Tag Archives: Wichita city council

City of Wichita State Legislative Agenda: Economic Development

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.

Wichita Legislative Agenda, November 2014, page 16, Economic DevelopmentThat’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.

Here are the programs listed in the previous legislative agenda that the city wants the legislature to protect. Some of these are so valuable that Kansas business leaders told the governor that they value these incentives more than they would value elimination of the state corporate income tax.

  • GWEDC/GO WICHITA: Support existing statutory records exemptions
  • Industrial Revenue Bond tax abatements (IRBX)
  • Economic Development Exemptions (EDX)
  • Tax Increment Financing (TIF)
  • Sales Tax Revenue (STAR) Bonds
  • Community Improvement Districts (CID)
  • Neighborhood Revitalization Area (NRA) tax rebates
  • Special Assessment financing for neighborhood infrastructure projects, facade improvements and abatement of asbestos and lead-based paint.
  • State Historic Preservation Tax Credits (HPTC)
  • State administration of federal Low Income Housing Tax Credits (LIHTC)
  • High Performance Incentive Program (HPIP) tax credits
  • Investments in Major Projects and Comprehensive Training (IMPACT) grants
  • Promoting Employment Across Kansas (PEAK) program
  • Economic Revitalization and Reinvestment Act bonding for major aviation and wind energy projects
  • Kansas Industrial Training (KIT) and Kansas Industrial Retraining (KIR) grants
  • Network Kansas tax credit funding
  • State support for Innovation Commercialization Centers in Commerce Department budget

City of Wichita State Legislative Agenda: Cultural Arts Districts

Wichita government spending on economic development leads to imagined problems that require government intervention and more taxpayer contribution to resolve. The cycle of organic rebirth of cities is then replaced with bureaucratic management.

Commerce Street Arts District P9As 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.

Bob Weeks and Bill Goffrier in the artist's studio, Flatiron Building, Wichita, 1982
Bob Weeks and Bill Goffrier in the artist’s studio, Flatiron Building, Wichita, 1982
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.

City of Wichita State Legislative Agenda: Passenger rail

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.

Wichita Legislative Agenda, November 2014, page 07, Passenger RailThe 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.

U.S. Passenger Miles, Air and Amtrak. Note difference in scales.
U.S. Passenger Miles, Air and Amtrak. Note difference in scales.

So some people, like Wichita City Council Member Pete Meitzner (district 2, east Wichita) take a different tack. Passenger rail is about boosting business productivity.

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

Table 4 Net Federal Subsidies per Thousand Passenger-Miles by Mode FY 1990-2002

From Federal Subsidies to Passenger Transportation, Bureau of Transportation Statistics, December 2004.

From Randal O’Toole Stopping the Runaway Train: The Case for Privatizing Amtrak:

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.

Airline, Highway, and Amtrak Subsidies per Passenger Mile, Cato Institute, 2012

From Amtrak And The Progressive Sleight Of Hand, Competitive Enterprise Institute:

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.

Not all Wichita candidates support your right to know

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.”

Richard Ranzau, slayer of cronyism

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.

WichitaLiberty.TV: Results of and reflection on the Wichita sales tax election and campaign

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.

Wichita Mayor Carl Brewer on citizen engagement

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.

Wichita citizen involvement, percent rating excellent or good 2012

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.

wichita-airport-dashboard-2013-07-29About 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.

Then there’s this, as Carrie Rengers reported in the Wichita Eagle in October 2013:

“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.

So much for welcoming citizen engagement.

Wichita Mayor Carl Brewer should stand down on tax projects

By Mike Shatz.

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.

Continue reading at Kansas Exposed.

In election coverage, The Wichita Eagle has fallen short

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

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.

Wichita Eagle Building, detail
Wichita Eagle Building, detail
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?

Wichita Downtown Development Corporation campaigns for higher taxes, paid for by taxes

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.”

Campaign activity at the office of the Wichita Downtown Development Corporation.
Campaign activity at the office of the Wichita Downtown Development Corporation.
The “governing body” in this instance is the Wichita City Council.

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?

Wichita to consider tax exemptions

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

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:

City $81,272
State $3,750
County $73,442
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

Wichita Mayor Carl Brewer Facebook 2012-01-04Spirit 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.

Boeing Wichita tax abatements, annual value, from City of Wichita.
Boeing Wichita tax abatements, annual value, from City of Wichita.
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.

Fact-checking Yes Wichita: Tax rates

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.”

Wichita property tax mill levy 1994 to 2013This 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.”

Wichita property tax mill levy 1994 to 2013 chartApart 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.

While campaigning for higher sales tax, the Wichita Chamber president seeks an extension of his exemption from that tax

This is awkward.

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.

High Touch Technologies in downtown Wichita, with sign calling for higher sales tax.
High Touch Technologies in downtown Wichita, with sign calling for higher sales tax.
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.

Shortly after receiving the tax exemptions the company CEO — a man named Wayne Chambers — became chair of the Wichita Metro Chamber of Commerce.

