yes Wichita” says there is a plan for the economic development portion of the sales tax. If the plan for economic development is definite, why did the city decide to participate in the development of another economic development plan just last month? What if that plan recommends something different than what the city has been telling voters? And if the plan is unlikely to recommend anything different, why do we need it?
Citizens have asked to know more about the types of spending records the city will provide. Will the city commit to providing checkbook register-level spending data? Or will the city set up separate agencies to hide the spending of taxpayer funds like it has with the Wichita Downtown Development Corporation, Go Wichita Convention and Visitors Bureau, and Greater Wichita Economic Development Corporation?
Issues regarding the City of Wichita
Mayor Carl Brewer said the city spent $47,000 of taxpayer funds to send a letter and brochure to voters because he was concerned about misinformation. In light of some of the claims made by the “Yes Wichita” group, does the city have plans to inform voters of that misinformation?
Hasn’t the city really been campaigning in favor of the sales tax? Has the city manager been speaking to groups to give them reasons to vote against the tax? Does the city’s website provide any information that would give voters any reason to consider voting other than yes?
The “Yes Wichita” group refers voters to the city’s website and information to learn about the sales tax issue. Since the “Yes Wichita” group campaigns for the sales tax, it doesn’t seem likely it would refer voters to information that would be negative, or even neutral, towards the tax. Is this evidence that the city is, in fact, campaigning for the sales tax?
The “Yes Wichita” group says that one-third of the sales tax will be paid by visitors to Wichita. But the city’s documents cite the Kansas Department of Revenue which gives the number as 13.5%. Which is correct? This is a difference of 2.5 times in the estimate of Wichita sales tax paid by visitors. This is a material difference in something used to persuade voters. If “Yes Wichita” is wrong, will the city send a mailer to correct the misinformation?
The city’s informational material states “The City has not increased the mill levy rate for 21 years.” But the city’s comprehensive annual financial reports show that in 1994 the Wichita mill levy rate was 31.290, and in 2013 it was 32.509. That’s an increase of 1.219 mills, or 3.9 percent. The Wichita City Council did not take explicit action, such as passing an ordinance, 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 taxation by the city. While the city doesn’t have control over the assessed value of property, it does have control over the amount it decides to spend. Whatever the cause, the mill levy has risen. Is this misinformation that needs to be corrected?
The city says that the ASR project is a proven solution that will provide for Wichita’s water needs for a long time. Has the city told voters that the present ASR system had its expected production rate cut in half? Has the city presented to voters that the present ASR system is still in its commissioning phase, and that new things are still being learned about how the system operates?
The City and “Yes Wichita” give voters two choices regarding a future water supply: Either vote for the sales tax, or the city will use debt to pay for ASR expansion and it will cost an additional $221 million. But the decision to use debt has not been made, has it? Wouldn’t the city council have to vote to issue those bonds? Is the any guarantee that the council will do that?
If the plan for economic development is definite, why did the city decide to participate in the development of another economic development plan just last month? What if that plan recommends something different than what the city has been telling voters? And if the plan is unlikely to recommend anything different, why do we need it?
Citizens have asked to know more about the types of spending records the city will provide. Will the city commit to providing checkbook register-level spending data? Or will the city set up separate agencies to hide the spending of taxpayer funds like it has with the Wichita Downtown Development Corporation, Go Wichita Convention and Visitors Bureau, and Greater Wichita Economic Development Corporation?
The “Yes Wichita” campaign uses an image of bursting wooden water pipes to persuade voters. Does Wichita have any wooden water pipes? And isn’t the purpose of the sales tax to build one parallel pipeline, not replace old water pipes? If this advertisement by “Yes Wichita” is misleading, will the city send an educational mailing to correct this?
The Yes Wichita campaign group claims that the sales tax will replace old rusty pipes that are dangerous. Is that true? If not, will the city do anything to correct this misinformation?
Campaign activity by the Wichita Downtown Development Corporation appears to be contrary to several opinions issued by Kansas Attorneys General regarding the use of public funds in elections.
While the Wichita Downtown Development Corporation presents itself as a non-profit organization that is independent of the City of Wichita, it receives 95 percent of its revenue from taxes, according to its most recent IRS Form 990. While Kansas has no statutes or court cases prohibiting the use of public funds for electioneering, there are at least two Kansas Attorney General opinions on this topic.
One, opinion 93-125, states in its synopsis: “The public purpose doctrine does not encompass the use of public funds to promote or advocate a governing body’s position on a matter which is before the electorate. However, public funds may be expended to educate and inform regarding issues to be voted upon by the electorate.”
While some governing bodies spend taxpayer funds to present information about ballot measures, this is not the case with the Wichita Downtown Development Corporation. It explicitly campaigns in favor of the issue. It displays pro-sales tax campaign signs at its office. It publicly endorsed passage of the sales tax.
A more recent Kansas Attorney General opinion, 2001-13, holds this language: “While the Kansas appellate courts have not directly addressed the issue of whether public funds can be used to promote a position during an election, there are a number of cases from other jurisdictions that conclude that a public entity cannot do so.”
The opinion cites a court case: “Underlying this uniform judicial reluctance to sanction the use of public funds for election campaigns rests an implicit recognition that such expenditures raise potentially serious constitutional questions. A fundamental precept of this nation’s democratic electoral process is that the government may not ‘take sides’ in election contests or bestow an unfair advantage on one of several competing factions.”
