Tag Archives: Wichita city government

Westar: First, control blatant waste

As our electric utility asks for a rate increase, let’s first ask that it stop blatant waste.

Westar, our state-regulated electric utility, is asking for a rate increase. As part of any increase, we ought to insist that the utility do a better job of controlling blatant waste.

Downtown Wichita, July 17, 2015, 11:18 am.
Downtown Wichita, July 17, 2015, 11:18 am.
Streetlights burning unnecessarily in the middle day in downtown Wichita is an ongoing problem. See In Wichita, wasting electricity a chronic problem and Waste in Wichita, the seen and probably unseen for examples.

The problem may not be solved soon. No one has much motivation to solve the problem. The city pays Westar a fixed fee for each streetlight. The use of electricity is not metered, at least as far as the city’s bill is concerned. So if the city notices the lights wasting electricity during the middle of the day, well, it’s of no cost to the city. The city is concerned that working with Westar to turn off street lights during the day may not be cost-effective, according to Ken Evans, the city’s director of strategic communications. That’s the attitude he expressed in a recent City of Wichita Facebook dialog with citizens. But the city has run a campaign asking people to turn off appliances like microwave ovens and alarm clocks when not in use. This saves a vanishingly small amount of electricity, and at a large cost in convenience.

Downtown Wichita, July 17, 2015, 11:18 am. At least five burning street lights can be seen.
Downtown Wichita, July 17, 2015, 11:18 am. At least five burning street lights can be seen.
Westar, on the other hand, is a highly-regulated utility that operates much like a governmental agency. How strong is the profit motive to Westar? Not strong, it seems. Most individuals or private business firms would seek to reduce the waste that Westar seems unconcerned about.

But before granting Westar a rate increase, its regulators ought to insist that the utility work to control blatant waste. This may be the only way to get attention to this problem.

Wichita airport spends $180K on ads

The Wichita airport spends to produce and broadcast a television advertisement, and taxpayers didn’t have to pay. Sort of.

Shortly after the opening of the new terminal at Wichita Dwight D. Eisenhower National Airport, television ads began appearing. Citizens viewing the ads might wonder why a government-owned facility that has a monopoly on service needs to advertise, especially when the purpose of the ad is to generate an emotional response. (Curiously, the ad can’t be found on the airport’s website, but it is available on the Wichita City Channel 7 site, where it’s labeled as a public service announcement.)

Inquiry to the city about the cost of the ads resulted in these figures:

Production costs for TV: $83,308.73 (includes talent fees)
Media buy: $97,522
Total: $180,830.73

Apart from the necessity or wisdom of this advertisement, there is another consideration that has important implications for public policy. When I was supplied these figures, I was admonished that these are not tax dollars being spent. Instead, it’s airport revenue. The city also says the same about the cost of the new terminal — no tax dollars were spent. How is this possible?

The airport has a monopoly on regularly scheduled commercial air service in Wichita. If you want to travel on a major airline, you must use the Wichita airport or drive several hours to another airport. The airport functions as a branch of government. The fees it collects — the so-called “airport revenue” or “airport funds” — are mandatory. The rates are set by government. They fees are collected by government and spent by government.

Officials say the user fees the airport collects are not taxes because they are voluntary. You don’t pay the Wichita airport passenger fee (it’s included in ticket prices) unless you actually use the airport. Arguments like these are used by government officials to distinguish user fees from taxes. They say that the airport is operating like a business, charging only those who use its service.

There’s a small grain of truth in that. But when the airport has a monopoly on commercial air service in a large area, are the fees really voluntary? Of course not.

This principle of user fees being preferred to taxes is quickly abandoned when it suits the need of government spenders. For example, the state, county, and city tax everyone to pay Southwest Airlines to provide service in Wichita. Why not collect the subsidy funds only from airport users? It would be just another user fee.

The justification used by the city leads citizens to believe that government can spend money at no one’s cost. That’s false, but politicians believe it. Or so they say.

WichitaLiberty.TV: Bad news from Topeka on taxes and schools, and also in Wichita. Also, a series of videos that reveal the nature of government.

In this episode of WichitaLiberty.TV: The sales tax increase is harmful and not necessary. Kansas school standards are again found to be weak. The ASR water project is not meeting expectations. Then, the Independent Institute has produced a series of videos that illustrate the nature of government. View below, or click here to view at YouTube. Episode 88, broadcast July 19, 2015.

The “Love Gov” series of videos from the Independent Institute can be found here: Love Gov: From first date to mandate.

In Wichita, wasting electricity a chronic problem

The chronic waste of electricity in downtown Wichita is a problem that probably won’t be solved soon, given the city’s attitude.

Some lights like these have been left on so long that the bulbs have burnt out. But the city hasn't replaced them.
Some lights like these have been left on so long that the bulbs have burnt out. But the city hasn’t replaced them.
Street lights in downtown Wichita burning during the middle of the day. It’s a continuing problem.

What can citizens do to solve this problem? The attitude of the city is “don’t bother us with this problem.” The city advises citizens to call Westar when they see street lights wasting electricity. That’s the city’s attitude, even though this is a chronic problem.

Wichita city government Facebook page public service advice regarding "vampire" power waste.
Wichita city government Facebook page public service advice regarding “vampire” power waste.
The city is concerned that working with Westar to turn off street lights during the day may not be cost-effective, according to Ken Evans, the city’s director of strategic communications. That’s the attitude he expressed in a recent City of Wichita Facebook dialog with citizens. But the city has run a campaign asking people to turn off appliances like microwave ovens and alarm clocks when not in use. This saves a vanishingly small amount of electricity, and at a large cost in convenience.

At least five tall street lights can be seen wasting electricity.
At least five tall street lights can be seen wasting electricity at 2:30 in the afternoon.
But the city feels it is not cost-effective for them to ensure that dozens of street lights are switched off during the day, even though this is a chronic problem. Even though the city is concerned about the use of electricity contributing to ozone pollution.

Part of the problem may lie in that the city pays Westar a fixed amount per street light, without regard to the amount of electricity used or wasted. Westar, while a privately-owned company that should be responsive to the profit motive, is instead a highly-regulated utility that functions almost as an arm of government.

None of this mitigates the fact that waste is waste, especially waste that could be fixed easily — if the city wanted to.

Wichita water statistics update

The Wichita ASR water project had a relatively good month in June, but has not been producing water at the projected rate or design capacity.

An important part of Wichita’s water supply infrastructure is the Aquifer Storage and Recovery program, or ASR. This is a program whereby water is taken from the Little Arkansas River, treated, and injected in the Equus Beds aquifer. That water is then available in the future as is other Equus Beds water.

With a cost so far of $247 million, the city believes that ASR is a proven technology that will provide water and drought protection for many years. Last year the city recommended that voters approve $250 million for its expansion, to be paid for by a sales tax. Voters rejected the tax.

Gallons of Water Recharged Through Recharge Basins and Wells during Wichita ASR Phase II, cumulative.
Gallons of Water Recharged Through Recharge Basins and Wells during Wichita ASR Phase II, cumulative.
According to city documents, the original capacity of the ASR phase II project to process water and pump it into the ground (the “recharge” process) was given as “Expected volume: 30 MGD for 120 days.” That translates to 3,600,000,000 (3.6 billion or 3,600 million) gallons per year. ASR phase II was completed in 2011.