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

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.

Wichita proposed sales tax explanation on water

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.

In Wichita, the public deserves and should demand answers

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.

Kansas Senator Michael O'Donnell
Kansas Senator Michael O’Donnell
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):

Continue reading In Wichita, the public deserves and should demand answers

Proposed Wichita sales tax won’t satisfy needs, appetites

The proposed Wichita sales tax does little to address the city’s delinquent infrastructure maintenance gap. Despite this, there are rumors of another sales tax next year for quality of life items.

Earlier this year the steering committee for the Wichita/Sedgwick County Community Investments Plan delivered a report to the Wichita City Council. The report contains facts that are relevant to the proposed Wichita one cent per dollar sales tax. Voters will decide on this in November.

Community Investments Plan document, February 2014
Community Investments Plan document, February 2014. Click for larger version.
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.

Wichita/Sedgwick County Community Investment PlanSubtract 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.

Wichita has unmet maintenance requirements, and many wants on top of that.
Wichita has unmet maintenance requirements, and many wants on top of that.
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.

Wichita sends educational mailer to non-Wichitans, using Wichita taxes

Why is the City of Wichita spending taxpayer money mailing to voters who don’t live in the city and can’t vote on the issue?

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.

Envelope of sales tax mailer sent by Wichita Mayor Carl Brewer to Bel Aire resident. Click for larger version.
Envelope of sales tax mailer sent by Wichita Mayor Carl Brewer to Bel Aire resident. Click for larger version.
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?

Wichita sales tax hike harms low income families most severely

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.

Click the table for a larger version.
Click the table for a larger version.
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.

Additional cost of proposed Wichita sales tax as percent of after-tax income, by income quintile. Click for larger version.
Additional cost of proposed Wichita sales tax as percent of after-tax income, by income quintile. Click for larger version.
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.

WichitaLiberty.TV: The proposed one cent per dollar Wichita sales tax

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.

Should Wichita expand a water system that is still in commissioning stage?

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.

Wichita plans and background sales tax coverFor 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.

Gallons of Water Recharged Through Recharge Basins and Wells during Wichita ASR phase 2, cumulative from July 2013. Click for larger version.
Gallons of Water Recharged Through Recharge Basins and Wells during Wichita ASR phase 2, cumulative from July 2013. Click for larger version.
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.

Additional cost of proposed Wichita sales tax as percent of after-tax income, by income quintile. Click for larger version.
Additional cost of proposed Wichita sales tax as percent of after-tax income, by income quintile. Click for larger version.
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.

City of Wichita information on proposed sales tax
City of Wichita information on proposed sales tax
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.

Old Town Cinema TIF update

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.

Wichita ASR water recharge project: The statistics

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.

Annual production

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.

Monthly production

Gallons of Water Recharged Through Recharge Basins and Wells during Wichita ASR phase 1 and phase 2, monthly. Click for larger version.
Gallons of Water Recharged Through Recharge Basins and Wells during Wichita ASR phase 1 and phase 2, monthly. Click for larger version.
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

Gallons of Water Recharged Through Recharge Basins and Wells during Wichita ASR phase 2, cumulative. Click for larger version.
Gallons of Water Recharged Through Recharge Basins and Wells during Wichita ASR phase 2, cumulative. Click for larger version.
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.

Gallons of Water Recharged Through Recharge Basins and Wells during Wichita ASR phase 2, cumulative from July 2013. Click for larger version.
Gallons of Water Recharged Through Recharge Basins and Wells during Wichita ASR phase 2, cumulative from July 2013. Click for larger version.
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 seen as not encouraging conservation

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.)

Water bills for different levels of usage. Average of 50 cities on top; Wichita on bottom. Click for larger version.
Water bills for different levels of usage. Average of 50 cities on top; Wichita on bottom. Click for larger version.
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?

Is Wichita campaigning for the sales tax?

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.

City of Wichita information on proposed sales tax
City of Wichita information on proposed sales tax
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.

Wichita city hall doesn’t need a sales tax to burn off the fog

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.

In Wichita, pro-sales tax campaign group uses sales tax-exempt building as headquarters

While “Yes Wichita” campaigns for higher sales taxes, it operates from a building that received a special exemption from paying sales tax.

Many Wichitans remember the building at the northwest corner of First and Market Streets as the Kansas Gas and Electric Building. Today, under new ownership, it’s being converted to luxury apartments under the name “The Lux.”

“Yes Wichita” campaign headquarters, located in a building that received a sales tax exemption.
“Yes Wichita” campaign headquarters, located in a building that received a sales tax exemption.
The new owners of The Lux felt that they shouldn’t have to pay sales tax on things they purchase (like construction materials) while renovating the building. So they approached the city. On October 2, 2012 the city granted their request and initiated the process whereby The Lux will avoid paying sales taxes.

Fast forward two years. Now there’s a proposal to add one cent per dollar to the sales tax in Wichita. A group named “Yes Wichita” formed to promote the higher sales tax.