The opinion reaffirms 93-125, stating: “In Attorney General Opinion No. 93-125, Attorney General Robert T. Stephan concluded that public funds may not be used to promote or advocate a city governing body’s position on a matter that is before the electorate.”
Given these Kansas Attorney General opinions, and considering good public policy, Wichita voters need to ask: Should an organization that is funded 95 percent by taxes be campaigning for a ballot issue?
A Wichita company asks for property and sales tax exemptions on the same day Wichita voters decide whether to increase the sales tax, including the tax on groceries.
This week the Wichita City Council will hold a public hearing concerning the issuance of Industrial Revenue Bonds to Spirit AeroSystems, Inc. The purpose of the bonds is to allow Spirit to avoid paying property taxes on taxable property purchased with bond proceeds for a period of five years. The abatement may then be extended for another five years. Additionally, Spirit will not pay sales taxes on the purchased property.
City documents state that the property tax abatement will be shared among the taxing jurisdictions in these estimated amounts:
USD 259 $143,038
No value is supplied for the amount of sales tax that may be avoided. The listing of USD 259, the Wichita public school district, is likely an oversight by the city, as the Spirit properties lie in the Derby school district. This is evident when the benefit-cost ratios are listed:
City of Wichita 1.98 to one
General Fund 1.78 to one
Debt Service 2.34 to one
Sedgwick County 1.54 to one
U.S.D. 260 1.00 to one (Derby school district)
State of Kansas 28.23 to one
The City of Wichita has a policy where economic development incentives should have a benefit cost ratio of 1.3 to one or greater for the city to participate, although there are many loopholes the city regularly uses to approve projects with smaller ratios. Note that the ratio for the Derby school district is 1.00 to one, far below what the city requires for projects it considers for participation. That is, unless it uses a loophole.
We have to wonder why the City of Wichita imposes upon the Derby school district an economic development incentive that costs the Derby schools $143,038 per year, with no payoff? Generally the cost of economic development incentives are shouldered because there is the lure of a return, be it real or imaginary. But this is not the case for the Derby school district. This is especially relevant because the school district bears, by far, the largest share of the cost of the tax abatement.
Of note, the Derby school district extends into Wichita, including parts of city council districts 2 and 3. These districts are represented by Pete Meitzner and James Clendenin, respectively.
The city’s past experience
Spirit Aerosystems is a spin-off from Boeing and has benefited from many tax abatements over the years. In a written statement in January 2012 at the time of Boeing’s announcement that it was leaving Wichita, Mayor Carl Brewer wrote “Our disappointment in Boeing’s decision to abandon its 80-year relationship with Wichita and the State of Kansas will not diminish any time soon. The City of Wichita, Sedgwick County and the State of Kansas have invested far too many taxpayer dollars in the past development of the Boeing Company to take this announcement lightly.”
Along with the mayor’s statement the city released a compilation of the industrial revenue bonds authorized for Boeing starting in 1979. The purpose of the IRBs is to allow Boeing to escape paying property taxes, and in many cases, sales taxes. According to the city’s compilation, Boeing was granted property tax relief totaling $657,992,250 from 1980 to 2017. No estimate for the amount of sales tax exemption is available. I’ve prepared a chart showing the value of property tax abatements in favor of Boeing each year, based on city documents. There were several years where the value of forgiven tax was over $40 million.
Kansas Representative Jim Ward, who at the time was Chair of the South Central Kansas Legislative Delegation, issued this statement regarding Boeing and incentives:
Boeing is the poster child for corporate tax incentives. This company has benefited from property tax incentives, sales tax exemptions, infrastructure investments and other tax breaks at every level of government. These incentives were provided in an effort to retain and create thousands of Kansas jobs. We will be less trusting in the future of corporate promises.
Not all the Boeing incentives started with Wichita city government action. But the biggest benefit to Boeing, which is the property tax abatements through industrial revenue bonds, starts with Wichita city council action. By authorizing IRBs, the city council cancels property taxes not only for the city, but also for the county, state, and school district.
At a forum on October 28, “Yes Wichita” co-chair Moji Fanimokun told the audience that “Property taxes haven’t been raised in over 21 years in Wichita.”
This claim — that the mill levy has not been raised for a long time — is commonly made by the city and “Yes Wichita” supporters. It’s useful to take a look at actual numbers to see what has happened.
In 1994 the Wichita mill levy rate was 31.290, and in 2013 it was 32.509. That’s an increase of 1.219 mills, or 3.9 percent. The Wichita City Council did not take explicit action, such as passing an ordinance, 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 taxation by the city. While the city doesn’t have control over the assessed value of property, it does have control over the amount it decides to spend. Whatever the cause, the mill levy has risen, contrary to the claims of “Yes Wichita.”
Apart from the focus on the mill levy, voters may want to know that the dollars of property tax the city collects has risen. This growth comes from new property being created (although old property disappears, too), and from increases in assessed value of existing property. From 1994 to 2011 property tax revenue increased from $58.672 to $119.745 million, or 104 percent. We didn’t experience anything near that rate of growth in the combination of population or inflation. It’s true that these values have slowed in growth or even declined in recent years. But that’s a symptom of the problem: When tax revenue increases, so to does spending, and we become accustomed to a certain level. When revenue increases don’t keep pace with history, government finds it difficult to make the necessary cuts.
