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.
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.”
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.
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.
It 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.
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.”
This 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.
Wichita city leaders and the “Vote Yes” group say it’s better to pay for a new water source with sales tax rather than debt. This aversion to debt seems to be a recent concern of the city, considering the chart below.
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.
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)
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)
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.”
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.
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″
“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?
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.
The 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.
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.
In 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.
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.
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.
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.
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.
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.
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?
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?
The most important thing Wichita voters need to know that the city is delinquent in maintaining the assets that taxpayers have purchased. The cost to remedy this lack of maintenance is substantial. On an annual basis, Wichita needs to spend $180 million on infrastructure depreciation/replacement costs. Currently the city spends $78 million on this, the presentation indicates.
The “cost to bring existing deficient infrastructure up to standards” is given as an additional $45 to $55 million per year.
How does this relate to the proposed sales tax? Of the funds the sales tax is projected to raise over five years, $27.8 million is allocated for street maintenance and repairs. That’s $5.6 million per year.
Subtract that from what the Community Investments Plan says we need to spend on deficient infrastructure, and we’re left with (roughly) $40 to $50 million per year in additional spending on deficient infrastructure. Remember, that’s on top of ongoing infrastructure depreciation/replacement costs.
Does the proposed sales tax do anything to address those needs? 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.
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.
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.
Wichitans are threatened with shutdown of the city’s bus system if voters don’t approve a sales tax. We need out-of-the-box thinking here.
In November Wichita voters will decide whether to create a sales tax of one cent per dollar. Part of the funds would be directed to the Wichita transit system.
In another example of “either/or” thinking, members of the Wichita Transit board floated the idea that if the sales tax doesn’t pass, we’ll shut down the entire system. The Wichita Business Journalreported “The rhetoric surrounding the November sales tax referendum heated up on Friday, when reports surfaced that some Wichita Transit advisory board members think the system should be shuttered if the sales tax fails.”
City hall pushed back. The official city position is that without a sales tax, there would be service reductions of 25 percent. But the shutdown threat was made and reported. It will undoubtedly have an effect on some people.
Why does city hall give us such a limited range of choices? Why would members of the Wichita Transit board seed rumors that are so far away from the city’s official position?
Aren’t there other ways to provide transit in Wichita? One new choice in Wichita is the Uber ridesharing service. Its arrival increases transit options in Wichita. Will city hall allow Uber to stay in Wichita?
In some cities so-called “dollar vans” are operated by private industry in competition with city-owned traditional transit. Would Wichita city hall allow such services here?
Both Uber and “dollar vans” are, in my opinion, not compatible with Wichita’s existing laws and regulations. I fully expect the city to crack down on Uber soon. We’re then left with “big empty buses” and traditional taxi service as our transit choices, and perhaps higher taxes too.
To pay for a new water supply, Wichita gives voters two choices and portrays one as bad. But the purportedly bad choice is the same choice the city made over the last decade to pay for the last big water project. We need out-of-the-box thinking here.
In November Wichita voters will decide whether to create a sales tax of one cent per dollar. By far the largest intended purpose of the funds is to create a new water supply.
Set aside for a moment the question whether Wichita needs a new water source. Set aside the question of whether ASR is the best way to provide a new water source. What’s left is how to pay for it.
To pay for a new water source, the city gives us two choices: Either (a) raise funds through the sales tax, or (b) borrow funds that Wichitans will pay back on their water bills, along with a pile of interest.
As you can see in the nearby chart prepared by the city, the costs are either $250 million (sales tax) or $471 million (borrow and pay interest). The preference of the city is evident: sales tax. The “Yes Wichita ” group agrees.
Here’s what is happening. City hall gives us two choices. It’s either (a) do what we want (sales tax), or (b) we’ll do something that’s really bad (borrow and pay interest). Wichitans shouldn’t settle for this array of choices.
Are there other alternatives for raising $250 million for a new water source? 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.
It will be easier to let people know how much a new water supply costs and how it affects them personally when its cost appears on their water bills. The money that is collected through water bills can be placed in a dedicated fund instead of flowing to the city’s general fund. Then, after the necessary amount is raised, water bills can be immediately adjusted downwards. That’s more difficult to do with a sales tax.
If we pay for a new water supply through a general retail sales tax, the linkage between cost and benefit is less obvious. There is less transparency, and ultimately, less accountability. And we need more accountability. Eleven years ago former mayor Bob Knight was assured that the city had adequate water for the next 50 years. Since then we’ve spent $247 million on the ASR project. Yet, the city says there is a water crisis that demands passage of a sales tax.
Speaking of accountability: Last week the city issued $147,391,828 in long-term bonds to permanently finance short-term bonds used to pay for phase II of the ASR project. That’s right. The ASR project, which by any account has been under-performing, was largely paid for with borrowed funds.
If borrowing to pay for a new water supply is bad, was it also bad to borrow to pay for ASR? Who do we hold accountable for that decision?
In this excerpt from WichitaLiberty.TV: Will the proposed Wichita sales tax result in more paved streets? It depends on what you mean by “pave.” Bob Weeks explains. View below, or click here to view at YouTube.
Will Wichita city officials and sales tax boosters attend an educational event produced by a leading Kansas public policy institute? It will be an opportunity for city officials to demonstrate their commitment to soliciting input from the community.
Wichita voters will face a choice in November — whether to vote for or against a proposed sales tax of one cent per dollar. Wichita city council members and city hall bureaucrats say they have spent great effort educating Wichitans on issues relevant to the sales tax. Members of the “Yes Wichita” group are holding events to educate the public on why they should vote in favor of the tax.
All of the information presented by the city and the “Yes Wichita” group has a common ideological thread: That our city has problems, and the way to fix things is to implement a new tax and rely on government to provide the solutions it has determined we need.
City hall might be surprised to learn that there are differing opinions as to the nature and extent of our city’s problems, and different ideas about how to fix them. Some of these ideas are novel. Some may work, and some may not. (It’s far from certain that government-provided solutions will work.) Most of these diverse ideas are well-researched. They often rely on private sector initiative rather than government taxation and spending. They may rely on voluntary cooperation through markets rather than coercive government action.
Since city hall says that knowing the facts is important, you might think that city council members and city bureaucrats would welcome the production of educational events on sales tax topics. That’s why it was discouraging that a July forum on water issues produced by Kansas Policy Institute was attended by just a handful of city officials. Even worse, the city officials that attended left the meeting at its midpoint, as soon as the city’s public works director finished his presentation.
I understand that city council members are part-time employees paid a part-time salary. Some have outside jobs or businesses to run. But that’s not the case with the city’s public works director or its governmental affairs director. That’s not the case with the city manager, or the assistant city manager, or the city’s economic development staff.
It’s especially not the case for Mayor Carl Brewer. He is paid a full-time salary to be the leader of our community. When he shows little willingness to consider views other than those produced by city hall sycophants that work — directly or indirectly — for him and the council, we have a deficit of leadership in Wichita.
It’s especially grating because several city council members and the “Yes Wichita” group contend their opponents — like me — are misinformed and/or lying. (When pressed for specific examples, few are produced.)
If you’ve attended a city council meeting, you may have to sit through up to an hour of the mayor issuing proclamations and service awards before actual business starts. Fleets of city bureaucrats are in the audience during this time.
But none of these would spend just one hour listening to a presentation in July by a university professor that might hold a solution to our water supply issue.
I understand that city officials might not be the biggest fans of Kansas Policy Institute. It supports free markets and limited government. But city officials tell us that they want to hear from citizens. The city says it has gone to great lengths to collect input from citizens, implementing a website and holding numerous meetings.
About 70 people attended the KPI forum in July. Citizens were interested in what the speakers had to say. They sat politely through the presentation by the two city officials, even though I’m sure many in the audience were already familiar with the recycled slides they’d seen before.