When “Yes Wichita” — a group that campaigns for you to pay higher sales taxes on nearly everything from baby formula to automobiles — needed campaign headquarters, do you know where it decided to locate?

That’s right. In The Lux, a building that does not have to pay sales tax on materials used in its conversion to luxury apartments.

Really. I’m not kidding.

For Wichita, another economic development plan

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

This week the Wichita City Council will consider funding “the formulation of a new economic development strategy.” Here’s a summary provided by the city:

Wichita State University approached STARNet about developing a proposal to assist WSU, the Wichita Metro Chamber of Commerce and the community with the formulation of a new economic development strategy. Over a period of almost ten months STARNet will manage a four phase process that will lead to an integrated economic development strategy that will prioritize how and where to deploy resources. The process will include a comprehensive review of the region’s assets and issues, development of a common vision, identification of priorties [sic] and egagement [sic] of stakeholders committed to strategy implementation.

Starnet proposal to Wichita City CouncilIt sounds from this as though the city has not been engaging in economic development and strategizing. This reminds me of the $658 million in tax abatements Boeing received over several decades. Wasn’t that economic development? The answer from pro-sales tax forces was no, that wasn’t paid in cash. Also, even though Boeing has left Wichita, the facilities still generate $6 million in property taxes. So, it really worked after all, they say.

(The tax abatements Boeing received were more valuable to the company than equivalent grants of cash. See What Boeing received from Wichita was better than cash.)

Here’s something else from the proposal summary: “Project Objective: Support formulation of a Wichita Economic Development Strategy that integrates existing initiatives (e.g. GWEDC and WSU); is supported by the majority of regional stakeholders and can be used to guide policy discussions for use of new City/County revenues for job formation.” (emphasis added)

I thought we already had a plan for the sales tax revenue, according to the city and the “Yes Wichita” group. Now we are told we need to start an expensive and lengthy planning process?

What about the cost and funding? “The total estimated cost of the project is $234,929. Funding partners include WSU, Wichita Metro Chamber of Commerce, Greater Wichita Economic Development Coalition, Wichita Downtown Development Corporation, the City of Wichita and Sedgwick County. The City of Wichita is being asked to contribute an amount not to exceed $42,986. The funding partners will have an agreement with WSU who, in turn, will hold the contract with STARNet.”

Here is the first thing that will be done, according to the proposal: “Secure Co-chairs to Lead Initiative: This regional initiative begins with the designation of at least two or more high level, objective, economic leaders agreeing to co–chair the on–going initiative. The co-chairs are often effective when chosen from an existing regional development group.”

Wichita Chamber Leadership CouncilThis is written as through Wichita has been doing nothing in this regard. I wonder what the leaders of the Wichita Metro Chamber Leadership Council thinks of this? Here’s what the Chamber says about this council:

The Leadership Council is a think tank comprised of 100 top business, non-profit and public-sector CEO’s for the purpose of discussing and pursuing resolutions of major issues or projects to make the Wichita area competitive for job creation, talent attraction, capital investment and therefore long-term economic prosperity. Created by the Wichita Metro Chamber of Commerce, the Council is co-chaired by Charlie Chandler (Intrust Bank Chairman and CEO) and Jeff Turner (retired CEO of Spirit AeroSystems). The Council was formed in 2012 and held its first meeting in September of the same year.

So we’ve had two prominent Wichita business leaders shepherding an initiative for two years. Is this effort now discarded?

Here’s something to watch for. Proposals like this contain buzzwords — something new and exciting, something that leaders can use to show they’re on the cutting edge. So note this language in the proposal:

Moreover, economies don’t stop at municipal or county boundaries; they go where their residents drive to work—the “comutershed”. (Misused punctuation in the original.)

I wonder when city leaders start using this neologism — comutershed — if they will correct the spelling of one of its base words.

I urge taking a look at the proposal. The agenda packet is here: Wichita City Council, October 14, 2014.

Wichita debt levels seen to rise

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

According to the most recent edition of Wichita’s Performance Measure Report, the city’s debt levels are projected to rise, based on three measures.

Click for larger version
Wichita Outstanding Net General Obligation Debt as a Percentage of Assessed Value
One measure, named “Outstanding Net General Obligation Debt as a Percentage of Assessed Value,” is projected to rise. From 2007 through 2011, the average value for this measure was 1.50 percent. Since then its actual value has risen, and the city projects it to continue to rise, reaching 3.59 percent in 2015 and then 3.44 percent in 2016. (Click charts for larger versions.)