The material below is from the agenda for the October 28, 2014 Wichita City Council meeting. It appeared on the consent agenda, which means it was handled in bulk with other items. The meeting minutes don’t show that there was any discussion on this item.
Without some background information, it may be difficult to interpret this material, so I’ll do it for you.
There is a company in Wichita named High Touch Technologies. Last year it asked the city council for relief from paying property taxes and sales taxes to help pay for the renovation of its headquarters building. Now it has asked for an extension of this tax relief period.
This year the Wichita Metro Chamber of Commerce is campaigning for a higher sales tax in Wichita.
Did you know that Kansas is one of only 14 states that apply sales tax to groceries? And that only Mississippi has a higher statewide sales tax rate on groceries than does Kansas?
I told you this is awkward.
Here’s an excerpt from the relevant city document.
On November 19, 2013 the City Council approved a one-year Letter of Intent for the issuance of Industrial Revenue Bonds (“IRBs”) in an amount not to exceed $2,000,000 for the purpose of financing the cost of acquiring and remodeling a 106,000 square foot office building located at 110 S. Main in downtown Wichita, for use as a corporate headquarters for High Touch. One Twenty South Main, LLC is the real estate holding entity that acquired the building and will sublease space to High Touch. One Twenty South Main, LLC originally intended to finance the acquisition and renovation with one bond issue. It is now planning on two bonds issues, one in late 2014 and one in late 2015. The first bond issue will finance the acquisition of the building and repairs to the elevators. The second will finance the cost of tenant improvements to occur in 2015. No additional bonding capacity is being requested. The current Letter of Intent and sales tax exemption expire November 19, 2014. One Twenty South Main, LLC is requesting an extension of the Letter of Intent and the sales tax exemption through December 31, 2015 to accommodate all work contemplated as part of this project.
Wichita Mayor Carl Brewer is concerned about misinformation being spread regarding the proposed Wichita sales tax.
In November Wichita voters will decide whether to create a sales tax of one cent per dollar. The largest intended purpose of the funds is to create a new water supply. Set aside for a moment the question whether Wichita needs a new water source. Set aside the question of whether ASR is the best way to provide a new water source. What’s left is how to pay for it.
In its informational material, the city presents two choices for paying for a new water supply: Either (a) raise funds through the sales tax, or (b) borrow funds that Wichitans will pay back on their water bills, along with a pile of interest.
As you can see in the nearby material prepared by the city, the costs are either $250 million (sales tax) or $471 million (borrow and pay interest). The preference of the city is evident: Sales tax. The “Yes Wichita ” group agrees.
Are there other alternatives to these two choices? Could we raise the funds through water bills over the same five-year period as the proposed sales tax? Would this let commercial and industrial water users participate in the costs of a new water supply?
Last week I posed this question at a Wichita water town hall meeting. Wichita Director of Public Works Alan King responded yes, this is possible, adding “I think you’re right. I think that there’s more than one alternative to funding.” A video excerpt of this meeting is available here.
The response of the city’s public works director contradicts the possibilities the city presents to voters. Is this an example of the type of misinformation the mayor wants to clear up?
Last week Mayor Carl Brewer told the Wichita Eagle “We decided to do a mailer because there was a lot of misinformation that was going out where people didn’t quite understand what was going on. By doing the mailer, we’re able to educate everyone.”
The city spent $47,000 sending the mailer. But as we see, it has only contributed to the misinformation.
The city’s threat to voters
Here’s what is happening. City hall gives us two choices. It’s either (a) do what we want (sales tax), or (b) we’ll do something that’s really bad (borrow and pay interest). Wichita voters shouldn’t settle for this array of choices.
Let me emphasize that. The city’s informational material says if voters don’t pass the sales tax, the city will do something unwise. But the city did that very same bad thing to pay for the current ASR project, that is, borrow money and pay interest. But now the city says pass the sales tax or we will do something bad to you. Pass the sales tax or the city will issue long-term debt and you will pay a lot of interest.
Pass the sales tax, or we will do again what we did to pay for the current ASR project. And that would be bad for you and the city.
Are there other alternatives for raising $250 million for a new water source (assuming it is actually needed)? Of course there are. The best way would be to raise water bills by $250 million over five years. In this way, water users pay for the new water supply, and we avoid the long-term debt that city council members and “Yes Wichita” seem determined to avoid.
Water bills would have to rise by quite a bit in order to raise $250 million over five years. The city could decide to raise rates by different amounts for different classes of water users. The city could adjust its tiered residential rate structure to be more in line with the average of other large cities. (See Wichita water rates seen as not encouraging conservation.) But the total cost of the higher water bills would be exactly the same as the cost of the sales tax: $250 million.
It’s important to have water users pay for a new water supply. The benefit is that water users will become acutely aware of the costs of a new water supply. That awareness is difficult to achieve. Many citizens are surprised to learn that the city has spent $247 million over the past decade on a water project, the ASR program. Almost all of that was paid for with long-term debt, the same debt that the city now says is bad.
Paying for a new water supply through water bills would let commercial and industrial users participate in paying the cost of the project. These water users usually don’t pay a lot of sales tax. A restaurant, for example, does not pay sales tax on the food ingredients it purchases. An aircraft manufacturer does not pay sales tax on the raw materials and component parts it buys. But these companies do have a water bill. Yet, the city recommends that low income households pay more sales tax on their groceries. The city says this is the best way to pay for a new water supply to protect our lawns and golf courses during a drought.