At a city council workshop in April 2014, Director of Public Works and Utilities Alan King briefed the council on the history of ASR, mentioning the original belief that ASR would recharge 11,000 acre feet of water per year. But he gave a new estimate for production, telling the council that “What we’re finding is, we’re thinking we’re going to actually get 5,800 acre feet. Somewhere close to half of the original estimates.” The new estimate translates to 1,889,935,800 (1.9 billion) gallons per year.

Gallons of Water Recharged Through Recharge Basins and Wells during Wichita ASR Phase II, cumulative since July 2013.
Gallons of Water Recharged Through Recharge Basins and Wells during Wichita ASR Phase II, cumulative since July 2013.
Based on experience, the city has produced a revised estimate of ASR production capability. What has been the actual experience of ASR? The U.S. Geological Survey has ASR figures available here. I’ve gathered the data and performed an analysis. (Click charts for larger versions.)

I’ve produced a chart of the cumulative production of the Wichita ASR project compared with the original projections and the lower revised projections. The lines for projections rise smoothly, although it is expected that actual production is not smooth. The second phase of ASR was completed sometime in 2011, but no water was produced and recharged that year. So I started this chart with January 2012.

2013 was a drought year, so to present ASR in the best possible light, I’ve prepared a chart starting in July 2013. That was when it started raining heavily, and data from USGS shows that the flow in the Little Arkansas River was much greater. Still, the ASR project is not keeping up with projections, even after goals were lowered.

Gallons of Water Recharged Through Recharge Basins and Wells during Wichita ASR phase II.
Gallons of Water Recharged Through Recharge Basins and Wells during Wichita ASR phase II.
On the chart of monthly production, the horizontal line represents the revised annual production projection expressed as a constant amount each month. This even rate of production is not likely, as rainfall and river flow varies. In the three years that ASR phase II has been in production, that monthly target been exceeded in two months.

In June 2015, the ASR project recharged 205 million gallons of water. Its design capacity is 30 million gallons per day, so the work done in June represents seven days of design capacity. The ASR project is able to draw from the Little Arkansas River when the flow is above 30 cfs. As can be seen in the chart of the flow of the river, the flow was above this level for the entire month.

Flow of the Little Arkansas River at Valley Center. The ASR project is able to draw from the river when the flow is above 30 cfs at this measurement station.
Flow of the Little Arkansas River at Valley Center. The ASR project is able to draw from the river when the flow is above 30 cfs at this measurement station.
At one time the city was proud enough of the ASR project that it maintained an informative website at wichitawaterproject.org. That site no longer exists.
At one time the city was proud enough of the ASR project that it maintained an informative website at wichitawaterproject.org. That site no longer exists.

Wichita property taxes still high, but comparatively better

An ongoing study reveals that generally, property taxes on commercial and industrial property in Wichita are high. In particular, taxes on commercial property in Wichita are among the highest in the nation, although Wichita has improved comparatively.

50 State Property Tax Comparison Study, Selected Wichita Data. Click for larger version, or see text for pdf version.
50 State Property Tax Comparison Study, Selected Wichita Data. Click for larger version, or see text for pdf version.
The study is produced by Lincoln Institute of Land Policy and Minnesota Center for Fiscal Excellence. It’s titled “50 State Property Tax Comparison Study, April 2015″ and may be read here. It uses a variety of residential, apartment, commercial, and industrial property scenarios to analyze the nature of property taxation across the country. I’ve gathered data from selected tables for Wichita. (A pdf version is available here.)

In Kansas, residential property is assessed at 11.5 percent of its appraised value. (Appraised value is the market value as determined by the assessor. Assessed value is multiplied by the mill levy rates of taxing jurisdictions in order to compute tax.) Commercial property is assessed at 25 percent of appraised value, and public utility property at 33 percent.

This means that commercial property faces 2.18 times the property tax rate as residential property. (The study reports a value of 2.173 for Wichita. The difference is likely due from deriving the value from observations rather than statute.) The U.S. average is 1.710.

Whether higher assessment ratios on commercial property as compared to residential property is desirable public policy is a subject for debate. But because Wichita’s ratio is high, it leads to high property taxes on commercial property.

For residential property taxes, Wichita ranks below the national average. For a property valued at $150,000, the effective property tax rate in Wichita is 1.253 percent, while the national average is 1.490 percent. The results for a $300,000 property were similar.

Commercial property taxes in Wichita compared to nation.
Commercial property taxes in Wichita compared to nation.
Looking at commercial property, the study uses several scenarios with different total values and different values for fixtures. For example, for a $100,000 valued property with $20,000 fixtures (table 25), the study found that the national average for property tax is $2,519 or 2.099 percent of the property value. For Wichita the corresponding values are $3,289 or 2.741 percent, ranking fourteenth from the top. Wichita property taxes for this scenario are 30.6 percent higher than the national average.

In other scenarios, as the proportion of property value that is machinery and equipment increases, Wichita taxes are lower, compared to other states and cities. This is because Kansas no longer taxes this type of property.

Wichita Transit snapshot

Here is a financial snapshot of the Wichita Transit System. Data is from the National Transit Database for 2013. These are operating costs only, and do not include the costs of acquiring buses and other capital equipment.

Of note is the low fraction of expenses paid for through fares. Considering operating expenses only, the number is 20.3 percent. The remainder is provided by taxpayers. Operating expenses per passenger mile were $0.69.

Wichita transit system snapshot 2013

In Wichita, open records relief may be on the way

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

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

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

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

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

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

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

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

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

During the recent mayoral campaign, Longwell told the Wichita Eagle that he wants taxpayers to know where their money goes: “The city needs to continue to improve providing information online and use other sources that will enable the taxpayers to understand where their money is going.”

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

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

Wichita, again, fails at open government

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Cash incentives in Wichita still in use

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

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

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

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

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

Wichita water statistics update

Updated statistics show that the Wichita ASR water project has not been producing water at the projected rate, even after projections were halved.

An important part of Wichita’s water supply infrastructure is the Aquifer Storage and Recovery program, or ASR. This is a program whereby water is taken from the Little Arkansas River, treated, and injected in the Equus Beds aquifer. That water is then available in the future as is other Equus Beds water.

With a cost so far of $247 million, the city believes that ASR is a proven technology that will provide water and drought protection for many years. Last year the city recommended that voters approve $250 million for its expansion, to be paid for by a sales tax. Voters rejected the tax.

Gallons of Water Recharged Through Recharge Basins and Wells during Wichita ASR Phase II, cumulative
Gallons of Water Recharged Through Recharge Basins and Wells during Wichita ASR Phase II, cumulative
According to city documents, the original capacity of the ASR phase II project to process water and pump it into the ground (the “recharge” process) was given as “Expected volume: 30 MGD for 120 days.” That translates to 3,600,000,000 (3.6 billion or 3,600 million) gallons per year. ASR phase II was completed in 2011.

At a city council workshop in April 2014, Director of Public Works and Utilities Alan King briefed the council on the history of ASR, mentioning the original belief that ASR would recharge 11,000 acre feet of water per year. But he gave a new estimate for production, telling the council that “What we’re finding is, we’re thinking we’re going to actually get 5,800 acre feet. Somewhere close to half of the original estimates.” The new estimate translates to 1,889,935,800 (1.9 billion) gallons per year.