Describing this measure, the city document explains “The level of outstanding debt as a percentage of assessed valuation is based on currently anticipated debt needs of the 2011-2020 Adopted Capital Improvement Program. The percentage is expected to increase as additional debt financing projects are implemented.” (emphasis added)

In “Factors impacting outcomes,” the city explains “Slow assessed valuation growth coupled with increasing debt will lead to an increase in this measure.” (emphasis added)

Wichita Outstanding Gross General Obligation Debt per Capita
Wichita Outstanding Gross General Obligation Debt per Capita
Another measure is “Outstanding Gross General Obligation Debt per Capita.” From 2007 to 2009 the average value was $1,216. It has risen since then, although not steadily. The value is projected to peak at $1,626 in 2015 and then fall to $1,610 in 2016.

City documents explain: “Slow population growth coupled with increasing debt lead to an increase in this measure.” (emphasis added)

Wichita Outstanding General Obligation Debt Service as a Percentage of Debt Service Fund Taxes Levied
Wichita Outstanding General Obligation Debt Service as a Percentage of Debt Service Fund Taxes Levied
Another measure is “Outstanding General Obligation Debt Service as a Percentage of Debt Service Fund Taxes Levied.” This measure is projected to rise to over twice its recent low value of 30 percent in 2009 to 64 percent in 2015 and 2016.

The performance report describes this measure as “… outstanding General Obligation debt divided by taxes levied by the Debt Service Fund.” Its importance is this, says the city: “This is a measure of flexibility; if the percentage is lower, there are more future opportunities to initiate projects paid for with bonds.”

The document also explains: “In the past, the City of Wichita’s borrowing needs have been lower because more projects were paid for with cash, rather than bonds.” Additionally, “Anticipated debt issuances will increase, based on programmed CIP improvements.”

While Wichita asks for new taxes, it continues to spend and borrow

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

The City of Wichita is asking voters to approve a sales tax of one cent per dollar. Part will be used to bolster areas of spending where the city admits not spending enough: Street maintenance and transit. (These shortfalls are based on the city’s goals.)

The city says it does not have enough revenue to pay for these items. But voters need to know that the city continues to spend on new things. In fact, it borrows quite a bit to finance new things.

As an example, last month the city issued $368 million in bonded debt. Part — about half — was to refinance short-term bonds. The other half was new debt.

Here’s something listed as what the city paid for with part of the bond proceeds: “Douglas and Hillside Redevelopment, $3,685,000.00.” The new intersection is nice, although the previous version wasn’t bad.

To relate this 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 to be spent in addition to what the city has already planned to spend.

So to reconstruct just one intersection, the city spent two-thirds of the dedicated portion of the sales tax for streets.

WaterWalk Place in downtown Wichita, September 30, 2014
WaterWalk Place in downtown Wichita, September 30, 2014
Here’s what voters need to keep in mind. The city claims it doesn’t have enough revenue to pay for the upkeep of streets — the streets that taxpayers have already paid for. But the city borrows money for new projects like this and many others. Then, the city tells us it doesn’t have enough money to maintain what we already have, and voters need to pass a sales tax.

By the way, how do you feel about the progress of the WaterWalk development in downtown? There’s not much going on there. Here’s how much the city borrowed to spend on that project, according to the bond documents: “WaterWalk – Eastbank Development, $7,145,000.00″

Questions ‘Yes Wichita’ doesn’t want asked or answered

“Yes Wichita” is a group that wants you to vote “Yes” on the proposed Wichita sales tax. But this group will not answer questions. Instead they delete the inconvenient questions.

I’ve asked the “Yes Wichita” group several questions about the proposed one cent per dollar Wichita sales tax. They’re reasonable questions that many Wichita voters might like answered. But instead of answering the questions, “Yes Wichita” has deleted them from its Facebook page. Upon my inquiry as to why, there has been no answer.

I realize these questions are inconvenient for the “Yes Wichita” group, and for the City of Wichita too. So I understand why these people did not answer my questions. Wichita voters may want to consider this indifferent attitude as they make their decision on this issue. Voter might also consider that there are questions the sales tax supporters don’t want asked, much less answered.

Here are questions that I’ve asked that were never answered, and finally deleted. Perhaps you might want to submit them to “Yes Wichita” to see if you can get answers.

October 7, 6:07am
I have a question. The city’s documents regarding the sales tax state: “The State of Kansas estimates that 13% of sales taxes paid in the Wichita area are paid by non-residents based on a report at www.ksrevenue.org/pullfactor.html. This means that the City would collect an estimated $51.7 million in sales taxes (of the total $397.6 million)from non-residents.”

But at the “Yes Wichita” website, there is a different claim: “If we fund a new water source through a sales tax instead of water bills or property taxes, visitors and tourists will pay the sales tax, reducing the burden of this cost to Wichitans by about one-third.”

So which is it? 13 percent, or 33.3 percent? Why does “Yes Wichita” use a figure 2.5 times the city’s?

October 3, 7:48pm
I have a question regarding the proposed sales tax. Earlier this year the steering committee for the Wichita/Sedgwick County Community Investments Plan delivered a report to the Wichita City Council. The report says the city is delinquent in maintaining infrastructure. The report said the “cost to bring existing deficient infrastructure up to standards” is an additional $45 to $55 million per year. Does the proposed sales tax do anything to address this maintenance gap other than the portion earmarked for street repairs? Do you think the city will be asking for additional tax revenue to address the maintenance shortfall? If not, what is the city’s plan for catching up on infrastructure maintenance?