Following, from Kansas Senator Michael O’Donnell, a discussion of issues surrounding the proposed Wichita one cent per dollar sales tax. O’Donnell served on the Wichita City Council for nearly two years before resigning to serve in the senate.
We are less than one week from an incredibly important election cycle where those of us in Wichita will vote for our future in a 4, 5 or 6 year timeframe; Governor for 4, Sales tax for 5 and Senator for 6. Before we go to the polls, the Wichita City Council needs to level with the public and answer critical questions, if not, they continue the “politics-as-usual” game that has been exhaustingly prevalent during the all-too-disappointing Brewer administration. Is City Hall hoping to “run out the clock,” praying the public will become so disengaged with the election that somehow Wichitans will think the city has been straight-forward? Maybe I am being too critical, but it’s hard not to be critical when I experienced the “you can’t fight City Hall” realities directly. I saw first-hand how City Hall can be a barrier to quality of life instead of helping to enable it. Here are a list of 5 questions — one for each year of the tax — we need to have answered (and should have had answered long ago):
The most important thing Wichita voters need to know that the city is delinquent in maintaining the assets that taxpayers have purchased. The cost to remedy this lack of maintenance is substantial. On an annual basis, Wichita needs to spend $180 million on infrastructure depreciation/replacement costs. Currently the city spends $78 million on this, the presentation indicates.
The “cost to bring existing deficient infrastructure up to standards” is given as an additional $45 to $55 million per year.
How does this relate to the proposed sales tax? Of the funds the sales tax is projected to raise over five years, $27.8 million is allocated for street maintenance and repairs. That’s $5.6 million per year.
Subtract that from what the Community Investments Plan says we need to spend on deficient infrastructure, and we’re left with (roughly) $40 to $50 million per year in additional spending on deficient infrastructure. Remember, that’s on top of ongoing infrastructure depreciation/replacement costs.
Does the proposed sales tax do anything to address those needs? Possibly. Part of the sales tax would be used to augment the large water pipeline from the Equus Beds. That pipeline is 60 years old, but there is no indication that it needs replacement. But other than that, the proposed sales tax does not address deficient maintenance.
What will the city do about this deficiency? Is it likely that Wichitans will be asked to provide additional tax revenue to address the city’s deficient infrastructure? So far, city hall hasn’t asked for that, except for recommending that Wichita voters approve $5.6 million per year for streets from a sales tax.
But if we believe the numbers in the Community Investments Plan, we should be prepared for city hall to ask for much more tax revenue. That is, if the city is to adequately maintain the things that taxpayers have paid to provide.
Besides this maintenance backlog, there are other calls for new city spending.
Earlier this year the city council considered various proposals for spending a new source of tax money. Four survived the discussion and will be the recipient of sales tax funds, if Wichita voters approve. Those needs are a new water supply, jobs and economic development, transit, and street maintenance and repair.
There were proposals that did not make the, generally in the category of “quality of life” facilities. These include a new convention center, new performing arts center, new central library, newly renovated Lawrence-Dumont Stadium, renovation of the Dunbar Theater, renovation of O.J. Watson Park, and help for the homeless.
Evidently there are many who are not happy that these proposals will not receive sales tax money. Rumors afloat that groups — including city officials — are plotting for another sales tax increase to fund these items.
People are rightly concerned that even though the proposed Wichita sales tax ordinance specifies an end to the tax in five years, these taxes have a way of continuing. The State of Kansas recently had a temporary sales tax. It went away, but only partly. The Kansas state sales tax rate we pay today is higher than it was before the start of the “temporary” sales tax.
But the people who want to spend your tax dollars on these “quality of life” items aren’t content to wait five years for the proposed sales tax to end before asking for their share of sales tax revenue. They are plotting to have it start perhaps one year from now.
These are things that Wichita voters need to consider: There is a backlog of maintenance, and there is appetite for more tax revenue so there may be more government spending. Even if the sales tax passes, these remain unfulfilled.
Why is the City of Wichita spending taxpayer money mailing to voters who don’t live in the city and can’t vote on the issue?
A resident of Bel Aire thought it was curious that she received an informational mailing regarding an issue she can’t vote on. The issue is the proposed one cent per dollar Wichita city sales tax that is on the November ballot.
What is curious about her receiving this mail about the Wichita sales tax? She can’t vote on this issue because she lives in Bel Aire, not in Wichita. Only those voters who live in Wichita will have the question on their ballots. Bel Aire is a nice town, but it is not Wichita.
So why did the City of Wichita spend tax dollars informing residents of Bel Aire about an issue on which they may not vote?
Many Wichitans question whether the city should have spent tax dollars on this mailer. Especially when it’s pretty clear that the material is designed to encourage citizens to vote in favor of the tax.
(If you doubt whether the city’s educational material is advocating for passage of the sales tax, consider this: The “Yes Wichita” group campaigns for passage of the tax. This group refers voters to the city’s website to learn about the issue. “Yes Wichita” would not do that if the city’s material contained anything that might discourage a “Yes” vote.)
I’ve been involved in political campaigns. I’ve always been quite careful to send mail only to those voters who live in the relevant jurisdiction. That is, I don’t waste donors’ money mailing to people who are not able to vote for my candidate.
The return address on this envelope indicates the mail came from the Office of the Mayor. So may I ask, Mayor Carl Brewer, why are you wasting taxpayer money sending mail to people who can’t vote on this issue?