Gallons of Water Recharged Through Recharge Basins and Wells during Wichita ASR Phase II, cumulative since July 2013
Gallons of Water Recharged Through Recharge Basins and Wells during Wichita ASR Phase II, cumulative since July 2013
Based on experience, the city has produced a revised estimate of ASR production capability. What has been the actual experience of ASR? The U.S. Geological Survey has ASR figures available here. I’ve gathered the data and performed an analysis. (Click charts for larger versions.)

I’ve produced a chart of the cumulative production of the Wichita ASR project compared with the original projections and the lower revised projections. The lines for projections rise smoothly, although it is expected that actual production is not smooth. The second phase of ASR was completed sometime in 2011, but no water was produced and recharged that year. So I started this chart with January 2012.

Since 2013 was a drought year, perhaps we shouldn’t evaluate the production of ASR that year. So to present ASR in the best possible light, I’ve prepared a chart starting in July 2013. That was when it started raining heavily, and data from USGS shows that the flow in the Little Arkansas River was much greater. Still, the ASR project is not keeping up with projections, even after goals were lowered.

Gallons of Water Recharged Through Recharge Basins and Wells during Wichita ASR phase II
Gallons of Water Recharged Through Recharge Basins and Wells during Wichita ASR phase II
On the chart of monthly production, the horizontal line represents the revised (lowered) annual production projection expressed as a constant amount each month. This even rate of production is not likely, as rainfall and river flow varies. In the three years that ASR phase II has been in production, that monthly target been exceeded in just one month.

In May 2015, the ASR project recharged 114 million gallons of water. Its design capacity is 30 million gallons per day, so the work done in May represents four days of design capacity. The ASR project is able to draw from the Little Arkansas River when the flow is above 30 cfs. As can be seen in the chart of the flow of the river, the flow was above this level for the entire month.

Flow of the Little Arkansas River at Valley Center. The ASR project is able to draw from the river when the flow is above 30 cfs.
Flow of the Little Arkansas River at Valley Center. The ASR project is able to draw from the river when the flow is above 30 cfs.
At one time the city was proud enough of the ASR project that it maintained an informative website at wichitawaterproject.org. That site no longer exists.
At one time the city was proud enough of the ASR project that it maintained an informative website at wichitawaterproject.org. That site no longer exists.

Wichita has cut waste, officials say

Wichita city officials say they have worked hard to eliminate waste. Well, except for this.

Looking south on Topeka from Broadway, May 29, 2015 at 11:25 am. Four burning street lights are seen here. There were dozens more further south.
Looking south on Topeka from Broadway, May 29, 2015 at 11:25 am. Four burning street lights are seen here. There were dozens more further south.
It’s been an ongoing problem in downtown Wichita. Not only are bench lights apparently permanently switched on, we find the tall street lights also burning in the middle of the day.

This is especially problematic given these two Fridays — with street lights switched on near noon — were Riverfest Fridays. Many visitors, both natives and tourists, may have been downtown to see the waste on display. It doesn’t promote a good image for our city and its leaders.

A Downtown Wichita street light struggles to compete with the midday sun. June 5, 2015.
A Downtown Wichita street light struggles to compete with the midday sun. June 5, 2015.
The wasteful spending on illuminating street lights in the middle of the day is an indication of the attitude of the city as explained in Forget the vampires. Let’s tackle the real monsters. Through public service announcements on television and Facebook, Wichita city officials have urged citizens to do things like unplugging microwave ovens when not in use. This saves a very small — vanishingly small — amount of electricity at a huge cost of inconvenience.

So while the city advises you to unplug alarm clocks and cell phone chargers when not using them, note that the city cares nothing about running the street lights in the middle of the day.

The lights illustrated in these photographs are, undoubtedly, a small portion of the city’s spending. But you don’t have to look very hard to find waste like this, and we know that small examples of waste are multiplied many times. So when city leaders tell us that there is nowhere left to cut in the budget, that everything that can be done to trim the fat has already been done, and that the only thing we can do is raise taxes — well, think of this photograph and others illustrated in Wichita advances in the field of cost savings, Another Friday lunch, and even more lights are on, To compensate, Wichita switched on the street lights, In Wichita, the streetside seating is illuminated very well, In Wichita, the rooftops are well-lit and On a sunny day in downtown Wichita you can see the street lights.

City of Wichita official Facebook page.
City of Wichita official Facebook page.
This is not to say that waste like this does not occur in the private sector. Of course it does. But businesses and individuals have a powerful incentive to avoid waste that isn’t present in government: Businesses and people are spending their own money. And even if they waste money, it’s their money, not ours.

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

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

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

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

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

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

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

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

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

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

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

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

This request for property and sales tax relief reveals a problem: If companies can’t afford to make investments in Wichita unless they receive exemptions from paying taxes, we must conclude that taxes are too high. (An ongoing study reveals that generally, property taxes on commercial and industrial property in Wichita are high. In particular, taxes on commercial property in Wichita are among the highest in the nation. See here.) It’s either that, or this company simply doesn’t want to participate in paying for the cost of government like most other companies and people do.

Civic leaders say that our economic development policies must be reformed. In particular, our leaders say that cash incentives are on the way out. This deal does not include grants of cash, that is true. But forgiveness of taxes is more valuable to business firms than receiving cash. That’s because cash incentives are usually taxable as income, while forgiveness of taxes does not create taxable income. Each dollar of tax that is forgiven adds one dollar to after-tax profits. 1 2

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

Details

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

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

The benefit-cost ratios are as follows:

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

  1. Site Selection magazine, September 2009. 2015. ‘INCENTIVES — Site Selection Magazine, September 2009′. Siteselection.Com. Accessed May 1 2015. http://www.siteselection.com/issues/2009/sep/Incentives/
  2. The Continuing Saga of Non-Taxable Grants, Incentives, and Inducements. Americanbar.org,. 2015. http://www.americanbar.org/content/dam/aba/events/taxation/taxiq-fall11-breaks-saga-slides.authcheckdam.pdf.

In Kansas and Wichita, there’s a reason for slow growth

If we in Kansas and Wichita wonder why our economic growth is slow and our economic development programs don’t seem to be producing results, there is data to tell us why: Our tax rates are too high.

In 2012 the Tax Foundation released a report that examines the tax costs on business in the states and in selected cities in each state. Location Matters Tax Foundation coverThe news for Kansas is worse than merely bad, as our state couldn’t have performed much worse: Kansas ranks 47th among the states for tax costs for mature business firms, and 48th for new firms. (Starting in 2013, Kansas income tax rates are lower, and we would expect that Kansas would rank somewhat better if the study was updated.)

The report is Location Matters: A Comparative Analysis of State Tax Costs on Business.

The study is unusual in that it looks at the impact of state tax burden on mature and new firms. This, according to report authors, “allows us to understand the effects of state tax incentives compared to a state’s core tax system.” In further explanation, the authors write: “The second measure is for the tax burden faced by newly established operations, those that have been in operation less than three years. This represents a state’s competitiveness after we have taken into account the various tax incentive programs it makes available to new investments.”

The report also looks at the tax costs for specific types of business firms. For Kansas, some individual results are better than overall, but still not good. For a mature corporate headquarters, Kansas ranks 30th. For locating a new corporate headquarters — one that would benefit from tax incentive programs — Kansas ranked 42nd. For a mature research and development facility, 46th; while new is ranked 49th. For a mature retail store the rank is 38th, while new is ranked 45th.