October 2, 8:53pm
I have a question. Can anyone tell me what the cost of the sales tax for an average family might be?

September 22, 9:48pm
I have a question. Jon Rolph disputed Jennifer Baysinger’s figures on the cost of the proposed sales tax for Wichita households. Is he or “Yes Wichita” willing to provide any figures or calculations as to what the cost might be, and the basis for Rolph’s disagreement?

Union Station development drains taxes from important needs

Testimony of John Todd to the Wichita City Council, October 7, 2014.

I want to complement the Union Station LLC group for tackling an important redevelopment project in downtown Wichita.

I am troubled however, by the developer’s request for $17.3 million in Tax Increment Finance (TIF) funding for his project because it diverts increases in future property tax revenues away from the public treasury and back to the developer for 20 years. Under current taxing levies this means that roughly one-third or $5 million plus of future Union Station property tax revenues would be diverted from the City of Wichita needed for public safety items like police and fire protection, and the building of public infrastructure. Plus, roughly one-third or $5 million plus would be diverted from the Sedgwick County treasury needed to provide for our Court System, the maintenance of property ownership records, the Sheriff’s office and detention center. The last one-third or $5 million plus would be diverted from Wichita Public Schools needed for the education of our children.

Drain, waterThe diversion of future property tax revenues away from local governmental treasuries should concern every taxpaying citizen when one considers the many needs for these funds. On the city level, $5 million over 20 years could go a long way towards funding needed street maintenance and repairs, or providing the revenue needed for a viable public bus system, and finding a long-term solution to our cities’ future water needs. Sedgwick County could use $5 million to re-open the Judge Riddel Boys Ranch that helps turn boy’s lives around and makes our community a safer place to live and play by reducing recidivism and crime. And, just think of how many teachers could be hired with $5 million to prepare our young people for productive lives and jobs.

I am of the opinion that Mr. Gary Oborny has the track record to prove that he is one of the most creative and exceptional real estate developers in the City of Wichita and that he possesses the professional talents needed to make the Union Station project work without TIF public funding.

I believe at some point downtown redevelopment needs to be market driven, stand on its own, and pay taxes into the city treasury like other city development projects do.

Today, you have the opportunity to exercise your leadership skills in achieving this transformation. I urge you to seize it.

How much Wichita sales tax is paid by visitors?

Part of the sales pitch for the proposed Wichita sales tax is that part is paid by visitors. But there are big differences in opinion as to how much.

The proposed 1-cent sales tax FAQIn a “frequently asked questions” document produced by the City of Wichita in September, there is a section titled “How much of the sales tax is paid by visitors to Wichita?” The city’s answer is: “The State of Kansas estimates that 13% of sales taxes paid in the Wichita area are paid by non-residents based on a report at www.ksrevenue.org/pullfactor.html. This means that the City would collect an estimated $51.7 million in sales taxes (of the total $397.6 million) from non-residents.”

But at the “Yes Wichita” website, there is a different claim: “If we fund a new water source through a sales tax instead of water bills or property taxes, visitors and tourists will pay the sales tax, reducing the burden of this cost to Wichitans by about one-third.”

So which is it? 13 percent, or 33.3 percent? Why does “Yes Wichita” use a figure 2.5 times the city’s?

I’ve asked in the past that “Yes Wichita” show its calculations and assumptions. Here’s another opportunity.

Again, Wichita policies are fluid

Wichita city hall promises policies that are clear, predictable and transparent, except when they’re not.

On July 22, 2104, a presentation to the Wichita City Council sought to assure the council and public that a proposed jobs fund created with money collected by the proposed sales tax would have policies that govern the spending of funds: “GWEDC – Finds businesses to expand, recruit, follows established policies for retention/recruitment.”

But there’s a problem. It’s difficult for governments to establish policies that will satisfy everyone. How do we know today what we’ll need five or ten years down the road? When governments change policies to fit particular circumstances, taxpayers are rightfully concerned that the alterations are to suit the needs of special people — the cronies that feed from the city hall trough of taxpayer money. When you couple in what public choice theory tells us, which is that the cronies who want money from government have a much stronger motive to succeed than the bureaucrats are motivated to protect citizens and taxpayers, we can have trouble.

This has happened before in Wichita. Last year when a project didn’t meet the (supposedly) required benefit-cost ratio, the city simply said that it didn’t apply in that case. See Wichita’s policymaking on display.

Now, Wichita seeks to modify its policies again in response to the wants and desires of one person.