Analysis of household expenditure data shows that a proposed sales tax in Wichita affects low income families in greatest proportion, confirming the regressive nature of sales taxes.
One of the criticisms of a sales tax is that it is regressive. That is, it affects low-income families in greatest proportion. This is an important consideration to explore, because in November Wichita voters will decide whether to create a new city sales tax of one cent per dollar. If enacted, the sales tax in Wichita would rise from 7.15 percent to 8.15 percent.
It’s an important issue because to hear some people talk, it seems as though they are saying the proposed tax is “one penny.” Anyone can afford that, they say. But the tax is an extra penny on each dollar spent, meaning that the cost of, say, fifty dollars of food at the grocery store increases by fifty cents, not one penny.
Further, we hear the sales tax spoken of as being a one percent increase. That’s true, if we mean a one percent increase in the cost of most things we buy. And one percent, after all, is just one percent. Not a big deal, people say. But considering the sales tax we pay, a relevant calculation is this: (8.15 – 7.15) / 7.15 = 14 percent. Which is to say, the amount of sales tax we pay will rise by 14 percent.
To explore the effect of the proposed sales tax on families of different incomes, I gathered data from the U.S. Census Bureau, specifically table 1101, which is “Quintiles of income before taxes: Annual expenditure means, shares, standard errors, and coefficient of variation, Consumer Expenditure Survey, 2012, (Selected Values).” This table divides families into five quintiles. It gives annual expenditures for each quintile in various categories. For each category, I judged whether it is subject to sales tax. For example, for housing, I indicated it is not subject to sales tax. This is not totally accurate, as some of the spending in this category may be for taxable items like maintenance and repair supplies. Food is subject to sales tax in Kansas, although low-income families may apply for a rebate of the tax. Despite these shortcomings, I feel this data gives us an approximation of the effect of the sales tax. (Click on the table to view a larger version, or see below for how to obtain the data.)
As you might imagine, as income rises, so does total taxable expenditures. Of interest, the percent of expenditures that are taxable is relatively constant across income levels.
An important finding is the bottom line of the table, which shows the increase in cost due to the proposed sales tax as percent of income after taxes. This calculates the relative impact of the proposed sales tax increase as a percent of income. It is here that we expect to see the regressive nature of a sales tax appear. For all consumers, the increase in cost is 0.35 percent. For the lowest class of income, the increase in cost is 0.97 percent of income. It falls to 0.26 percent for the highest income class.
This means that the lowest income class of families experience an increase nearly four times the magnitude as do the highest income families, as a percentage of after-tax income. This is the regressive nature of sales taxes illustrated in numbers, and is something that Wichita policy makers and voters should consider.
I’ve made the data available as a Google Docs spreadsheet. Click here for access.
In this episode of WichitaLiberty.TV: We’ll talk about the proposed Wichita sales tax, including who pays it, and who gets special exemptions from paying it. Then, can we believe the promises the city makes about accountability and transparency? Finally, has the chosen solution for a future water supply proven itself as viable, and why are we asking low-income households to pay more sales tax on groceries for drought protection? View below, or click here to view at YouTube. Episode 63, broadcast October 26, 2014.
In this script from the next episode of WichitaLiberty.TV, I report my concerns about rushing a decision to expand a water production system that has not yet proven itself.
For the proposed Wichita sales tax, the largest share will go towards a new water supply. 63 percent of the tax revenue — that’s $250 million over five years — will go towards what the city has decided will satisfy our water needs. This is expansion of the Aquifer Storage and Recovery program, or ASR.
People have told me that I should take a look at the production of the ASR system. Many people have told me that. So I took a look. Now, I realize that I am not a geologist. I am not a civil engineer with experience in public utilities like water systems. But what I found is more than a little alarming.
As a result of my research, I’m concerned that we don’t have a track record of success for the ASR program, but we’re thinking about putting all our eggs in that basket. Here is some history. ASR is a system north of Wichita. It draws water from the Little Arkansas River, treats it, and injects it into the Equus Beds aquifer. That’s the recharge process. That water is then available for use in the future. (Wichita already gets 40 percent of its water from the Equus beds.) There was ASR Phase 1, and now there is Phase 2. Cost so far is $247 million.
In April, Wichita Public Works Director Alan King told the city council that based on experience, we now believe we will get half the production from ASR as we originally thought. By production, we mean the amount of water that is treated and injected into the aquifer. So I did the research and I found that the ASR program has not come close to meeting this goal. This is the goal that was cut in half from the original goal.
I understand that ASR phase 2 came online during a drought. I understand that there was a learning curve. But since July 2013 — remember that’s when it started raining so much it flooded — ASR has not been performing anywhere near expectations.
In this chart, I start the horizontal axis with July 2013. The red line on top is what production was originally planned to be. Production will not necessarily be smooth, as production happens only on days when there is sufficient water in the river. But over time, this should be the trend.
The blue line is the expectations for production after being revised downwards.
In purple is actual production. Considering the 12 month stretch starting with July 2013, ASR produced 431 million gallons of recharged water. That is 23 percent of expectations, even after expectations were cut in half.
When I presented this information to the Wichita City Council this week, Alan King, the public works director, said “The information Mr. Weeks presented is accurate.” But he said my conclusions are not correct.
King told the council that during the timeframe of this chart, we weren’t looking to run the ASR system at maximum production levels. We were operating the facility in the most efficient manner possible. We were testing the individual components. We are still in a commissioning phase.