There are more categories. Kansas ranks well in none.

The report also looked at two cities in each state, a major city and a mid-size city. For Kansas, the two cities are Wichita and Topeka.

Among the 50 cities chosen, Wichita ranks 30th for a mature corporate headquarters, but 42nd for a new corporate headquarters.

For a mature research and development facility, Wichita ranks 46th, and 49th for a new facility.

For a mature and new retail store, Wichita ranks 38th and 45th, respectively.

For a mature and new call center, Wichita ranks 43rd and 47th, respectively.

Kansas tax cost compared to neighbors
Kansas tax cost compared to neighbors
In its summary for Kansas, the authors note the fecklessness of Kansas economic development incentives: “Kansas offers among the most generous property tax abatements and investment tax credits across most firm types, yet these incentives seem to have little impact on the state’s rankings for new operations.”

It’s also useful to compare Kansas to our neighbors. The comparison is not favorable for Kansas.

The record in Wichita

Earlier this year Greater Wichita Economic Development Coalition issued its annual report on its economic development activities for 2014. GWEDC says its efforts created or retained 424 jobs.

gwedc-office-operationsThis report shows us that power of government to influence economic development is weak. GWEDC’s information said these jobs were for the geographical area of Sedgwick County. According to the Bureau of Labor Statistics, the labor force in Sedgwick County in 2014 was 247,614 persons. So the jobs created by GWEDC’s actions amounted to 0.14 percent of the labor force. This is a vanishingly small fraction. It is statistical noise. Other economic events overwhelm these efforts.

GWEDC complains of not being able to compete because Wichita has few incentives. This is not true, as Wichita has many incentives to offer. Nonetheless, GWEDC says it could have created or retained another 3,010 jobs if adequate incentives had been available. Adding those jobs to the jobs it claims credit for amounts to 1.39 percent of the labor force, which is still a small number that is overwhelmed by other events.

Our tax costs are high

The report by the Tax Foundation helps us understand one reason why the economic development efforts of GWEDC, Sedgwick County, and Wichita are not working well: Our tax costs are too high.

While economic development incentives can help reduce the cost of taxes for selected firms, incentives don’t help the many firms that don’t receive them. In fact, the cost of these incentives is harmful to other firms. The Tax Foundation report points to this harm: “While many state officials view tax incentives as a necessary tool in their state’s ability to be competitive, others are beginning to question the cost-benefit of incentives and whether they are fair to mature firms that are paying full freight. Indeed, there is growing animosity among many business owners and executives to the generous tax incentives enjoyed by some of their direct competitors.”

It seems in Wichita that the thinking of our leaders has not reached the level of maturity required to understand that targeted incentives have great cost and damage the business climate. Instead of creating an environment in which all firms have a chance to thrive, government believes it can identify firms that are subsidy-worthy — at the exclusion of others.

But there is one incentive that can be offered to all firms: Reduce tax costs for everyone. The policy of reducing tax costs or granting incentives to the selected few is not working. This “active investor” approach to economic development is what has led companies in Wichita and Kansas to escape hundreds of millions in taxes — taxes that others have to pay. That has a harmful effect on other business, both existing and those that wish to form.

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

In the same paper, Hall writes this regarding “benchmarking” — the bidding wars for large employers that Wichita and Kansas has been pursuing and Wichita’s leaders want to ramp up: “Kansas can break out of the benchmarking race by developing a strategy built on embracing dynamism. Such a strategy, far from losing opportunity, can distinguish itself by building unique capabilities that create a different mix of value that can enhance the probability of long-term economic success through enhanced opportunity. Embracing dynamism can change how Kansas plays the game.”

In making his argument, Hall cites research on the futility of chasing large employers as an economic development strategy: “Large-employer businesses have no measurable net economic effect on local economies when properly measured. To quote from the most comprehensive study: ‘The primary finding is that the location of a large firm has no measurable net economic effect on local economies when the entire dynamic of location effects is taken into account. Thus, the siting of large firms that are the target of aggressive recruitment efforts fails to create positive private sector gains and likely does not generate significant public revenue gains either.'”

There is also substantial research that is it young firms — distinguished from small business in general — that are the engine of economic growth for the future. We can’t detect which of the young firms will blossom into major success — or even small-scale successes. The only way to nurture them is through economic policies that all companies can benefit from. Reducing tax rates is an example of such a policy. Abating taxes for specific companies through programs like IRBs is an example of precisely the wrong policy.

We need to move away from economic development based on this active investor approach. We need to advocate for policies — at Wichita City Hall, at the Sedgwick County Commission, and at the Kansas Statehouse — that lead to sustainable economic development. We need political leaders who have the wisdom to realize this, and the courage to act appropriately. Which is to say, to not act in most circumstances, except to reduce the cost of government for everyone.

Wichita water statistics update

Updated statistics show that the Wichita ASR water project has not been producing water at the projected rate, even after projections were halved.

An important part of Wichita’s water supply infrastructure is the Aquifer Storage and Recovery program, or ASR. This is a program whereby water is taken from the Little Arkansas River, treated, and injected in the Equus Beds aquifer. That water is then available in the future as is other Equus Beds water.

With a cost so far of $247 million, the city believes that ASR is a proven technology that will provide water and drought protection for many years. Last year the city recommended that voters approve $250 million for its expansion, paid for by a sales tax. Voters rejected the tax.

According to city documents, the original capacity of the ASR phase II project to process water and pump it into the ground (the “recharge” process) was given as “Expected volume: 30 MGD for 120 days.” That translates to 3,600,000,000 (3.6 billion or 3,600 million) gallons per year. ASR phase II was completed in 2011.

At a city council workshop in April 2014, Director of Public Works and Utilities Alan King briefed the council on the history of ASR, mentioning the original belief that ASR would recharge 11,000 acre feet of water per year. But he gave a new estimate for production, telling the council that “What we’re finding is, we’re thinking we’re going to actually get 5,800 acre feet. Somewhere close to half of the original estimates.” The new estimate translates to 1,889,935,800 (1.9 billion) gallons per year.

Gallons of Water Recharged Through Recharge Basins and Wells during Wichita ASR Phase II, cumulative
Gallons of Water Recharged Through Recharge Basins and Wells during Wichita ASR Phase II, cumulative
Based on experience, the city has produced a revised estimate of ASR production capability. What has been the actual experience of ASR? The U.S. Geological Survey has ASR figures available here. I’ve gathered the data and performed an analysis. (Click charts for larger versions.)

I’ve produced a chart of the cumulative production of the Wichita ASR project compared with the original projections and the lower revised projections. The lines for projections rise smoothly, although it is expected that actual production is not smooth. The second phase of ASR was completed sometime in 2011, but no water was produced and recharged that year. So I started this chart with January 2012.

Gallons of Water Recharged Through Recharge Basins and Wells during Wichita ASR Phase II, cumulative since July 2013
Gallons of Water Recharged Through Recharge Basins and Wells during Wichita ASR Phase II, cumulative since July 2013
Some have said that since 2013 was a drought year, we shouldn’t evaluate the production of ASR during a drought. So to present ASR in the best possible light, I’ve prepared a chart starting in July 2013. That was when it started raining so much we had floods, and data from USGS shows that the flow in the Little Arkansas River was much greater. Still, the ASR project is not keeping up with projections, even after goals were lowered.