Here’s the background you need to know. When the city passed a downtown development incentives policy in 2011, here’s what the city said was its goal: “The business plan recommends the development of a prudent public investment policy that is clear, predictable and transparent, maximizes public investment and enhances market-driven development.” (emphasis added)

The meeting minutes contained further elucidation: “Scott Kneibel Planning Department stated the purpose of the policy is to put in place something that is clear and predictable in terms of how the public would invest in downtown projects through partnership with the private sector. Stated that sort of statement by this governing body has not been made to date. Stated that is the purpose of this policy so that developers will know what types of investments the City of Wichita is interested in making and how the City of Wichita will make those decisions.” (emphasis added)

But as in the past, we find city proposing the change the standards in the middle of the game. Here’s an excerpt from the agenda packet for Tuesday’s meeting, in which a large incentive package for the redevelopment of Union Station may be considered: “In the opinion of the evaluation team, the established criteria do not adequately address projects such as Union Station where the requested incentives do not involve City debt.”

For this project we see that city policy is being modified on the fly to meet the circumstances of a particular project. This is not necessarily bad. Entrepreneurship demands flexibility. But the city promises policies that are clear, predictable and transparent, and city officials say Wichita has a transparent, open government.

Can you imagine conscientious developers who want to invest in downtown Wichita, but after studying the city’s policies, realize their projects don’t conform to the city’s published standards? How many moved on to other cities, not realizing that our standards can be altered and waived?

As Wichita voters consider the value to give to promises from city hall, they should consider these episodes when the city promises there will be “established policies” for the spending of economic development funds generated by the proposed sales tax.

Errors in Wichita Union Station development proposal

Documents the Wichita City Council will use to evaluate a development proposal contain material errors. Despite the city being aware of the errors for more than one month, they have not been corrected.

On August 19, 2014 the Wichita City Council considered an agenda item titled “Resolution Considering the Establishment of the Union Station Redevelopment District, Tax Increment Financing.” The purpose of the item was to set October 7, 2014 as the date for the public hearing on the formation of a TIF district. The council passed this resolution.

On August 27 Bob Weeks inquired this of Wichita city officials based on information contained in city documents that were prepared for the August 19 meeting:

“On the Union station TIF proposal, there is mentioned ‘$3,766,156 in monetized historic tax credits.’ Do you know whether these are federal or state tax credits, and the face value of the credits? I presume that ‘monetized’ means the value the developers expect to receive when selling the credits at a discount.”

That same day he received this response from Allen Bell, the city’s Director of Urban Development.

“The Developer has not yet provided the City with details on the tax credits. However, staff analyzed the project to ascertain a ballpark estimate of how much it could generate in both state and federal tax credits and came up with a similar amount. We assume that $3,766,156 is the amount of net proceeds to be injected into the project from the sale of tax credits and that it is discounted from the face value of the credits.”

On follow up, Weeks asked this:

“I was also wondering which incentive program allows for the sales tax exemptions included in the CEDBR analysis.”

The response from Bell was:

“The only incentive program available to Union Station that would provide a sales tax exemption is IRBs. The Developer did not request IRBs or a sales tax exemption. I would guess that CEDBR factored it into the cost-benefit analysis to be extra conservative.”

CEDBR is the Center for Economic Development and Business Research at Wichita State University.

In addition to Bell, other city officials participating in these emails were Van Williams, Public Information Officer; Mark Elder, Development Analyst; and Scott Knebel, Downtown Revitalization Manager.

On October 2, when the city released the agenda packet for the October 7 meeting, the tax credits and sales tax information was not changed.

By the city’s admission, the value of tax credits for this project is a guess, and we don’t know if the project is actually eligible for these tax credits. The sales tax exemption included in the CEDBR is an incentive this project is not eligible for and will not receive. Despite several city officials being aware of these errors, the material the city council will consider on October 7 has not been corrected.

Wichita man who complained of regulations now asks for your tax dollars

Gary Oborny of Wichita appeared on Fox News in August to explain problems with onerous government regulations. Next week he will ask the Wichita City Council to use laws and regulations to grant him millions of tax dollars. For more, see Union Station TIF provides lessons for Wichita voters.

WichitaLiberty.TV: The proposed one cent per dollar Wichita sales tax

In this episode of WichitaLiberty.TV: Considering the proposed Wichita sales tax, looking at unmet maintenance needs, claims that we have few economic development incentives, the cost of the sales tax to families, the taxes already going to the transit system, and the bad choice the city gives us for water. View below, or click here to view at YouTube. Episode 61, broadcast October 5, 2014.

Union Station TIF provides lessons for Wichita voters

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

Next week a Wichita real estate developer will ask the Wichita City Council to approve a package of incentives for the redevelopment of Union Station in downtown Wichita. The proposal contains many facets that citizens need to understand. Additionally, the city’s handling of this matter is something that voters will want to keep in mind as they make their decision on the proposed Wichita sales tax in November.

The city’s documents on this matter are available at Resolution Considering the Establishment of the Union Station Redevelopment District (Tax Increment Financing).