But it appears that Wichita city officials were not interested in alternatives that weren’t developed by city hall. They can’t even pretend to be interested.
Now, this Friday morning September 19, Kansas Policy Institute is producing another forum on issues relevant to the proposed sales tax. The event’s agenda features six speakers over about four hours. Three speakers were selected by the Wichita Metro Chamber of Commerce. Two are from out of town. Another is an expert on the Wichita and Kansas economy. There will be opportunities for attendees to ask questions.
Will city council members, city hall bureaucrats, and members of the “Yes Wichita” leadership team attend this event?
The Fostering Economic Growth in Wichita event is open to everyone and presented at no charge by Kansas Policy Institute. For more information and registration, click here.
As the City of Wichita asks for more tax money for infrastructure, Wichita voters need to be aware of the projected costs of the city’s deferred maintenance.
When the Wichita City Council voted to increase water rates in November 2013, meeting minutes reported these remarks from the city manager explaining that Wichita has not adequately maintained its infrastructure:
Bob Layton City Manager stated the Council told staff last year that they wanted staff to continue to look at operation efficiencies to reduce the operating costs, which they are doing. Stated the rate recommendation does reflect the three percent efficiency increase. Stated over the last several years 80% of those rate increases have gone to infrastructure improvements and a lot of it is because of deferred maintenance that occurred over a long period of time. Stated they recognize even with these increases that it will difficult to keep up with the maintenance requirements of our system but are also aware of concerns residents have about significant rate increases.
This was not the first time, nor the last time, that Wichitans might have heard about problems with deferred maintenance of city infrastructure. In his 2013 State of the City addressMayor Carl Brewer told the city that over the next 30 years, “Wichita’s aging water, sewer, and storm drainage systems will require significant maintenance or replacement. Total replacement of these systems is estimated to cost $2.1 BILLION.” (emphasis in original)
Earlier this year a report presented to the Community Investments Plan Steering Committee held language like “Decades of under-investment in infrastructure maintenance … 38% of Wichita’s infrastructure is in ‘deficient/fair’ condition.”
The report also told the committee that the “cost to bring existing deficient infrastructure up to standards” is given as an additional $45 to $55 million per year.
It’s important to note that these costs are not for building new infrastructure. Also, these costs are not for routine, ongoing maintenance. Instead, these numbers are what it costs to catch up with what the city should have been doing. As the report says: To bring existing deficient infrastructure up to standards.
This is important for Wichita voters to know as they consider their decision on a proposed one cent per dollar sales tax that will appear on the November ballot. Almost two-thirds of the tax proceeds would be spent on water.
But it’s important to note that the purpose of the $250 million allocated for water is not for catching up on the maintenance backlog. Instead, it’s earmarked for building additional water supply capability.
Whether the sales tax passes or not, the deferred maintenance needs of our existing infrastructure will remain. There will be pressure for water rates to rise, or for some other source of revenue to catch up on maintenance.
It won’t do us much good to have a new water source (the purpose of which is to allow for the watering of lawns and washing of cars during droughts) if the water pipes are broken. Perhaps Wichita voters should ask that the city present a plan for maintaining the assets we have before sending more tax dollars to city hall.
And let’s also ask this: Why hasn’t the city maintained the infrastructure that taxpayers and water users have already paid for?
In this excerpt from WichitaLiberty.TV: 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. View below, or click here to view on YouTube. For more on this, see Wichita sales tax hike would hit low income families hardest.
Wichita city council member Lavonta Williams (district 1, northeast Wichita) is a supporter of the proposed one cent per dollar Wichita sales tax. She has also spoken of her concern for Wichita’s low-income families, as she did in November 2013 when the Wichita City Council voted to increase water rates. City documents indicated that the average residential bill would rise by $1.33 per month for those who use modest amounts of water.
According to the meeting minutes, Williams said this:
Council Member Williams stated she realizes that some may think that $1.33 is not that big of an increase, but for so many of our constituents, it is quite an increase for them especially those who are on a fixed income. Stated this is concerning to her and appreciates staff looking at all options and are kicking off a program that will help those who need assistance from the City. Stated she realizes as a City that we have to continue moving forward and look at our infrastructure.
I wonder: When Williams voted in favor of the Wichita sales tax ballot placement, did she understand that anyone who spends $133.00 per month on taxable purchases will see a $1.33 rise in their monthly sales tax expense? Recall that Kansas applies sales tax to food, although there is a possibility of receiving a rebate. The rebate is implemented through a nonrefundable income tax credit.
Here’s something else: Since Williams applauded the formation of a payment assistance program for those who can’t afford their water bills, I wonder if she will propose a similar program for those who can’t afford a higher sales tax?
Supporters of a proposed sales tax in Wichita promise there will be no conflicts of interest when making spending decisions. That would be a welcome departure from present city practice.
In November Wichita voters will decide on a new one cent per dollar sales tax, part to be used for economic development, specifically job creation. “Yes Wichita” is a group that supports the sales tax. Language on its website reads: “Conflict-of-interest policies will prohibit anyone from participating in decisions in which there is any self-interest.” The page is addressing the economic development portion of the proposed sales tax. It’s part of an effort to persuade Wichita voters that millions in incentives will be granted based on merit instead of cronyism or the self-interest of politicians, bureaucrats, and committee members.
The problem is that while the city currently has in place laws regarding conflicts of interest, the city does not seem willing to observe them. If the proposed sales tax passes, what assurances do we have that the city will change its ways?
Following, from October 2013, is one illustration of Wichita city hall’s attitude towards conflicts of interest and more broadly, government ethics.
Wichita contracts, their meaning (or not)
Is the City of Wichita concerned that its contracts contain language that seems to be violated even before the contract is signed?
No member of the City’s governing body or of any branch of the City’s government that has any power of review or approval of any of the Developer’s undertakings shall participate in any decisions relating thereto which affect such person’s personal interest or the interests of any corporation or partnership in which such person is directly or indirectly interested.
At Tuesday’s meeting I read this section of the contract to the council. I believe it is relevant for these reasons:
1. Wichita Mayor Carl Brewer is a member of a governing body that has power of approval over this project.
2. Bill Warren is one of the parties that owns this project.
3. Bill Warren also owns movie theaters.
4. Wichita Mayor Carl Brewer owns a company that manufactures barbeque sauce.
5. Brewer’s sauce is sold at Warren’s theaters.
The question is this: Does the mayor’s business relationship with Warren fall under the prohibitions described in the language of section 11.06? Evidently not. After I read section 11.06 I asked the mayor if he sold his sauce at Warren’s theaters. He answered yes. But no one — not any of the six city council members, not the city manager, not the city attorney, not any bureaucrat — thought my question was worthy of discussion.
(While the agreement doesn’t mention campaign contributions, I might remind the people of Wichita that during 2012, parties to this agreement and their surrogates provided all the campaign finance contributions that council members Lavonta Williams and James Clendenin received. See Campaign contributions show need for reform in Wichita. That’s a lot of personal interest in the careers of politicians.)
I recommend that if we are not willing to live up to this section of the contract that we strike it. Why have language in contracts that we ignore? Parties to the contract rationalize that if the city isn’t concerned about enforcing this section, why should they have to adhere to other sections?
While we’re at it, we might also consider striking Section 2.04.050 of the city code, titled “Code of ethics for council members.” This says, in part, “[Council members] shall refrain from making decisions involving business associates, customers, clients, friends and competitors.”
That language seems pretty clear to me. But we have a city attorney that says that this is simply advisory. If the city attorney’s interpretation of this law is controlling, I suggest we strike this section from the city code. Someone who reads this — perhaps a business owner considering Wichita for expansion — might conclude that our city has a code of ethics that is actually observed by the mayor and council members and enforced by its attorneys.