Gallons of Water Recharged Through Recharge Basins and Wells during Wichita ASR phase II
Gallons of Water Recharged Through Recharge Basins and Wells during Wichita ASR phase II
On the chart of monthly production, the horizontal line represents the revised (lowered) annual production projection expressed as a constant amount each month. This even rate of production is not likely, as rainfall and river flow varies. In the three years that ASR phase II has been in production, that monthly target been exceeded in just one month.

Flow of the Little Arkansas River at Valley Center.  The ASR project is able to draw from the river when the flow is above 30 cfs, which is the dark line.
Flow of the Little Arkansas River at Valley Center. The ASR project is able to draw from the river when the flow is above 30 cfs, which is the dark line. Source of data is here.
At one time the city was proud enough of the ASR project that it maintained an informative website at wichitawaterproject.org. That site no longer exists.
At one time the city was proud enough of the ASR project that it maintained an informative website at wichitawaterproject.org. That site no longer exists.

WichitaLiberty.TV: Initiative and referendum

In this excerpt from WichitaLiberty.TV: What recourse do citizens have when elected officials are not responsive? Initiative and referendum are two possibilities. View below, or click here to view at YouTube. Originally broadcast May 3, 2015.

For more about this issue, see Wichita has examples of initiative and referendum and Initiative and referendum.

In Wichita, bad governmental behavior excused

A Wichita newspaper op-ed is either ignorant of, or decides to forgive and excuse, bad behavior in Wichita government, particularly by then-mayoral candidate Jeff Longwell.

In a column just before the April 2015 Wichita election, Bill Wilson, managing editor of the Wichita Business Journal, reported on fallacies during the mayoral campaign, fallacies he called “glaring.” 1 But only a juvenile interpretation of the facts surrounding the events could find them fallacious. This is especially troubling since Wilson covered city hall as a reporter for the Wichita Eagle.

The first reported fallacy concerns the award of the contract for the new Wichita airport terminal. Jeff Longwell, then a city council member, had received campaign contributions from executives of Key Construction, the local company bidding on the contract. He also received contributions from Walbridge, the Michigan partner of Key. The Walbridge contributions are problematic, as they were made just a few days before the vote. More arrived a few days after Longwell’s vote. 2

In his column Wilson had an explanation as to why the council voted the way it did. That explanation was a matter of dispute that the council had to resolve. But the validity of the explanation is not the point. The point is something larger than any single issue, which is this: The Wichita city council was asked to make decisions regarding whether discretion was abused or laws were improperly applied. It is not proper for a council member to participate in decisions like this while the ink is still wet on campaign contribution checks from a party to the dispute. Jeff Longwell should not have voted on this matter.

For that matter, several other council members should not have voted. Wichita City Council Member James Clendenin (district 3, southeast and south Wichita) received substantial campaign contributions from Key Construction executives several months before he voted on the airport contract. So too did Wichita City Council Member and Vice Mayor Lavonta Williams (district 1, northeast Wichita) . In fact, the only contributions Williams received in 2012 were from Key Construction interests. 3

Wichita Mayor Carl Brewer with major campaign donor Dave Wells of Key Construction.
Wichita Mayor Carl Brewer with major campaign donor Dave Wells of Key Construction. Brewer has voted to send millions to Key, including overpriced no-bid contracts.
Then we have Former Wichita Mayor Carl Brewer. Here he’s pictured fishing with his friend Dave Wells of Key Construction. Do you think it is proper for the mayor to have voted in a quasi-judicial role on a matter worth millions to his fishing buddy? How do you feel about the mayor voting for no-bid construction contracts for his friend? Contracts that later were found to be overpriced? 4

In Wichita, city council members receive campaign contributions while participating in a quasi-judicial proceeding involving the contributors. This doesn’t seem to be improper to the Wichita Business Journal. But it isn’t alone. The Wichita Eagle doesn’t object to any of this. Well, maybe once in a while it does, but not very strenuously or for very long.

Another problem: Wilson dismisses the claim that Longwell was able to exert much influence over the other six council members in order to benefit a project in his council district. But during the campaign, Longwell eagerly took credit for the good things that the city council did. Though Longwell was but one of seven votes, his commercials made it seem like he performed these deeds all by himself. But when things go wrong, well, he’s just one of seven votes.

The last fallacy Wilson objects to is this: “The idea that a $500 campaign contribution buys a vote, a specious claim by Americans for Prosperity that inexplicably lives on. If a council member’s vote is for sale for $500, their stupidity trumps their corruption. And yet some of these false claims remain in political advertising, despite being debunked by two media outlets — and here.”

A few points: First, it’s not just a $500 contribution. We find many examples of individual $500 contributions from executives of the same company, along with spouses and other family members. The contributions are effectively stacked. Second, sometimes campaigns are funded to a large extent by these stacked contributions from just one or two firms. 5 Third, if these contributions are not seen as valuable to those who make them, why do the same small groups of business interests make the maximum contributions year after year?

As far as the claims being debunked: A few weeks ago I showed you the inexplicably bad reporting from the Wichita Eagle. 6 The Business Journal didn’t do any better.

Wilson’s op-ed seems more like an audition for a job at city hall than a critical look at the campaign and its issues. Making a move from news media to a government job in communications is a common career move. There are three former journalists working in Wichita city hall. One former Wichita Eagle reporter went to work for the Wichita school district. There are many examples in Topeka. It’s a problem when journalists who are supposed to be exercising watchdog duty over government agencies end up working for them. We can also recognize when journalists are auditioning for jobs in government.

WichitaLiberty.TV: Wichita economic development, Kansas schools and spending, minimum wage

In this episode of WichitaLiberty.TV: Can we reform economic development in Wichita to give us the growth we need? Kansas school test scores, school spending, and how the Wichita district spends your money. Then, who is helped by raising the minimum wage? View below, or click here to view at YouTube. Episode 84, broadcast May 10, 2015.

Wichita area job growth

Private sector job growth in the Wichita area is improving, but lags behind local government employment growth.

Data from the Bureau of Labor Statistics through 2014 allows us to compare trends of employment in the Wichita metropolitan area. Over the past few years we see private sector employment rising. At the same time government employment, particularly state and local government employment, has declined or leveled.

Wichita area employment. Click for larger version.
Wichita area employment. Click for larger version.
Over the 24 years covered by the chart, private sector employment grew by 16 percent. Local government employment grew by 41 percent.

This long-term trend is a problem. It is the private sector that generates the taxes that pay for government. When government grows faster than the private sector, economic activity is shifted away from productive activities to unproductive. The economist Dan Mitchell has proposed what he calls the “Golden Rule of Fiscal Policy,” which is: “The Private Sector should Grow Faster than Government.” This is not happening in the Wichita metropolitan area.

Wichita property tax rates up again

The City of Wichita says that it hasn’t raised its mill levy in many years. Data shows the mill levy has risen, and its use has shifted from debt service to current consumption.