So based on this — we are still in a commissioning phase, we have not been running at maximum production levels — I believe we do not have enough experience to conclude that ASR is working. Couldn’t we wait until the ASR project is working at even half its design goal before making a decision to proceed with its expansion? This is too big a decision to make based on the scant evidence we have. Especially when we are asking low income and fixed income households to pay more sales tax on groceries to fund this project. Especially when Cheney Reservoir is full and there is no immediate crisis.
I did research on how an increase in sales tax affects households of different levels of income. Later the Wichita Eagle produced similar results. I showed that as a percentage of after-tax income, the proposed sales tax increase is four times as costly for low-income households as it is for high-income households. Remember, regarding a new water supply, we’re not worried about running out of drinking water, or even running out of water for industry and commercial users. We’re talking about restricting the watering of golf courses and lawns during an extended drought. We’re talking about not washing cars during a drought. Stripped to its essence, the city is asking low-income households to pay more sales tax on food so that lawns in wealthy neighborhoods may remain green at reasonable cost during a drought.
Here’s something else that troubles me regarding the water portion of the proposed sales tax. In the city’s informational material — the material that is meant to educate us on the issues — it’s said that if the sales tax does not pass, the city will use long-term debt to pay for ASR expansion, and that will cost an extra $221 million in interest expense. That course of action — using debt to pay for ASR expansion — is presented as a bad choice.
I want to remind you that the city borrowed over $200 million in long-term debt to pay for the present ASR system. That’s almost as much as the cost of the proposed ASR expansion.
Let me emphasize that. The city’s informational material says if voters don’t pass the sales tax, the city will do something unwise. But the city did that very same bad thing to pay for the current ASR project, that is, borrow money and pay interest. But now the city says pass the sales tax or we will do something bad to you. Pass the sales tax or the city will issue long-term debt and you will pay a lot of interest. Pass the sales tax, or we will do again what we did to pay for the current ASR project. And that would be bad for you and the city.
These are the choices the city gives voters. But others alternatives are available. If the city is concerned about the cost of debt financing, why not raise the money for ASR through a period of higher water bills for five years? This has the obvious benefit of having the people who actually use water pay for it. The cost of ASR expansion could be a separate line item on water bills so that we are acutely aware of how much this system costs. It’s important that we be aware of these costs. When paid through a sales tax, it’s difficult to track the money and know the total cost of the system to you. That’s something the city and the “Yes Wichita” group counts on. In fact, they say the sales tax is just one cent. Just one penny for every dollar you spend. You won’t even notice its impact.
Paying for a new water supply through water bills would let commercial and industrial users participate in paying the cost of the project. These water users generally don’t pay a lot of sales tax. A restaurant, for example, does not pay sales tax on the food ingredients it purchases. An aircraft manufacturer does not pay sales tax on the raw materials and component parts it buys. But these companies do have a water bill. Yet, the city recommends that low income households pay more sales tax on their groceries. The city says this is the best way to pay for a new water supply to protect our lawns and golf courses during a drought.
Here’s a thought. Sedgwick County Government is in a beneficial position regarding the water supply issue. The city is too wrapped up, too invested in advancing the ASR project. There are some big egos and political careers involved. There is an engineering firm that sees a big contract in its future.
Since county government is not in the business of providing water, it does not have these distractions and distortions. I think this places the county in the position of a referee, as an unbiased observer. The county is a governmental body that sincerely wants a secure water future for its largest city and for many of the smaller cities and residents that get their water from the Wichita system. Remember, many cities like Derby rely on the Wichita water system for their water. Collecting funds through water bills lets these customers help pay for the cost of a new water supply.
If city voters decide against the sales tax, which I hope is the outcome of the election, then the county commission could take the lead. It could commission a study of water issues. Since the county is not in the business of providing water, the study could be free of the biases and ambitions that infect whatever Wichita does. It could be conducted by an engineering firm that is not advocating for its own interests, as I fear is happening with Wichita.
I realize this would cost money and take time. But the city is on the verge of rushing into what I fear will be a costly mistake. Remember, Cheney Lake is full. There is no immediate water crisis. We do not have to rush to make a decision about expanding a system that has not yet entered full production, a system that is still in the commissioning stage. Wichita voters should not accept the false choices our city government is giving us.
A Wichita city report provides a somber look at the finances of a tax increment financing district.
The City of Wichita Department of Finance has prepared an update on the financial performance of the Old Town Cinema Tax Increment Financing (TIF) District. There’s not much good news in this document. The financial performance would be worse if the city had included the costs of the no-interest and low-interest loan made to the owners of property in this TIF district. But it doesn’t appear that those costs are included. Here’s an excerpt from the report:
In 2000, the appraised value of the southeast retail building and the Warren Theatre declined 12% (from $4.5 to $3.9 million) and 33% from ($4.4 to $2.9 million), respectively. These declines occurred as a result of property tax appeals, which were made by the TIF District’s primary developer. In addition, the total appraised value of the northeast and southeast retail buildings and the Warren Theatre remains more than $3.6 million below estimates in the project plan and overall values have not yet recovered to pre-2009 levels.
The “property tax appeals” referred to in this paragraph are the doing of David Burk. The Wichita Eagle reported at the time: “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.”
Several city officials expressed varying degrees of outrage with Burk’s action, with the city manager telling the Eagle that anyone has the right to appeal their taxes, but he added that ‘no doubt that defeats the purpose of the TIF.’”