Claims by boosters of a proposed Wichita sales tax that the city will be transparent in how money is spent must be examined in light of the city’s attitude towards citizens’ right to know.
When a city council member apologizes to bureaucrats because they have to defend why their agencies won’t disclose how taxpayer money is spent, we have a problem. When the mayor and most other council members agree, the problem is compounded. Carl Brewer won’t be mayor past April, but the city council member that apologized to bureaucrats — Pete Meitzner (district 2, east Wichita) — may continue serving in city government beyond next year’s elections. Wichita City Manager Robert Layton will likely continue serving for the foreseeable future.
Why is this important? Supporters of the proposed Wichita sales tax promise transparency in operations and spending. But requests for spending records by the city’s quasi-governmental agencies are routinely rebuffed. The city supports their refusal to comply with the Kansas Open Records Act. Many of the people presently in charge at city hall and at agencies like Greater Wichita Economic Development Coalition will still be in charge if the proposed sales tax passes. What assurances do we have that they will change their attitude towards citizens’ right to know how taxpayer funds are spent?
Following, from December 2012, an illustration of the city’s attitude towards citizens’ right to know.
Wichita, again, fails at open government
The Wichita City Council, when presented with an opportunity to increase the ability of citizens to observe the workings of the government they pay for, decided against the cause of open government, preferring to keep the spending of taxpayer money a secret.
In the past I’ve argued that Go Wichita is a public agency as defined in the Kansas Open Records Act. But the city disagreed. And astonishingly, the Sedgwick County District Attorney agrees with the city’s interpretation of the law.
So I asked that we put aside the law for now, and instead talk about good public policy. Let’s recognize that even if the law does not require Go Wichita, WDDC, and GWEDC to disclose records, the law does not prohibit them from fulfilling records requests.
Once we understand this, we’re left with these questions:
Why does Go Wichita, an agency funded almost totally by tax revenue, want to keep secret how it spends that money, over $2 million per year?
Why is this city council satisfied with this lack of disclosure of how taxpayer funds are spent?
For that matter, why isn’t Wichita’s check register online?
It would be a simple matter for the council to declare that the city and its taxpayer-funded partner agencies believe in open government. All the city has to have is the will to do this. It takes nothing more.
Only Wichita City Council Member Michael O’Donnell (district 4, south and southwest Wichita) gets it, and yesterday was his last meeting as a member of the council. No other council members would speak up in favor of citizens’ right to open government.
But it’s much worse than a simple failure to recognize the importance of open government. Now we have additional confirmation of what we already suspected: Many members of the Wichita City Council are openly hostile towards citizens’ right to know.
He added that this is a matter for the Attorney General and the District Attorney, and that not being a lawyer, she shouldn’t be expected to understand these issues. He repeated the pawn theme, saying “Unfortunately there are occasions where some people want to use great people like yourself and [Wichita Downtown Development Corporation President] Jeff Fluhr as pawns in a very tumultuous environment. Please don’t be deterred by that.”
Mayor Brewer added “I would have to say Pete pretty much said it all.”
We’ve learned that city council members rely on — as Randy Brown told the council last year — facile legal reasoning to avoid oversight: “It may not be the obligation of the City of Wichita to enforce the Kansas Open Records Act legally, but certainly morally you guys have that obligation. To keep something cloudy when it should be transparent I think is foolishness on the part of any public body, and a slap in the face of the citizens of Kansas. By every definition that we’ve discovered, organizations such as Go Wichita are subject to the Kansas Open Records Act.”
But by framing open government as a legal issue — one that only lawyers can understand and decide — Wichita city government attempts to avoid criticism for their attitude towards citizens.
It’s especially absurd for this reason: Even if we accept the city’s legal position that the city and its quasi-governmental taxpayer-funded are not required to fulfill records request, there’s nothing preventing from doing that — if they wanted to.
In some ways, I understand the mayor, council members, and bureaucrats. Who wants to operate under increased oversight?
What I don’t understand is the Wichita news media’s lack of interest in this matter. Representatives of all major outlets were present at the meeting.
I also don’t understand what Council Member Lavonta Williams (district 1, northeast Wichita) suggested I do: “schmooze” with staff before asking for records. (That’s not my word, but a characterization of Williams’ suggestion made by another observer.)
I and others who have made records requests of these quasi-governmental taxpayer-funded organizations have alleged no wrongdoing by them. But at some point, citizens will be justified in wondering whether there is something that needs to be kept secret.
The actions of this city have been noticed by the Kansas Legislature. The city’s refusal to ask its tax-funded partners to recognize they are public agencies as defined in the Kansas Open Records Act is the impetus for corrective legislation that may be considered this year.
Don’t let this new law be known as the “Wichita law.” Let’s not make Wichita an example for government secrecy over citizens’ right to know.
Unfortunately, that bad example has already been set, led by the city’s mayor and city council.
Supporters of the proposed Wichita sales tax contend that the millions in incentives Boeing received were not cash. That’s true — they were more valuable than cash.
At a forum on the proposed Wichita sales tax on September 9, 2014, “Yes Wichita” co-chair Jon Rolph told the audience “The Boeing incentive thing? The city never gave Boeing incentives. They didn’t take our incentive money and run.” As explained at Fact-checking Yes Wichita: Boeing incentives, the claim that the “city never gave Boeing incentives” must be astonishing news to the Wichita city officials who dished out over $600 million in subsidies and incentives to the company.
In response, “Yes Wichita” posted this on its Facebook page: “Those who were at the event understand that the conversation was about cash incentives not about IRBs. Boeing never received cash incentives from the City.”
First, it’s interesting that the person commenting on behalf of “Yes Wichita” was able to read the minds of the audience members. That’s a neat trick. But let’s talk about something more important — the confusion that often surrounds economic development incentives.
“Yes Wichita” contends that although Boeing received an estimated $657,992,250 in property tax abatements over several decades, this doesn’t count as “cash incentives” because it wasn’t given to Boeing in the form of cash.
“Yes Wichita” is correct, in a way. As a result of the City of Wichita’s issuance of industrial revenue bonds, Boeing didn’t receive cash from the city. Instead, the benefits the city initiated on Boeing’s behalf are more valuable to the company than receiving an equivalent amount of cash.
According to IRS guidelines, “tax incentives, whether in the form of an abatement, credit, deduction, rate reduction or exemption, simply reduce the tax imposed by state or local governments.” The IRS says these incentives do not count as income. Therefore, Boeing did not pay income taxes on these benefits, as it would have if the city gave the company cash.
The claim by the “Yes Wichita” group — that tax abatements don’t count as cash incentives — is characteristic of the way economic development incentives are justified. Instead of passing out cash, it’s more common that government uses abatements, credits, tax increment financing, investment in training and infrastructure, or exemptions. Many of these programs are confusing to citizens, and perhaps also to the elected officials who approve them. This allows government to shroud the economic realities of the transaction, and “Yes Wichita” is contributing to this confusion.
In this episode of WichitaLiberty.TV: Wichita economic development, one more untold story. The arrival of Uber is a pivotal moment for Wichita. Fact-checking Yes Wichita on paved streets. View below, or click here to view at YouTube. Episode 58, broadcast September 14, 2014.
Supporters of a proposed Wichita sales tax contend there is only one alternative for paying for a new water supply, and it is presented as unwise.
The major component of the proposed Wichita one cent per dollar sales tax is to pay for a new water supply. Controversy surrounds how the water should be supplied (ASR? El Dorado? New reservoir?) and its urgency. But according to sales tax boosters, there is no controversy about how to pay for a new water supply.