Wichita mill levy rates. This table holds only the taxes levied by the City of Wichita and not any overlapping jurisdictions.
Wichita mill levy rates. This table holds only the taxes levied by the City of Wichita and not any overlapping jurisdictions.
In 1994 the City of Wichita mill levy rate was 31.290. In 2014 it was 32.652, based on the city’s Comprehensive Annual Financial Report and the Sedgwick County Clerk. That’s an increase of 1.362 mills, or 4.35 percent, since 1994. (These are for taxes levied by the City of Wichita only, and do not include any overlapping jurisdictions.)

The Wichita City Council did not take explicit action to raise this rate. Instead, the rate is set by the county based on the city’s budgeted spending and the assessed value of taxable property subject to Wichita taxation.

Wichita mill levy rates. Click for larger version.
Wichita mill levy rates. Click for larger version.
While the city doesn’t have control over the assessed value of property, it does have control over the amount it decides to spend.

Change in Wichita mill levy rates, year-to-year and cumulative. Click for larger version.
Change in Wichita mill levy rates, year-to-year and cumulative. Click for larger version.
Also, while some may argue that an increase of 4.35 percent over two decades is not very much, this is an increase in a rate of taxation, not actual tax revenue. The revenue collected is a function of the mill levy rate multiplied by the value of taxable property. Revenue has risen, due both to appreciation in the value of property and an increase in the amount of property.

Application of tax revenue has shifted

The allocation of city property tax revenue has shifted over the years. According to the 2010 City Manager’s Policy Message, page CM-2, “One mill of property tax revenue will be shifted from the Debt Service Fund to the General Fund. In 2011 and 2012, one mill of property tax will be shifted to the General Fund to provide supplemental financing. The shift will last two years, and in 2013, one mill will be shifted back to the Debt Service Fund. The additional millage will provide a combined $5 million for economic development opportunities.”

Wichita mill levy, percent dedicated to debt service. Click for larger version.
Wichita mill levy, percent dedicated to debt service. Click for larger version.
In 2005 the mill levy dedicated to debt service was 10.022. In 2014 it was 8.537. That’s a reduction of 1.485 mills (14.8 percent) of property tax revenue dedicated for paying off debt. Another interpretation of this is that in 2005, 31.4 percent of Wichita property tax revenue was dedicated to debt service. In 2014 it was 26.1 percent.

This shift has not caused the city to delay paying off debt. This city is making its scheduled payments. But we should recognize that property tax revenue that could have been used to retire debt has instead been shifted to support current spending. Instead of spending this money on current consumption — including economic development spending that has produced little result — we could have, for example, used that money to purchase some of our outstanding bonds.

Despite the data that is readily available in the city’s comprehensive annual financial reports, some choose to remain misinformed and/or uninformed. The video below provides insight into the level of knowledge of some elected officials and city staff.

Wichita economic development, the need for reform

An incentives deal for a Wichita company illustrates a capacity problem and the need for reform.

Next week the Wichita City Council will consider an economic development incentives package intended to enable a local manufacturing company to expand its operations.

R and R Aerospace benefits 2015-05-05City documents give some detail regarding the amounts of property tax to be forgiven on an annual basis, for a period of up to ten years. In the past, city documents have often mentioned other incentive programs that will benefit the company, but that information is missing. Other sources mention two state programs — PEAK and HPIP — the company may benefit from, but amounts are not available.

In order to prepare the incentives package, several events took place. There was a visit to the company. Then another visit and tour. Then economic development officials helped the company apply for benefits from the Kansas Department of Commerce. Then these officials worked closely with Wichita city staff on an incentive package.

City documents state that the expansion will create 28 jobs over the next five years. Obtaining these jobs took a lot of effort from Wichita and Kansas economic development machinery. Multiple agencies and fleets of bureaucrats at GWEDC, the City of Wichita, Sedgwick County, and the State of Kansas were involved. Wichita State University had to be involved. All this to create 5.6 jobs per year for five years.

The jobs are welcome. But this incident and many others like it reveal a capacity problem, which is this: We probably need to be creating 5.6 jobs every working hour of every day in order to make any significant progress in economic growth. If it takes this much effort to create 28 jobs over five years, how much effort will it take to create the many thousands of jobs we need to create every year?

This assumes, of course, that the incentives are necessary to enable the company to expand. City documents state that the tax exemption is necessary to make the project “viable.” It’s likely that the mayor or city council members will say that if we don’t award the incentives, the company won’t be able to expand. Or perhaps the company will expand in some other city. So the incentives really don’t have any cost, they will tell citizens.

This only hints at a larger problem. If companies can’t afford to make investments in Wichita unless they receive exemptions from paying taxes, we must conclude that taxes are too high. (An ongoing study reveals that generally, property taxes on commercial and industrial property in Wichita are high. In particular, taxes on commercial property in Wichita are among the highest in the nation. See here.) It’s either that, or this company simply doesn’t want to participate in paying for the cost of government like most other companies and people do.

To top it off, this expansion and the new jobs seem far from certain. City documents state the company is “bidding on a new work package” and the “expansion project would be completed in phases
based upon the timing and demand of the work package.”

Civic leaders say that our economic development policies must be reformed. So far that isn’t happening. Our leaders say that cash incentives are on the way out. This deal does not include grants of cash, that is true. But forgiveness of taxes is more valuable to business firms than receiving cash. That’s because cash incentives are usually taxable as income, while forgiveness of taxes does not create taxable income. Each dollar of tax that is forgiven adds one dollar to after-tax profits. 1

The large amount of bureaucratic effort and cost spent to obtain a small number of speculative jobs lets us know that we need to do something else in order to grow our local economy. We need to create a dynamic economy, focusing our efforts on creating an environment where growth can occur organically without management by government. Dr. Art Hall’s paper
Embracing Dynamism: The Next Phase in Kansas Economic Development Policy provides much more information on the need for this.

Another thing we can do to help organically grow our economy and jobs is to reform our local regulatory regime. Recently Kansas Policy Institute released a study of regulation and its impact at the state and local level. This is different from most investigations of regulation, as they usually focus on regulation at the federal level.

Business Perceptions of the Economic Impact of State and Local Government Regulation coverThe study is titled “Business Perceptions of the Economic Impact of State and Local Government Regulation.” It was conducted by the Hugo Wall School of Public Affairs at Wichita State University. Click here to view the entire document.

Following is an excerpt from the introduction by James Franko, Vice President and Policy Director at Kansas Policy Institute. It points to a path forward.

Surprising to some, the businesses interviewed did not have as much of a problem with the regulations themselves, or the need for regulations, but with their application and enforcement. Across industries and focus group sessions the key themes were clear — give businesses transparency in what regulations are being applied, how they are employed, provide flexibility in meeting those goals, and allow an opportunity for compliance.

Sometimes things can be said so often as to lose their punch and become little more than the platitudes referenced above. The findings from Hugo Wall are clear that businesses will adapt and comply with regulations if they are transparent and accountable. Many in the public can be forgiven for thinking this was already the case. Thankfully, local and state governments can ensure this happens with minimal additional expense.

A transparent and accountable regulatory regime should be considered the “low hanging fruit” of government. Individuals and communities will always land on different places along the continuum of appropriate regulation. And, a give and take will always exist between regulators and the regulated. Those two truisms, however, should do nothing to undermine the need for regulations to be applied equally, based on clear rules and interpretations, and to give each business an opportunity to comply. (emphasis added)

Creating a dynamic economy and a reformed regulatory regime should cost very little. The benefits would apply to all companies — large or small, startup or established, local or relocations, in any industry.