Since then the city has granted several forms of subsidy to Burk and his partners.
The report from the finance department also told of problems with parking revenue:
Parking Revenue – The project plan assumed sufficient parking revenue cash flow over a fifteen-year period to provide $1.1 million towards principal debt obligations, assuming an interest rate of 4.5%. The Old Town Cinema TIF Fund has received substantially less parking revenue than was expected in the project plan. In some years, the TIF Fund has received no revenue from parking, and the highest amount received in any year was $51,130 (in 2008). From 2007, when the District first began receiving parking revenue, through 2013, a total of $153,130 in parking revenue has been transferred to the TIF Fund. Based on historical experience, additional parking revenue is not assumed and total parking revenue from 2004 to 2019 is conservatively projected at $153,130.
Later on, the report holds this:
Parking revenue collections are also substantially less than projected, because fees have not been increased as originally planned. The City’s general parking fee, which predates the Old Town Cinema TIF District, started at $7.50 per parking space per month. The fee was to increase to $25 per month over an eighteen-year period, with increases starting in approximately1996, according to Property Management. Fee increases never occurred, which were needed to pay for City parking activities. The general City fee differed slightly from that originally charged in the Old Town Cinema District, because the District initially charged a $10 per month fee, but this was reduced in about 2009 to $7.50 per month consistent with the parking fee charged elsewhere in the City, again according to Property Management.
The report also contains several financial statements. These statements do not contain a form of off-the-books support given to this TIF district. That was the no-interest and low-interest loan made to the Warren Theater, estimated to cost the city $1.2 million.
Click here to open the city’s report in a new window.
As Wichita voters consider spending $250 million expanding a water project, we should look at the project’s history. So far, the ASR program has not performed near expectations, even after revising goals downward.
In November Wichita voters will consider approval of a one cent per dollar sales tax. Of the $400 expected to be collected over five years, $250 million is earmarked for a new water source. The city has decided that the new water supply will be implemented through expansion of the Aquifer Storage and Recovery program or ASR. This is a program whereby water is taken from the Little Arkansas River, treated, and injected in the Equus Beds aquifer. That water is then available in the future as is other Equus Beds water.
The city believes that ASR is a proven technology that will provide water and drought protection for many years and recommends that voters approve $250 million for its expansion, although there is possibility that the cost may be $200 million.
According to city documents, the original capacity of the ASR phase II project to process water and pump it into the ground (the “recharge” process) was given as “Expected volume: 30 MGD for 120 days.” That translates to 3,600,000,000 (3.6 billion or 3,600 million) gallons per year. ASR phase II was completed in 2011.
At a city council workshop in April 2014, Director of Public Works and Utilities Alan King briefed the council on the history of ASR, mentioning the original belief that ASR would recharge 11,000 acre feet of water per year. But he gave a new estimate for production, telling the council that “What we’re finding is, we’re thinking we’re going to actually get 5,800 acre feet. Somewhere close to half of the original estimates.” The new estimate translates to 1,889,935,800 (1.9 billion or 1,900 million) gallons per year.
Based on experience, the city has produced a revised estimate of ASR production capability. What has been the actual experience of ASR? The U.S. Geological Survey has ASR figures available here. I’ve gathered the data and performed an analysis.
In 2013 ASR recharged 366 million gallons, or 19 percent of the newly revised estimate of production capacity. In 2014 through September, ASR recharged 275 million gallons, or 14 percent of capacity. Extrapolating this nine months of production to a full year results in 367 million gallons produced for 2014, or 19 percent of capacity, the same value as in 2013. This may or may not be valid, but it gives an idea of how 2014 is proceeding.
So for the two most recent years, the ASR system has not operated near its designed capacity, even after revising that capacity downwards by half.
To place these production figures in context, the city uses 56 million gallons per day, on average. So the annual production of the ASR project is about 6.5 days of water usage.
The ASR system is able to draw water from the river only when the flow is above a certain level, which is not every day of the year. So we may want to take a look at how the ASR system performs for shorter periods of time. Monthly data is available.
For a 30-day month, if the plant could be run at full design capacity each day, the production would be 900,000,000 (900 million) gallons. The best month ever for actual production was 192 million gallons, with the second best at 120 million gallons.
If we take the 12 best months for production, including before ASR Phase II started operations, the amount of water recharged is 924 million gallons. That’s 49 percent of the revised expected annual production of 1.9 billion gallons.
The cumulative deficit
I’ve produced a chart of the cumulative production of the Wichita ASR project compared with the original projections and the lower revised projections. The lines for projections rise smoothly, although it is expected that actual production is not smooth. The second phase of ASR was completed sometime in 2011, but no water was produced and recharged that year. So I started this chart with January 2012. Data is from U.S. Geological Survey.
Some have said that since 2013 was a drought year, it isn’t fair to evaluate the production of ASR during a drought. So to present ASR in the best possible light, I’ve prepared a chart starting in July 2013. That was when it started raining so much we had floods, and data from USGS shows that the flow in the Little Arkansas River was much greater. Still, the ASR project is not keeping up with projections, even after goals were lowered.
The city and the “Yes Wichita” campaign say the ASR project is proven and is working. The available data, however, does not support this claim.
Wichita water rates are about average for households using modest amounts of water. But households using a lot of water pay much less than average, leading us to wonder if Wichita could adjust its rates to encourage conservation and/or generate more revenue.