Tax increment financing

Union Station LLC is asking for TIF, or tax increment financing. Most commonly, TIF works like this: A city borrows money (by issuing bonds) and gives the cash to a development. After the project is built and has a higher assessed value, the city uses the increased property tax payments (the “increment” in TIF) from the development to pay off the bonds. This obviously is risky for cities, because if the development doesn’t generate sufficient increment in tax payments to cover the bond payments, the city will have to make up the difference. This has happened in Wichita.

In recent years a new type of TIF has been created by statute, the “pay-as-you-go” TIF. Here, instead of issuing bonds and paying off the bonds with the incremental taxes, the city simply refunds the incremental taxes to the development. City documents describe: “The TIF statute also allows for projects to be financed on a pay-as-you-go basis, to reimburse the developer for eligible costs as TIF funds are received.”

This has less risk for cities, because if the hoped-for incrementally higher property taxes don’t materialize, the development doesn’t receive TIF proceeds. There are no bonds that must be paid. The developer just doesn’t receive what was projected. This is why the city claims that pay-as-you-go TIF has no risk to the city.

(Under pay-as-you-go TIF, since the city is essentially refunding nearly all property tax payments back to the development, we have to wonder why the city requires the taxes be paid at all. Also, there is the charade of spending TIF money only on “eligible” project costs. But the criteria for eligibility is broad, and we can be sure that developers will do all they can to make sure costs are characterized as eligible. But the eligibility criteria allows cities to appear to be fiscally prudent. Cities say they don’t allow TIF proceeds to be spent on just anything, but only on eligible costs.)

Here’s what the agenda packet says about this TIF: “Union Station LLC proposes to combine pay-as-you-go TIF with private financing to finance the proposed redevelopment project. The developer will finance through private sources all costs of the redevelopment project, including TIF-eligible project costs. Pay-as-you-go TIF revenue will be used to reimburse the developer on an annual basis with proof of expenditure of TIF-eligible redevelopment project costs.”

Buried in this paragraph is some financial slight-of-hand. Wichitans need to understand this so that they can be fully informed on this proposed transaction.

The problem lies is the meanings of the terms “to finance” and “to pay for.” Financing is the process of securing money to pay the costs of acquiring something. If financing is in the form of a loan, the economics of the transaction is that the borrower receives cash (assets go up) but also incurs an obligation to pay back the cash (liabilities go up by the same amount).

Then, when the borrower uses this cash to buy something — like a historic train station — one form of asset is exchanged for another. Cash is exchanged for title to the property.

It’s in the future, as the loan is repaid, that needs examination. The goal of real estate development is that the developer creates a project that generates more money coming in than loan payments going out. If this happens, it is a signal that the developer has met customer needs and has used capital in a way that makes everyone better off.

But there’s a confounding factor involved in the “pay for” part of the transaction that the city council will consider next week. The burden of some of the loan repayments will be born by the taxpayer. We don’t know for sure, but undoubtedly Union Station LLC will borrow money to make the project work. Proceeds from the TIF will be used to make at least some of the loan payments.

This is where the slight-of-hand comes in. The city says “The developer will finance through private sources …” That much is true. The city is not loaning any money. But some of the money used to pay back the private loans will come from TIF proceeds. So it is property tax payments being re-routed back to the developer that actually pays for part of the development: “Pay-as-you-go TIF revenue will be used to reimburse the developer on an annual basis …”

This is the heart of the transaction. It’s what citizens need to understand. Instead of Union Station LLC’s property taxes being used to pay the cost of government, nearly all of these taxes will pay off the owner’s loans.

The purchase of the property

Here’s what city documents state regarding the purchase of the property: “The $6,226,156 in equity is proposed to be in the form of $1,500,000 from the purchase of the property that will be contributed as collateral, $3,766,156 in monetized historic tax credits, and $960,000 in cash.”

It’s the “purchase of the property” that needs scrutiny. More from the city documents: “The developer would be compensated for the fair market value of the land where public access improvements would be located, not to exceed the $1,500,000 actual site acquisition cost. The Public Access Easement attachment illustrates that the portions of the site where a public access easement would be acquired is 274,059 square feet and that the average land acquisition cost of 10 comparable downtown properties is $6.71 per square foot, placing the fair market value of the land where the public access improvements would be located at $1,839,147.”

What’s happening is that part of the land area of the project is being called “public access improvements.” These are things like, according to city documents, “parking structure, pedestrian boardwalk, paving, utilities, and landscaping.” The city is proposing to pay the developer $1,500,000 for these areas.

If the council agrees to this, new avenues will have been opened for spending taxpayer funds. It places other commercial developers and landlords at a disadvantage. Consider, say, the recent Whole Foods Market that opened in Wichita. What Union Station LLC wants is like that developer asking to be reimbursed for the shrubs and grass that was planted, or the parking spaces that are provided. The public will, after all, view the sunlight reflected from the grass and breathe the oxygen generated by the shrubs. And, the public will park in the spaces. These “public access improvements” are part of what is necessary to provide an attractive and desirable development. It’s part of what businesses do to attract customers and earn profits. But the Union Station developer is asking that the city pay him for providing these things. If the council agrees to this, we can expect to see this template applied repeatedly in the future.