Our civic leaders say that our economic development efforts must be reformed. Will the path forward be a dynamic economy and reformed regulation? Or will it be more bureaucracy, chasing five jobs at a time?

  1. Site Selection magazine, September 2009. 2015. ‘INCENTIVES — Site Selection Magazine, September 2009′. Siteselection.Com. Accessed May 1 2015. http://www.siteselection.com/issues/2009/sep/Incentives/

WichitaLiberty.TV: Kansas revenue and spending, initiative and referendum, and rebuliding liberty

In this episode of WichitaLiberty.TV: The Kansas Legislature appears ready to raise taxes instead of reforming spending. Wichita voters have used initiative and referendum, but voters can’t use it at the state level. A look at a new book “By the People: Rebuilding Liberty Without Permission.” View below, or click here to view at YouTube. Episode 83, broadcast May 3, 2015.

Wichita economic development policies questioned

One of the themes of the recent Wichita mayoral campaign was the need to restore trust in city hall. Following, from April 2013, an example of how city hall has created the trust deficit. Although this story was covered nowhere but here, it it exemplary of how Wichita city hall operates. Since then the city’s economic development director has retired, but we have the same city manager and nearly all the same council members, with one having moved up to mayor. For an update on this story, see Wichita: No such document.

At Tuesday’s meeting of the Wichita City Council, I was prepared to ask the council to not approve issuance of Industrial Revenue Bonds. My reason, explained here, was that the cost-benefit analysis did not meet the standard the city has established in its economic development incentives policy.

At the meeting, though, Urban Development Director Allen Bell and Wichita city manager Robert Layton both explained that for downtown projects, the city’s policy that the debt service fund must show a cost-benefit ratio of 1.3 to one or better doesn’t apply. (Video of Bell explaining this policy is here, and of Layton doing the same, here.)

I thought I should have known about that policy. I felt bad — embarrassed, even — for not being aware of it.

There’s a certain logic to their arguments. The parking garage is available to the public — at least some parking stalls. But the garage was not built until the Ambassador Hotel project was finalized. And the number of parking spots actually available to the public is difficult to determine. One analysis shows that the number of spots available to the public is zero, although the city says otherwise.

So the next day I sought to inform myself of this policy regarding the cost-benefit ratio for the city’s debt service fund for downtown projects.

I found a document titled “City of Wichita Downtown Development Incentives Policy” as approved by the Wichita City Council on May 17, 2011. It doesn’t address cost-benefit ratios for any funds, at least by my reading.

(By the way, that document, which was available on the city’s website at wichita.gov, wasn’t available after the city recently transitioned to a new website.)

There is also the evaluation matrix for downtown projects. It includes as a criterion “Extent City’s ROI exceeds benefit/cost ratio of 1.3:1 on CEDBR Model.”

I don’t see either of these documents supporting what was stated by two top city officials at Tuesday’s meeting, that the cost-benefit ratio of 1.3 to one requirement does not apply to the debt service fund for downtown projects.

I’ve asked the city to provide such a policy document. So far, city officials have searched, but no such document has been provided. You’d think that if there is a document containing this policy, it would be readily accessible.

Whether the “new” policy explained Tuesday by Messrs. Bell and Layton is sound public policy is something that should be discussed. It might be a desirable policy.

But this entire episode smacks of molding public policy in order to fit the situation at hand.

The city relies on cost-benefit analysis produced by Wichita State University Center for Economic Development and Business Research. The positive result produced for the general fund — the 2.62 that Bell referred to — was used to justify the public investments the city asked taxpayers to make in September 2011.

We didn’t know about the unfavorable result for the city’s debt service at that time. City officials, however, knew, as it’s contained in the analysis provided to the city from CEDBR.

City officials could have — if they had wanted to — explained this special debt service policy for downtown projects at that time. City officials or the mayor could have explained that part of the Ambassador Hotel project doesn’t meet the city’s economic development policies, but here’s why the project is a good idea nonetheless.

City officials and the mayor could have used that opportunity to inform Wichitans of the special policy for downtown projects regarding the debt service fund, if such a policy actually existed at that time.

But they didn’t do that. And if the policy actually existed at that time, it was a well-kept secret, and was until Tuesday.

I’m sure some will say that we should just shrug this off as an innocent oversight. But this project is steeped in cronyism. It is the poster child for why Wichita and Kansas need pay-to-play laws so that city council members are prohibited from voting to send millions to their significant campaign contributors and the mayor’s fishing buddy.

Soon the city will probably ask Wichitans to trust it with more tax revenue so the city can do more for its citizens. The city commissioned a survey to justify this. Also, the mayor wants a dedicated stream of funding so that the city can spend more on economic development.

In other words, the city wants its citizens to trust their government. But in order to gain that trust, the city needs to avoid episodes like this.

Did Jeff Longwell dodge a tough city council vote?

On election day, Wichita city council member and mayoral candidate Jeff Longwell appears to have ducked an inconvenient vote and would not say why.

At his Wichita mayoral campaign announcement last November, then-council member Jeff Longwell called for a moratorium on the use of forgivable loans until a new policy is implemented. 1

Jeff Longwell, now Wichita mayor
Jeff Longwell, now Wichita mayor

At other times he called for the end to traditional cash incentives, telling the Wichita Eagle “I think that we have to get away from the traditional cash incentives that we’ve been using and look for better ways to grow jobs in this community.” 2

In the Wichita Eagle voter guide, for the question “What is your philosophy or practice regarding public incentives for companies and developers?” Longwell started his response with this: “I believe there is a better way to promote economic growth.” 3

Wichita voters can be excused for believing Jeff Longwell wants to pursue economic development in a different way. It was a good strategy for the candidate to employ, as the rejection of the sales tax last year by Wichita voters is widely thought to be grounded in voter distrust of the economic development package.

Summary of benefits for Figeac AeroOn election day this April, an economic development incentive package was under consideration by the Wichita city council. The deal contained a common mix of incentives from city, county and state. Details on the amounts of the incentives were sketchy, so I estimated the benefit to the company at $2,315,000 up front cash and credits equivalent to cash, and $605,000 in ongoing annual benefits for at least five years. 4

This was an example of the traditional way Wichita and other cities do economic development, that is, targeted incentives for specific companies. It’s something that Longwell said we need to get away from, especially the forgivable loans part, having called for a moratorium on their use.

This matter provided a perfect opportunity for Longwell to cast a vote aligned with his new perspectives on economic development. So when this matter came before the city council, how did Longwell vote?

The answer is: We don’t know. Longwell didn’t vote. At about 10:27 am, shortly before the council took up this economic development incentives agenda item, Longwell left the council chambers. He did not return before the meeting ended. When asked why he left the meeting, Longwell would not provide an answer. He provided several contradictory explanations. He said he would explain at his campaign watch party on election night the reason for leaving, but would not say that afternoon why he left the meeting. (See Twitter and Facebook dialogs following.)

In a profile during the campaign, Longwell told the Wichita Eagle “I certainly can appreciate and understand the need to not vote on items, but sometimes you just simply, as tough as it is, you have to take a position,” he said. “I don’t know any better way to explain it. It’s part of the responsibility of being elected to do a job. 5

Here was a tough vote for Longwell. It was an opportunity for citizens to see him cast a vote in alignment with his campaign rhetoric. But he didn’t vote. He didn’t take a position, and he wouldn’t say why.