Data from a 2012 Black & Veatch survey of water and sewer rates in 50 large cities reveals an interesting characteristic of water rates.
Many cities have tiered water rates, where as a household uses more water, the marginal cost per gallon rises. This is the case in Wichita. Each household has its average winter consumption (AWC) as measured during the winter months. Presumably this is the water that is used for cooking, cleaning, flushing, bathing, and other indoor household needs. For Wichita city customers, for usage up to 110 percent of this value, or AWC, the rate is $1.77 per thousand gallons. For water used from 111 percent to 310 percent of AWC, the rate is $6.25 per thousand gallons. For use over this level, the rate is $9.13 per thousand gallons.
This means that water used inside the house — the presumed basis of AWC — has a low price in both winter and other seasons. But water used much above that value is more expensive. This is probably water used for swimming pools, irrigation of lawns, and other outside summer uses.
(The water usage is not the only cost that appears on Wichitans’ water bills. There is a minimum monthly charge and a charge for sewer service, and others.)
Back to the Black & Veatch survey. For the 50 cities in the survey, considering only the water portion of bills, the average cost for using 3,750 gallons per month is $19. For using 15,000 gallons, the cost is $65. That’s a ratio of 3.4 to 1.
For Wichita, the survey reported costs of $18 and $36, for a ratio of 2.0 to 1.
These are two important numbers: 3.4 and 2.0. They mean that while Wichita water becomes marginally more expensive as more is used, the slope is not nearly as steep as the average. It means that households that use low amounts of water pay about average rates, but those using a lot of water pay rates much less than average.
Does this mean that if Wichita is serious about conservation of water, that it could ramp up summer water rates more in like with other cities? It looks that way.
And would this provide the revenue the city says it needs to develop a new water supply?
To pay for a new water supply, Wichita gives voters two choices and portrays one as exceptionally bad and unwise. This either-or fallacy created by the city is a form of campaigning for the sales tax in disguise.
In November Wichita voters will decide whether to create a sales tax of one cent per dollar. The largest intended purpose of the funds is to create a new water supply.
Set aside for a moment the question whether Wichita needs a new water source. Set aside the question of whether ASR is the best way to provide a new water source. What’s left is how to pay for it.
To pay for a new water source, the city gives us two choices: Either (a) raise funds through the sales tax, or (b) borrow funds that Wichitans will pay back on their water bills, along with a pile of interest.
As you can see in the nearby chart prepared by the city, the costs are either $250 million (sales tax) or $471 million (borrow and pay interest). The preference of the city is evident: sales tax. The “Yes Wichita ” group agrees.
Here’s what is happening. City hall gives us two choices. It’s either (a) do what we want (sales tax), or (b) we’ll do something that’s really bad (borrow and pay interest). Wichitans shouldn’t settle for this array of choices.
Are there other alternatives for raising $250 million for a new water source (assuming it is actually needed)? Of course there are. The best way would be to raise water bills by $250 million over five years. In this way, water users pay for the new water supply, and we avoid the long-term debt that city council members and “Yes Wichita” seem determined to avoid.
Water bills would have to rise by quite a bit in order to raise $50 million per year. But it’s important to have water users pay for water. The benefit of having water users pay for a new water source is that water users will become acutely aware of the costs of a new water supply. That awareness is difficult to achieve. Many citizens are surprised to learn that the city has spent $247 million over the past decade on a water project, the ASR program. Almost all of that was paid for with long-term debt, the same debt that the city now says is bad.
As Wichita voters consider promises of transparency and reporting regarding job creation, the city fails to make even the most basic information available.
In November, Wichita voters will consider whether to authorize a sales tax of one cent per dollar. Part of that would be used for economic development with the aid of creating jobs. The city promises a transparency in decision making and reporting of results regarding this jobs fund.
Material produced by the city on July 22 contains: “Decisions about who receives funding, the number of jobs, and the impact on community would be made in public meetings and tracked through a website. Reports would be made on a regular basis to elected officials.”
On its website, the “Yes Wichita” group promises that “Results will be measured and reported publicly.” Also, “Decisions and results are made in public meetings and transparent with website tracking results, investments and return on investment to community.”
In other words, sales tax boosters are promoting transparency and presentation of results.
The thing is, the city and its affiliated groups could be doing this right now if they wanted to. They could have been doing it for many years, if they had wanted to.
A specific example
Premier Processing is a company located in Wichita that received forgivable loans from both Wichita and Sedgwick County five years ago. The loans included clawback provisions calling for repayment of the loans if jobs targets were not met.
Unfortunately, the job targets were not met. Premier has repaid the loans to both governments. (I’ve requested further details from the city, such as whether the company paid the interest that the contract specified in case of default.)
Are you aware of this news? It’s not likely that you are aware, as neither Sedgwick County or the city made this information public. But this is the type of information the city and “Yes Wichita” promise will be available in the future.
It’s true that the city doesn’t have a fancy website on which to report these results. But that isn’t needed right now. If the city is truly interested in reporting results to citizens, it could have written a simple press release. Two or three sentences is all that’s needed. The city could have dictated these sentences to a newspaper or television reporter. This is not difficult. It would cost next to nothing.
But the city didn’t do that. Instead, someone tipped me, and I asked. If not for that, we would not know. This is the culture at Wichita city hall.
Individual liberty, limited government, economic freedom, and free markets in Wichita and Kansas