The City of Wichita and the “Yes Wichita” group present two alternatives to Wichita voters: Either (a) approve a sales tax to pay for a new water supply, or (b) the city will borrow to pay for the water supply and water users will pay a lot of interest. Campaign material from “Yes Wichita” states that without a sales tax, “we end up paying 50% more over 25 years because of financing costs.”
Are there other alternatives? Here’s one: If the water supply project costs $250 million, let’s raise water bills by that amount 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. Also, Wichitans need to be aware — acutely aware — of the costs of a new water supply. Many citizens are surprised to learn that the city has spent $247 million over the past decade on a water project, the ASR program. That money was mostly borrowed, much of it by the same mayor, council members, and city hall bureaucrats that now shun long-term debt.
It will be easier to let people know how much a new water supply costs and how it affects them personally when its cost appears on their water bills. The money that is collected through water bills can be placed in a dedicated fund instead of flowing to the city’s general fund. Then, after the necessary amount is raised, water bills can be immediately adjusted downwards. That’s more difficult to do with a sales tax.
If we pay for a new water supply through a general retail sales tax, the linkage between cost and benefit is less obvious. There is less transparency, and ultimately, less accountability.
Sales tax supporters like “Yes Wichita” claim that one-third of the sales tax collected in Wichita is paid by non-Wichitans. It’s smart, they say, to have visitors to Wichita pay for a portion of the costs of a new water supply. But don’t retail stores pass along their costs — including water bills — to their customers?
Consider this: What is probably the most expensive item sold on a routine basis by a Wichita water utility customer? A good guess would be a Boeing 737 fuselage manufactured by Spirit Aerosystems and sold to Boeing. This item isn’t subject to sales tax. But Spirit can pass along higher water bills to Boeing. (This assumes that shifting costs to outsiders is desirable. I’m not convinced it is.)
According to the Wichita budget, the Wichita water utility provides water to 425,000 customers. As the population of Wichita is about 385,000, there are some 40,000 Wichita water utility customers outside the city. How best to have them help pay for a new water supply: Through their water bills, or hoping that residents of Derby drive past their local Wal-Mart and Target stores to shop at identical stores in Wichita so they can pay sales tax to the city?
There are alternatives for paying for a new water supply other than a sales tax and long-term debt. As has been illustrated by sales tax opponents, water is important, but the need for a new water supply is not as urgent as sales tax supporters portray. There is time to consider other alternatives.
Claims of valuing and promoting government transparency by the City of Wichita are contradicted by its taxpayer-funded surrogates.
As boosters of a proposed Wichita sales tax promise accountability and transparency in how money will be spent, especially the portion designated for jobs and economic development, voters may want to consider the city’s past and present attitude towards government transparency and open records.
These agencies spend considerable sums of tax money. In December the city approved funding Go Wichita with $2,322,021 for 2014, along with a supplemental appropriation of $150,000. Earlier this year the council voted to increase the city’s hotel tax by 2.75 cents per dollar, with the proceeds going to Go Wichita. That tax is thought to raise $2.5 million per year.
That’s a lot of tax money. It’s also a very high portion of the agency’s total funding. According to the 2012 IRS form 990 for Go Wichita, the organization had total revenue of $2,609,545. Of that, $2,270,288 was tax money from the city. That’s 87 percent taxpayer-funded. When the surge of higher hotel tax money starts flowing in, that percent will undoubtedly rise, perhaps to 93 percent or more.
Despite being nearly totally funded by taxes, Go Wichita refuses to supply spending records. Many believe that the Kansas Open Records Act requires that it comply with such requests. If the same money was being spent directly by the city, the records would be supplied.
This week Go Wichita refused to provide to me its contract with a California firm retained to help with the re-branding of Wichita. If the city had entered into such a contract, it would be public record. But Go Wichita feels it does not have to comply with simple transparency principles.
Supporters of the proposed one cent per dollar Wichita city sales tax promise transparency in the way decisions are made and money is spent. Below, Mike Shatz explains how this promise is hollow.
City of Wichita wants to increase sales tax by 14%
The City of Wichita funnels your tax dollars into “non-profit” development groups that refuse to show us how that money is spent, and now the City wants you to vote in favor of a sales tax increase so they can give these organizations even more of your money.
These groups, Go Wichita, The Downtown Development Corporation, and the Greater Wichita Economic Development Coalition, get roughly 90% of their overall funding from Wichita tax dollars, but claim that they are exempt from the Kansas Open Records Act, because they are “private” organizations.
The City of Wichita could easily place conditions on the money it gives to these groups, requiring them to show taxpayers how their tax dollars are being spent, but the City refuses to do so. This is not transparency.
The cost of the proposed Wichita sales tax to households is a matter of dispute. I present my figures, and suggest that “Yes Wichita” do the same.
At a forum on the proposed Wichita sales tax on September 9, 2014, Jennifer Baysinger told the audience that “the average family bringing in about $50,000 a year would pay about $240 a year tax.” She was speaking on behalf of Coalition for a Better Wichita, a group that opposes the one cent per dollar sales tax that Wichita voters will see on their November ballots.
In his rebuttal, “Yes Wichita” co-chair Jon Rolph disputed these figures, saying that Baysinger’s claim would mean that the average family spends $24,000 per year on “groceries and sweaters and socks.” He said a family would need to make $200,000 per year to spend that much on taxable items.
So who is correct? It’s relatively easy to gather figures about sales taxes and households. Here’s what I found.
According to a report from the Kansas Department of Revenue, in fiscal year 2013 the City of Wichita generated $372,843,844 in retail sales tax collections. With a population of 385,577 (2012 value), the tax collected per Wichita resident was $966.98.
Supporters of the proposed sales tax say that one-third of the sales tax collected in Wichita is paid by non-Wichitans. If true, that leaves $248,562,563 in sales tax paid by 385,577 Wichita residents, or $645 per person. This figure is from sales tax being collected at a rate of 7.15 percent, which implies that one cent per dollar of sales tax generates $90 per person. (This assumes that people do not change their purchases because of higher or lower sales taxes, which does not reflect actual behavior. But this is an estimate.)
According to the U.S. Census Bureau, there are 2.49 persons per household in Wichita. That means that a one cent per dollar sales tax has a cost of $224 per household. That’s close to Baysinger’s figure of $240.
We could also take sales tax collections of $248,562,563 and divide by the 151,309 households in Wichita to get a figure of $1,642.75 in sales tax paid per household. Again, since that is tax paid at the rate of 7.15 percent, it implies that one cent per dollar of sales tax generates $230 per household, subject to the same caveats as above. Again, this is close to Baysinger’s figure.
These results are close to my estimation of the cost of the proposed sales tax derived in an entirely different way. I took Census Bureau figures for the amount spent in various categories by families of different income levels. For each category of spending, I judged whether it was subject to sales tax in Kansas. The result was that the average household spent $22,287 per year on taxable items. One percent of that is $223, which is an estimate of the cost of a one cent per dollar sales tax per household. For households in the middle quintile of income, the value was $194. See Wichita sales tax hike would hit low income families hardest for details and charts.
How can the claims of Baysinger and Rolph be so far apart? I’ve presented my reasoning and calculations. The results are figures very close to what Coalition for a Better Wichita is using. Wichita voters might ask that Jon Rolph or one of the other co-chairs of “Yes Wichita” do the same.
The claim that the “city never gave Boeing incentives” will come as news to the Wichita city officials who dished out over $600 million in subsidies and incentives to the company.
At a forum on the proposed Wichita sales tax on September 9, 2014, “Yes Wichita” co-chair Jon Rolph told the audience “The main reason I’m here, I need to educate folks on this. There’s been a lot of misinformation out there.”