The missing tax credits

City documents state this regarding the sources of funds for the project: “Private to Public Investment Ratio — The proposed private capital investment is $36,578,000, and the proposed public capital investment is $17,321,000, resulting in a private to public capital investment ratio of 2.1 to 1.” But missing from this calculation is the contribution of taxpayers in the form of historic preservation tax credits. As reported above, the city reports the project will receive $3,766,156 in monetized historic tax credits.

(Tax credits are economically equivalent to a grant of cash from government. Commonly their value is used to boost the “private” equity contribution to the project. But since the tax credits come from government, we ought to call it the “peoples’ equity.”)

I inquired of city officials whether the historic preservation tax credits are federal, state, or both. The answer I received: “The Developer has not yet provided the City with details on the tax credits. However, staff analyzed the project to ascertain a ballpark estimate of how much it could generate in both state and federal tax credits and came up with a similar amount. We assume that $3,766,156 is the amount of net proceeds to be injected into the project from the sale of tax credits and that it is discounted from the face value of the credits.”

So it seems like the city is surmising things that may or may not be part of the developer’s plan.

False sales tax exemption applied

There’s another level of uncertainty in the city documents. In the analysis performed by Center for Economic Development and Business Research at Wichita State University, about $1.8 million in sales tax exemptions are included in the analysis. In my reading of the project documents, I didn’t see the project qualifying for sales tax exemptions. Upon inquiry to the city, I received this response: “The only incentive program available to Union Station that would provide a sales tax exemption is IRBs. The Developer did not request IRBs or a sales tax exemption. I would guess that CEDBR factored it into the cost-benefit analysis to be extra conservative.”

It appears there is a lack of communication between the city and CEDBR. More surmising. Exactly which incentives are available to be tapped by this project, and in what amount? Can we trust the analysis from CEDBR if it includes incentives that the project has not requested and is not eligible to receive?

Benefit-cost ratios

Benefit-cost ratios of Union Station LLC project for City of Wichita. Click for larger version.
Benefit-cost ratios of Union Station LLC project for City of Wichita. Click for larger version.
The city has a policy that economic development projects should have a benefit-cost ratio of 1.3 to 1 or greater. For this project, CEDBR reports these ratios:

City General Fund, 1.04
City Debt Service Fund, 1.15
Total City, 1.08
Sedgwick County, 1.06
State of Kansas, 1.66
School district, 7.19

For the city and county, the ratios are far below 1.3 to 1. There are many exceptions and loopholes in the incentive policy that allows the city to participate in projects with less than the 1.3 ratio.

The (un)certainty of city policies

For this project we see that city policy is being modified on the fly to meet the circumstances of a particular project. This is not necessarily bad. Entrepreneurship demands flexibility. But the city promises certainty in its standards, and city officials say Wichita has a transparent, open government. The Public-Private Partnership Evaluation Criteria for the redevelopment of downtown Wichita states “The business plan recommends public-private partnership criteria that are clear, predictable, and transparent.”

But as in the past, we find the city’s policies are anything but predictable and transparent. City documents state: “In the opinion of the evaluation team, the established criteria do not adequately address projects such as Union Station where the requested incentives do not involve City debt.” So we see the “clear, predictable, and transparent” policies discarded and reformulated. How are future developers supposed to know which policies can be waived or rewritten? How are citizens supposed to trust that city hall is looking out for their interests when policies are so fluid?

Wichita sales tax does little to close maintenance gap

The proposed Wichita sales tax does little to close the city’s delinquent infrastructure maintenance gap. Despite this, there are rumors of another sales tax next year for quality of life items.

Earlier this year the steering committee for the Wichita/Sedgwick County Community Investments Plan delivered a report to the Wichita City Council. The report contains facts that are very relevant to the proposed Wichita one cent per dollar sales tax. Voters will decide on this in November.

Community Investments Plan document, February 2014
Community Investments Plan document, February 2014. Click for larger version.
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.

Wichita/Sedgwick County Community Investment PlanSubtract 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? No, it doesn’t.

So what about the 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 a lot more tax revenue. That is, if the city is to adequately maintain the things that taxpayers have paid to provide.

It gets even worse.

Wichita has unmet maintenance requirements, and many wants on top of that.
Wichita has unmet maintenance requirements, and many wants on top of that.
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 cut for the proposed sales tax, 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. 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 for more spending. Even if the sales tax passes, these remain unfulfilled.

WichitaLiberty.TV: Arrival of Uber a pivotal moment for Wichita

In this excerpt from WichitaLiberty.TV: Now that Uber has started service in Wichita, the city faces a decision. Will Wichita move into the future by embracing Uber, or remain stuck in the past? View below, or click here to view at YouTube. Originally broadcast on September 14, 2014.

For more in this topic, see Arrival of Uber a pivotal moment for Wichita.