The proposed one cent per dollar Wichita sales tax will be voted on by Wichita voters in November. The city plans to use the proceeds for four areas: A new water supply, bus transit, street maintenance and repair, and economic development, specifically job creation. It is the last area that is the most controversial. Sales tax boosters make the case that Wichita has a limited budget for incentives, generally pegged at $1.65 million per year. They say that other cities have much larger budgets, and unless Wichita steps up with additional incentives, Wichita will not be able to compete for jobs.
Wichita has, however, many available incentive programs that are worth much more than $1.65 million per year. Just this week the city extended property tax abatements to one company that are valued at $108,541 per year. The company will receive this benefit annually for five years, with a likely extension for another five years. The city will also apply for a sales tax exemption on behalf of the company. City documents estimate its value at $126,347.
None of this money counts against the claimed $1.65 million annual budget for incentives, as these incentive programs have no cash cost to the city. There is a cost to other taxpayers, however, as the cost of government is spread over a smaller tax base. To the recipient companies, these benefits are as good as receiving cash. I’ve detailed other incentive programs and some recent awards at Contrary to officials, Wichita has many incentive programs.
The nature of, and value of, available incentive programs is important to understand. “Yes Wichita” co-chair Jon Rolph is correct. There is much misinformation. Here’s what he told the audience of young Wichitans after warning about misinformation: “The Boeing incentive thing? The city never gave Boeing incentives. They didn’t take our incentive money and run.”
The claim that the “city never gave Boeing incentives” will come as news to the Wichita city officials who dished out the subsidies and incentives. In a written statement at the time of Boeing’s announcement that it was leaving Wichita, Mayor Carl Brewer wrote “Our disappointment in Boeing’s decision to abandon its 80-year relationship with Wichita and the State of Kansas will not diminish any time soon. The City of Wichita, Sedgwick County and the State of Kansas have invested far too many taxpayer dollars in the past development of the Boeing Company to take this announcement lightly.”
Along with the mayor’s statement the city released a compilation of the industrial revenue bonds authorized for Boeing starting in 1979. The purpose of the IRBs is to allow Boeing to escape paying property taxes, and in many cases, sales taxes. According to the city’s compilation, Boeing was granted property tax relief totaling $657,992,250 from 1980 to 2017. No estimate for the amount of sales tax exemption is available. I’ve prepared a chart showing the value of property tax abatements in favor of Boeing each year, based on city documents. There were several years where the value of forgiven tax was over $40 million.
Kansas Representative Jim Ward, who at the time was Chair of the South Central Kansas Legislative Delegation, issued this statement regarding Boeing and incentives:
Boeing is the poster child for corporate tax incentives. This company has benefited from property tax incentives, sales tax exemptions, infrastructure investments and other tax breaks at every level of government. These incentives were provided in an effort to retain and create thousands of Kansas jobs. We will be less trusting in the future of corporate promises.
Not all the Boeing incentives started with Wichita city government action. But the biggest benefit to Boeing, which is the property tax abatements through industrial revenue bonds, starts with Wichita city council action. By authorizing IRBs, the city council cancels property taxes not only for the city, but also for the county, state, and school district.
We’re left wondering, as we have wondered before, whether the “Yes Wichita” campaign is uninformed, misinformed, or intentionally deceptive in making its case to Wichita voters.
Readers of the Wichita Eagle might be excused for not understanding the economic realities of a proposed tax giveaway to a local development.
Tomorrow’s meeting of the Wichita City Council holds an item of economic development that might be confusing to citizens unless they read the meeting’s agenda packet. Here’s what the Wichita Eagle is reporting to readers: “The owner of the former Wichita Mall is seeking $3.6 million in industrial revenue bonds for a new parking lot — a request that the Wichita City Council will consider at its Tuesday meeting.” (Owners of former Wichita Mall seek IRBs for new parking lot, kansas.com, September 8, 2014)
The article doesn’t present much more about the economics of this transaction and its importance to public policy. That’s unfortunate, as after reading this article, citizens could be excused for thinking that the city is making a loan to a private entity.
But that isn’t the purpose of industrial revenue bonds, or IRBs, in Kansas. By issuing these bonds, the City of Wichita is not lending any money, and is not guaranteeing — not even hinting — that any loan will be repaid. Instead, city documents — but not Wichita Eagle reporting — tell us that Co-Co Properties, LLC will purchase the bonds. Who is Co-Co, you may be wondering? It’s the company that owns the Wichita Mall property, the same company that wants to borrow money to repair its parking lot. By purchasing the IRBs, the company is, in effect, lending money to itself. (It’s possible that Co-Co may seek other loans to get the funds to buy the IRBs, but if so, these would be private transactions and therefore not a matter of public policy.)
So if Co-Co is buying these IRBs itself, what is the purpose of the transaction? Why is Co-Co taking $3.6 million from one of its corporate pockets and transferring it to another pocket, and incurring costs in the process?
At this point, if all you’ve done is read the Wichita Eagle story, you may be confused. Actually, you’d be uninformed, because the Eagle story says nothing about who will purchase the IRBs. Further, the Eagle story tells us nothing about the reason for this transaction, which is to avoid paying two forms of taxes.
The city council agenda packet, available on the city’s website, explains that property tax forgiveness accompanies the IRBs. Specifically:
The one year estimated tax abatement on Co-Co’s proposed $3.6 million real property improvements when fully complete would be $108,541. … The value of a 100% real property tax exemption as applicable to taxing jurisdictions is:
City of Wichita, $29,258
Sedgwick County, $26,439
State of Kansas, $1,350
Wichita school district, $51,494
These annual numbers would be repeated for five years, plus another five years if the city council approves, based on council review. That’s potentially over one million dollars of forgiven property taxes.
That’s not all. City documents say city staff will also apply for a sales tax exemption. No value is given for how much sales tax Co-Co may avoid paying. If all purchases were taxable the value of the sales tax exemption would be $257,400, but it’s unlikely the value of the exemption would reach that level.
So there it is. The purpose of the industrial revenue bonds transaction is to avoid paying taxes. That inspires a question. In its application, Co-Co says it has spent millions renovating the building in order to attract tenants, done without public incentive or financing. But now we’re told the parking lot can’t be repaired without two forms of tax giveaways?
When the city finds it necessary to forgive taxes in order to make investment possible, it tells us that taxes in Wichita are too high. Those high taxes are blocking investment. It’s either that, or cronyism — a simple taxpayer-funded gift to a city council crony.
One more thing: Boosters of the proposed Wichita sales tax, part to be used for economic development, tell us that Wichita has only $1.65 million per year to fund incentives. The incentives being considered for Co-Co are worth over $1 million, but have no cash cost to the city. These incentives aren’t part of the $1.65 million annual budget for incentives. But the incentives do have a cost, paid by taxpayers when the city, county, state, and school district spend and expect taxpayers to make up this missing tax revenue.
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?
Uber is a ridesharing service, although that word doesn’t describe it adequately. Here’s how it works. People apply to be Uber drivers. Uber does background checks to its satisfaction. Drivers must have a relatively late-model car. If Uber accepts drivers, they receive a smartphone with an app, and they’re in business.
Customers who want to use Uber must have a smartphone. Then, customers create an account and make payment arrangements such as credit card, Google Wallet, or PayPal.
When customers want a ride, they use the Uber smartphone app to make a request. A driver accepts the request and picks up the passenger. At the end of the ride, payment is made through the Uber app. There is no tipping.
After the ride, passengers rate drivers. (Drivers rate passengers, too.) Passengers receive a receipt via email that shows the route taken on a map.
I’ve used Uber a few times in Washington and was pleased with the experience: No extortion of tips, polite and courteous drivers, clean cars, offers of bottled water, a bowl of wrapped candy on the seat beside me, and magazines in front of me.
People like Uber. Especially the young millennials I know that live in cities where Uber operates. These are people that Wichita is desperately trying to appeal to. So you may be thinking “isn’t it great that Uber has expanded to Wichita?”
Uber in Wichita is good if you value innovation and progress. But not everyone does. There will be a scuffle.
In 2012 Wichita passed new taxi regulations. They create substantial barriers to entering the taxicab market. Some of the most restrictive include these: A central office, staffed at least 40 hours per week; a dispatch system operating 24 hours per day, seven days per week; enough cabs to operate city-wide service, which the city has determined is ten cabs; and a supervisor on duty at all times cabs are operating.
These regulations protect Wichita’s existing traditional taxi industry. There are three taxi companies in Wichita, with two having the same ownership. Already one owner is speaking out against Uber. The public agenda for Tuesday’s meeting of the Wichita City Council lists a citizen speaking on the topic “Taxi Cab Insurance.” I imagine this speaker is inspired to speak on this topic due to Uber’s arrival.
The taxi companies that benefit from the restrictive Wichita regulations are likely to fight to keep their competitive barriers in place. The question is this: Does Uber fall under these regulations?
So far, the city’s position is this, according to the Wichita Eagle: “From the government side, interim City Attorney Sharon Dickgrafe said Uber is not a taxi service because the private cars its drivers use aren’t equipped with taxi meters.” (Ride-sharing app begins offering Wichitans a lift, August 28, 2014)
I’ll expect the city’s position to change when the city realizes that Uber cars do have meters. Not clunky old-fashioned meters, but meters running on smartphones that track journeys using GPS. After all, Uber charges for its trips just like traditional cabs: A fee to enter the cab, and then charges based on distance traveled, and in some cases, time. (In Wichita, Uber charges a base fare of $2.00 plus $0.20 per minute and $1.65 per mile, plus $1.00 safe rides fee. There is a $5.00 minimum. When you request a ride, Uber can give you a fare quote.)
The overhaul of Wichita taxi regulations in 2012 was partly inspired by the perception that drivers were not projecting a good image for the city. Now there are regulations in addition to the above that require standards of dress and hygiene, and “knowledge of the geography of the city and the area, and knowledge of local public and tourist destinations and attractions.” Cabbies must take a customer service class delivered by city bureaucrats.
So Wichita has many regulations for the taxi industry. But as I explain in more detail below, the city admitted that it failed to enforce a really important regulation: Convicted sex offenders shouldn’t be taxi drivers. But through the city’s mistake, one such man was granted a taxi driver license. He’s now serving a lengthy prison sentence for raping a passenger.
The standard argument against Uber is that it is unfair because Uber doesn’t have to follow laws and regulations. But Uber is regulated by a very powerful force: The marketplace. Remember, passengers rate Uber drivers. Can you rate your traditional Wichita taxi driver? What if you felt that your traditional taxi driver was padding the fare by taking a roundabout route? Uber trips are monitored by GPS. Passenger receipts have a map that shows the route taken, which can be the basis for a fare review.
The traditional taxi industry complains that Uber doesn’t have to follow follow laws and regulations. That’s nonsense. Uber drivers must follow traffic laws. Uber drivers and passengers must observe the most fundamental of laws: “Don’t hit people, and don’t take their stuff.” Beyond that, the taxi industry laws and regulations are from a bygone era. The traditional taxi industry is comfortable with these laws and regulations. The taxi companies can cope with them, and they make it difficult for competition to form. The purpose of these laws and regulations is not to benefit passengers, in most cases. They exist for the benefit of the taxicab industry.
But there is a transformation underway. Wichita can stop it if it wants to, but that would be a mistake.
The city says it is considering whether this industry — Uber — needs regulation. The question I have is this: Has the City of Wichita earned the right to regulate taxis? The answer is no. The city has created regulations that prop up the near-monopoly of traditional taxi companies and stifle innovation, but failed to protect passengers from being raped by convicted sex offenders.
Beyond that, the city has to decide whether it can back off its heavy-handed regulation and allow market-based innovation to thrive. The city has to decide in favor of customers or the traditional taxi industry and its near-monopoly ownership. It’s a decision that will let us learn a lot about the future direction of Wichita.
Regulation failure leads to tragedy in Wichita
When the Wichita City Council passed new taxicab regulations in 2012, the focus was on dirty cabs and slovenly drivers who were not acting as goodwill ambassadors for the city. Mayor Carl Brewer said he was “tired” of hearing complaints about drivers.
But something very important slipped through the cracks. The Wichita Eagle has reported the city didn’t competently enforce regulations designed to protect passenger safety:
A Wichita taxicab driver now in prison for raping a passenger last year shouldn’t have been allowed to operate a taxi in the first place.
That’s because at the time Bryon Scott Spohn applied for a taxi driver’s license in late 2012, he was on a state sex offender registry for possession of child pornography. A city ordinance that went into effect in July 2012 says a taxi driver’s license shall not be issued to anyone who “is now or has ever been registered as a sexual offender with any state, county or local government.”
A group promoting the proposed Wichita sales tax makes an arithmetic error, which gives us a chance to ask a question: Is this error an indication of Yes Wichita and the city’s attitude towards, and concern for, factual information?
“Yes Wichita” is a group that promotes a one cent per dollar sales tax that Wichita voters will see on the November ballot. Using a $10 purchase as an example, a page on the Yes Wichita website breaks down the tax among the four areas of spending sales tax revenue, informing voters that means 6.3 cents to water, 2 cents to jobs, 1 cent to transit, and .07 cent to streets.
These numbers, however, don’t add up. On a $10 purchase, the one percent sales tax generates ten cents of sales tax revenue. The numbers used in the Yes Wichita example sum to 9.37 cents. The correct number is 0.7 cent to streets, not 07.
Should we be concerned about errors like this? For what it’s worth, this error is repeated at least once more on the voteyeswichita.com site. This site has been online with these errors for at least two weeks. Haven’t any of the members of the Yes Wichita team noticed this error? Or have they noticed the error, but don’t think it’s worth a correction?
Most importantly for Wichita voters: Is this error an indication of Yes Wichita and the city’s attitude towards, and concern for, factual information?
This does give us a chance to look at the cost of the sales tax for various levels of taxable purchases. I’ve prepared a table. As you can see, once we make purchases that add up to large amounts, so too does the amount of the extra sales tax Wichita city hall recommends citizens pay. Click on it for a larger version.
In this episode of WichitaLiberty.TV: Let’s ask that Wichita trim its blatant waste of tax dollars before asking for more. We’ll look back at a program called Transforming Wichita. Then: We need to hold campaigns accountable. I’ll give you examples why, and tell how you can help. View below, or click here to view at YouTube. Episode 57, broadcast September 7, 2014.
In making the case that economic development incentives are necessary and successful in creating jobs, a Wichita campaign overlooks the really big picture.
In November Wichita voters will decide whether to approve a sales tax of one cent per dollar. Part of the proceeds, about 20 percent, is dedicated to economic development, specifically the creation of jobs. On its website under the heading “Most of our growth comes from within,” the “Yes Wichita” campaign presents this argument in favor of sales tax revenue for economic development:
In the past, more than 90% of our existing economic development resources have been used to support expansion of local companies. NetApp is a great example because they had new work and needed to locate 400 new jobs in one of their existing facilities. They looked at multiple locations and it came down to expanding in an existing facility in the Research Triangle or an existing facility in Wichita. Those 400 jobs came to Wichita because of our great workforce and the partnership with WSU along with a small forgivable loan. With this new system, Wichita could have invested in training the 400 new hires at WSU.
Voters reading this might conclude that all that was needed to create 400 new jobs in Wichita was a “small forgivable loan,” along with things we already have (“great workforce and the partnership with WSU”). But voters might be interested in the entire picture of what NetApp received.
First, what the city and county offered to NetApp was not a forgivable loan. NetApp received, and will continue to receive, an annual grant as long as the company meets conditions. City documents explain: “Under the terms of the attached grant agreement, NetApp would be issued an annual grant payment of $312 per year during the 5-year term of the agreement for each employee in excess of 439 base employees, but in no event will the sum of all grant payments exceed $418,000.”
We won’t quibble over the difference between “grant” and “forgivable loan.” Instead, let’s take a look at the entire incentive package offered to NetApp.
A letter to NetApp from the Kansas Department of Commerce laid out the potential benefits from the state. As detailed in the letter, the programs with potential dollar amounts are:
Promoting Employment Across Kansas (PEAK), up to $7,705,535
Kansas Industrial Training with PEAK, up to $160,800
sales tax savings of $6,880,000
personal property tax exemption, $11,913,682
High Performance Incentive Program (HPIP), $8,500,000
The total of these is $35,160,017. Some of these benefits are paid over a period of years. The PEAK benefits are payable over seven years, according to the letter, so that’s about $1.1 million per year. These are potential benefits; the company may not actually qualify for and receive this entire amount. But it’s what the state offered.
(We should qualify that the nearly $12 million in personal property tax exemption arises from a 2006 law whereby the state no longer taxes business equipment and machinery. This is not a targeted incentive for NetApp; it is something that benefits all companies in Kansas.)
It’s true that these programs are not cash incentives paid by the City of Wichita. But if a company is going to make purchases, and if the state says you can skip paying sales tax on the purchases — well, that’s as good as cash. $6,880,000 in the case of NetApp, according to the Kansas Department of Commerce. Unless the state reduces its spending by an equivalent amount, that’s missing revenue that other taxpayers have to make up, including Wichita taxpayers.
The City of Wichita is — or should be — generally aware of the entire incentive package offered to NetApp and other companies. In a presentation made to the Wichita City Council by Gary Schmitt, an executive at Intrust Bank and the Chair of Greater Wichita Economic Development Coalition, NetApp was presented as an example of a successful economic development effort. On a chart in the presentation, figures indicate that NetApp received $2,000 per job from local incentives, and $84,115 per job from state incentives.
In another section of the presentation, this is noted: “The $4.5 million PEAK program incentive from the Kansas Department of Commerce was an important factor in keeping NetApp in Wichita.”
Wichita voters will have to decide whether the Yes Wichita campaign is being forthright when it claims that a “small forgivable loan” was all the cash incentive that was necessary to create NetApp jobs in Wichita. If voters choose to believe that the small forgivable loan was all the incentive needed to seal the NetApp deal, they should then wonder why the State of Kansas offered many millions of unnecessary incentives.
Will the proposed Wichita sales tax result in more paved streets? It depends on what you mean by “pave.”
Of the proposed Wichita sales tax that voters will consider in November, a portion is scheduled to be used for streets. The specific language in the ordinance that the Wichita City Council passed on August 5 states “with an amount not to exceed $27.8 million dollars of such tax applied for street maintenance and repairs.”
But “maintenance and repairs” may mean different things to different people. The “Yes Wichita” group that supports the sales tax states this on their website:
What happens to neighborhood streets if we pass the sales tax proposal?
The city would contract to pave an additional 111 miles of neighborhood streets. This would help catch up the backlog with an infusion of additional resources targeted to some of the worst streets in the city. It would join the $8 million in regular funding to pave more than 1,900 miles of neighborhood streets.
Appearing on KNSS radio on August 26, Yes Wichita spokesman Jon Rolph said “we’ll be able to double the number of miles of paved streets over the next five years.”
That sounds as though sales tax money will be used to convert dirt streets into concrete or asphalt streets. That, I believe, is what most people would conclude when reading or hearing the language produced by the Yes Wichita group.
But that’s not what will happen if the sales tax passes. No sales tax money will be used to convert dirt streets to concrete or asphalt streets, which is the normal meaning of “pave.”
Here’s how dirt streets are paved in Wichita: The surrounding property owners petition for the formation of an improvement district. If a successful petition is filed, the city paves the street, and the property owners in the improvement district pay the cost. A city document titled Petitioning for Residential Street Paving explains in more detail.
How will sales tax proceeds be used regarding streets? The July 22 presentation to the city council held this: “The sales tax funds would repair 111 lane miles of streets over the next five years, focusing on some of the worst residential streets in Wichita. Coupled with the current CMP budget allocation of $8 million, a total of 1,964 lane miles will be repaired over the next five years.”
A little backwards arithmetic shows that without sales tax revenue, the city plans to pay for the repair of 1964 – 111 =1853 lane miles. The sales tax would increase what is already planned and budgeted through existing funding by (1964 – 1853) / 1853 = six percent.
As for Rolph’s contention that “we’ll be able to double the number of miles of paved streets over the next five years”: Even if we grant that he used pave to mean repair, the city won’t be able to double the miles. Instead, city documents indicate the sales tax will allow for an additional six percent in the number of lane miles to be repaired. That’s quite different from doubling, which means to increase something by 100 percent.
Has the Yes Wichita group been merely careless in using the word pave? Or is the group trying to present the proposed sales tax as something other than what it is?
When Wichita voters weigh the plausibility of the city’s plans for spending proposed new sales tax revenue, they should remember this is not the first time the city has promised results and accountability.
Do you remember Transforming Wichita? According to the city, “Transforming Wichita is the journey by which we are fundamentally changing the way we measure, report and perform the work of delivering services to the citizens of Wichita.”
In more detail, the city website proclaimed: “TW is the journey by which we will be fundamentally changing the way we deliver services to the citizens of Wichita. Our vision is for Wichita to be a premiere Midwestern city where people want to visit, live and play and for the city government to be a model of world class city governance where citizens receive the best possible value for their tax dollars and have confidence in their city government.”
Some of the most frequently-mentioned concepts in this document are:
measure and report
The document mentions “supported by modernized information systems that facilitate collaboration with our partners.” That promise was made seven years ago. Today, do you know what you get when you ask the City of Wichita for spending records? The city can supply data of only limited utility. When I asked for spending records, what was supplied to me was data in pdf form, and as images, not text. It would be difficult — beyond the capability of most citizens — to translate the data to useful format. Even if someone translated the reports to computer-readable format, I don’t think the data would be very useful. This is a serious defect in the city’s transparency efforts.
How does Wichita compare to other jurisdictions in this regard? Many governmental agencies post their checkbooks on their websites, having mastered this aspect of accountability and trust years ago. Not so the City of Wichita.
Speaking of websites: The new and “improved” wichita.gov website is actually less useful than the city’s website in 2007. For more on this see A transparency agenda for Wichita.
Regarding performance: One of the most important functions city leaders say they perform is economic development, specifically the creation of jobs. Last year when the Wichita Eagle asked for job creation figures, it reported this:
“It will take us some time to pull together all the agenda reports on the five-year reviews going back to 2003. That same research will also reveal any abatements that were ‘retooled’ as a result of the five-year reviews,” city urban development director Allen Bell said.
One might have thought that the city was keeping records on the number of jobs created on at least an annual basis for management purposes, and would have these figures ready for immediate review. If the city had these figures available, it would be evidence of trustworthiness, performance, accountability, and measuring and reporting. But the city isn’t doing this.
Speaking of accountability: Much of the money used to pay for the ASR project was borrowed in the form of long-term debt. Now we are told that long-term borrowing to pay for a new water supply would be bad fiscal management. So was it was prudent and advisable to borrow over $200 million for water projects during the last decade? Who do we hold accountable for that decision, if what city leaders now say is correct?
Here’s a page from the city’s website as captured on November 10, 2007:
Transforming Wichita is the journey by which we are fundamentally changing the way we measure, report and perform the work of delivering services to the citizens of Wichita. Our Vision:
For Wichita to be a premiere Midwestern city where people want to visit, live and play (as envisioned in Visioneering Wichita).
For Wichita City government to be a model of world class city governance — where citizens are getting the best possible value for their dollars and the City has the public’s confidence and trust. For this vision to be attained, we have to adapt to change!
While we are doing a lot of things right, we can’t be complacent, resting on our laurels from past successes. The paradox is that we must retain faith that the future is bright, while being willing to face challenges of our current situation. We must be willing to challenge every aspect of how we’re doing things today. We must position ourselves for the future.
We will do this by transforming City government into a high performance organization that:
Focuses on results
Understands what results matter most to their customers
Makes performance matter
Moves decision-making down and out to the front-line, closest to customers; and
Fosters an environment of excellence, inclusiveness, accountability, learning and innovation.
Through Transformation Wichita:
We deliver outstanding results that matter to our customers and are trustworthy stewards of the funds with which citizens have entrusted us;
We utilize team work and the best business processes, supported by modernized information systems that facilitate collaboration with our partners;
We measure and report on our work, using a balanced scorecard that shows progress and results in how we carry out programs and activities, so that performance matters; and
We engage in work that produces results that matter for our customers; we will work with colleagues in an environment where learning enriches us and innovation expands our potential.
More about TW
TW is the journey by which we will be fundamentally changing the way we deliver services to the citizens of Wichita. Our vision is for Wichita to be a premiere Midwestern city where people want to visit, live and play and for the city government to be a model of world class city governance where citizens receive the best possible value for their tax dollars and have confidence in their city government.
While the City is doing a lot of things right, we can’t be complacent. We must be willing to challenge every aspect of how we’re doing things today and position ourselves for the future.
We will accomplish this by transforming City government into a high performance organization that:
Delivers outstanding results that matter to our customers and is a trustworthy steward of the funds with which citizens have entrusted us;
We utilize team work and the best business processes, supported by modernized information systems that facilitate collaboration with our partners;
We measure and report on our work, using processes that show progress and results in how we carry out programs and activities; and
We engage in work that produces results that matter for our customers.
It’s bad news that Wichita drivers will suffer through more years of delay as they travel through east Wichita. The value of the lost hours sitting in traffic? It’s impossible to say.
But here’s something that will probably be easy to appraise: The waste of taxpayer dollars due to the actions of government planners. From the Eagle story:
It’s unclear how the redesign would affect the ongoing lawsuit between the city of Wichita and 10 property owners whose land was taken by eminent domain for the project. The city also has acquired another 30 parcels in the area.
A court-appointed panel of three appraisers awarded the owners of the 10 parcels a collective $19.6 million for their properties in November.
The Wichita City Council approved the award, as required by the court, but the amount far exceeded an internal estimate in the $4 million to $5 million range.
In December, the city sued the landowners to see if a court would reduce the valuations.
Some of that land probably would not be needed if the interchange is redesigned.
Did you catch that? The city spent nearly five times as much as original estimates to seize property through eminent domain, and also purchased other property. Buildings with remaining useful life have been razed. Now, we learn that this land may not be needed.
As Wichita city hall asks citizens to trust the plans for the proceeds of a new sales tax, remember lessons like this.
In this excerpt from WichitaLiberty.TV: Former Wichita mayor Bob Knight explained that when he left office in 2003, we were assured we had water for 50 years. What has happened? View below, or click here to view at YouTube. Originally broadcast August 24, 2014.
Only 28% say the city has been spending efficiently.
Only 34% agree with the idea of local governments using taxpayer money to provide subsidies to certain businesses for economic development.
When asked whether they would personally pay a higher sales tax to pay for certain things, there was majority support for securing a long term water source, maintaining existing infrastructure, and building new infrastructure, but one-third or less would pay a higher sales tax for business incentives, developing downtown Wichita, and expanding or renovating convention spaces.
78% said that to fund existing infrastructure, build new infrastructure, and secure a long-term water source Wichita should fund those items by adjusting spending and being more efficient rather than raising taxes.
More detail on these results follows.
Is city spending efficiently?
The first question the survey asked was “In the past few years, have Wichita city officials used taxpayer money efficiently? Or inefficiently?” Following are the results for everyone, and then divided by political party and political ideology.
Overall, 58 percent believe city spending was inefficient, compared to 28 percent believing spending was efficient.
The results are surprisingly consistent. An exception is that political independents strongly believed that city spending was inefficient. Those identifying as liberal were more likely to say that city spending was inefficient.
Taxes for subsidies for economic development
About one-third of voters polled support local governments using taxpayer money to provide subsidies to certain businesses for economic development.
The second question the survey asked was “In general, do you agree? Or disagree? With the idea of local governments using taxpayer money to provide subsidies to certain businesses for economic development?” Following are the results for everyone, and then divided by political party and political ideology.
Overall, 55 percent disagreed with using taxpayer money to provide subsidies to certain businesses for economic development. 34 percent agreed.
The results are fairly consistent across political party and ideology, although Republicans are somewhat more likely to agree with using taxpayer funds for economic development incentives, as are those who self-identify as political moderates.
Voters willing to pay for fundamentals
Voters are willing to pay a higher sales tax for fundamentals like infrastructure and water supply, and less willing for business incentives, downtown development, and convention centers.
In a series of questions asking if Wichita voters would be willing to pay a higher sales tax to provide certain services, a pattern appeared: Voters are willing to pay for things that are fundamental in nature, and less willing to pay for others.
As can be seen in the nearby chart, voters are willing to pay for infrastructure, and more willing to pay for maintenance of existing infrastructure than for new infrastructure. Voters are most willing to pay for securing a long-term water source.
For business incentives, downtown development, and convention centers, Wichita voters express less willingness to pay higher sales tax to fund these items.
For the first three items, the average was 68 percent of voters willing to pay a higher sales tax. For the last three, the average is 30 percent.
Following is the complete text of the questions:
Would you personally be willing to pay a higher sales tax in the city of Wichita to fund incentives to businesses expanding in Wichita or moving here from other states?
Would you personally be willing to pay a higher sales tax in the city of Wichita to fund maintenance work on existing infrastructure, such as sewers and roads?
Would you personally be willing to pay a higher sales tax in the city of Wichita to fund new infrastructure, such as new highways and passenger rail connections?
Would you personally be willing to pay a higher sales tax in the city of Wichita to continue developing downtown Wichita with apartments, businesses, and entertainment destinations?
Would you personally be willing to pay a higher sales tax in the city of Wichita to expand or renovate convention spaces, such as the Hyatt Hotel and Century II?
Would you personally be willing to pay a higher sales tax in the city of Wichita to secure a long-term water source?
How to pay for infrastructure
Wichita voters prefer adjusting spending, becoming more efficient, using public-private partnerships, and privatization to raising taxes.
Question nine asked how Wichita voters preferred paying for new government spending: “To fund existing infrastructure, build new infrastructure, and secure a long-term water source should Wichita fund those items by adjusting spending and being more efficient rather than raising taxes?”
Overall, 78 percent of Wichita voters answered “Yes,” meaning they prefer that Wichita adjust spending and become more efficient. 12 percent answered “No,” meaning they were in favor of raising taxes instead.
A related question was “Should Wichita fund those items through public-private partnerships, or privatization, rather than raising taxes?”
Overall, 65 percent answered “Yes,” meaning they prefer public-private partnerships, or privatization. 25 percent answered “No,” indicating a preference for raising taxes.
Individual liberty, limited government, economic freedom, and free markets in Wichita and Kansas