This isn’t the first time Longwell has dodged questions he doesn’t want to answer. He canceled an appearance on The Joseph Ashby Show and would not reschedule. Ashby, for those who haven’t listened, asks tough questions.

Twitter and Facebook transcripts, April 7, 2015

Bob Weeks @bob_weeks Apr 7
Does anyone know why Jeff Longwell left the city council meeting early? @jefflongwellict #ictcouncil @CityofWichita

Jeff Longwell @jefflongwellict Apr 7
@bob_weeks I had a prior appointment. I had to see a man about a horse. I know you miss me when I’m not there. @CityofWichita

Bob Weeks @bob_weeks Apr 7
@jefflongwellict @CityofWichita May I ask why you made an appointment during city council hours?

Jeff Longwell @jefflongwellict Apr 7
@bob_weeks Bob, I’m touched. Thank you for being concerned that my voice is being heard on the council and I’m there to help guide our city.

Jeff Longwell @jefflongwellict Apr 7
@bob_weeks Also, this was unplanned and was of a personal nature. But thank you for your concern. It means a lot, Bob.

Bob Weeks @bob_weeks Apr 7
@jefflongwellict @CityofWichita Would you please answer why you made an appointment during city council hours?

Bob Weeks @bob_weeks Apr 7
@jefflongwellict @CityofWichita Which was it? A prior appointment or unplanned?

Jeff Longwell @jefflongwellict Apr 7
@bob_weeks An appointment I had to schedule this morning. Priorly unplanned to making it. Don’t worry, I’m fine. @CityofWichita

Bob Weeks @bob_weeks Apr 7
@jefflongwellict @CityofWichita Could you please tell us some details? Why did it have to be done during a city council meeting?

Bob Weeks @bob_weeks Apr 7
@jefflongwellict @CityofWichita When a council member and mayoral candidate misses an important vote, the public has a right to know why.

Jeff Longwell @jefflongwellict Apr 7
@bob_weeks City council members leave meetings periodically. It’s a personal matter, not a conspiracy, Bob. @CityofWichita

Jeff Longwell @jefflongwellict Apr 7
@bob_weeks if you’d like to stop by my watch party tonight we can chat about it all you want. @CityofWichita

Bob Weeks @bob_weeks Apr 7
@jefflongwellict @CityofWichita You will not tell voters why you scheduled this appointment, is that your response?

Bob Weeks @bob_weeks Apr 7
@jefflongwellict @CityofWichita It’s not me who deserves to know. It’s the people of Wichita who need to know why a council member left.

Jeff Longwell @jefflongwellict Apr 7
@bob_weeks Nothing would have changed with my vote today, Bob. Council members miss on occasion. @CityofWichita

Bob Weeks @bob_weeks Apr 7
@jefflongwellict @CityofWichita If you had a legitimate reason for missing a vote, I would think you’d be willing to tell voters details.

Later, on Facebook:

Mayor Jeff Longwell: As I said, while I appreciate your concern and the fact that you feel my presence is crucial to city council meetings, I had to leave for a personal matter. Council members leave meetings on occasion, and nothing would have changed with the addition of my vote. But it really means a lot to me that you feel I’m a vital part of the council and miss me when I’m gone, Bob.
April 7 at 3:02pm

Bob Weeks: Dodging the question again. You said that you would tell me tonight why you left the meeting, so why won’t you say now?
April 7 at 3:05pm

  1. Kansas, 2015. ‘Economic Development Among Mayoral Candidate Jeff Longwell’s Priorities For Wichita’. Accessed April 16 2015. http://www.kansas.com/news/local/article393829
  2. Kansas, 2015. ‘Jeff Longwell, Sam Williams Advance In Race For Wichita Mayor’. Accessed April 16 2015. http://www.kansas.com/news/politics-government/election/article12332810.html
  3. C3.thevoterguide.org, 2015. ‘Wichita Mayor — The Wichita Eagle Voter Guide.’ Accessed April 16 2015. http://c3.thevoterguide.org/v/wichita15/race-detail.do?id=14013125
  4. Weeks, Bob. 2015. ‘Figeac Aero Economic Development Incentives’. Voice For Liberty In Wichita. Accessed April 16 2015. http://wichitaliberty.org/wichita-government/figeac-aero-economic-development-incentives/
  5. Kansas, 2015. ‘Council Member Jeff Longwell Touts Experience In Mayoral Race’. Accessed April 16 2015. http://www.kansas.com/news/politics-government/election/article15627836.html

Wichita marijuana ballot issue, April 7, 2015

Following is a map of voting for the Wichita marijuana ballot issue, April 7, 2015. A vote of “Yes” was in favor of reducing the penalty for possession. View below, or click here to open in a new window or mobile device. Click or tap on a precinct to view data.

For a tabular presentation of this data and other Wichita election returns, click here. 37,166 votes were cast for the marijuana ballot measure, and 37,190 votes were cast for mayor.

Someone also asked if there was a correlation between the marijuana vote and the mayoral vote. A plot of the two is below. With R = .01, there is no correlation to speak of.

Longwell - marijuana plot 2015-04-07

Figeac Aero economic development incentives

Wichita politicians, economic development officials, and civic leaders bemoan the lack of incentives Wichita can offer. A deal under consideration illustrates what is really available.

Next week the Wichita City Council will consider a forgivable loan to Figeac Aero North America related to its expansion of its Wichita facility. Following is an explanation of the various incentives and benefits planned for this company.

Figeac will receive forgivable loans of $250,000 each from Sedgwick County and the City of Wichita, with the State of Kansas adding $500,00, although it is not clear if that is a grant or forgivable loan.

City documents don’t mention this, but a letter from the Kansas Department of Commerce indicates that Figeac will benefit from the Promoting Employment Across Kansas program, commonly known as PEAK. This program rebates 95 percent of the state withholding taxes back to the company. An investigation from earlier this year showed that PEAK incentive payments can be a substantial sum. Tables available at the Kansas Department of Revenue indicate that for a single person with no exemptions who earns $40,000 annually, the withholding would be $27 per week (for weekly payroll), or $1,404 annually. For a married person with two children earning the same salary, withholding would be $676 annually. Under PEAK, the company retains 95 percent of these values.

Briefcase with moneyWe don’t know how much withholding tax Figeac employees will generate. An estimate is that with 200 employees earning $40,000, averaging the two withholding scenarios illustrated above, Figeac would receive $1040 * 200 * 95% = $191,900 per year in PEAK payments.

The Department of Commerce also offers tax credits through the High Performance Incentive Program (HPIP). This rebates, in the form of tax credits, 10% of the capital investment above $1.0 million. City documents state Figeac will invest about $21,000,000, with capital investment of $7,000,000 in machinery and equipment, which should qualify for HPIP credits. This means the company would receive tax credits equal to ($7000000 – $1000000) * 10% or $600,000. It’s possible that other expenditures would qualify for these credits. Tax credits are economically equivalent to a cash grant for both the state and the recipient.

The letter from Commerce also says the state will “underwrite a portion of the company’s actual expenses for training new employees.” No dollar value is given for this.

Finally, the city is issuing Industrial Revenue Bonds in an amount up to $20,680,000. The city does not lend this money to Figeac. Instead, the purpose of the IRBs is to enable property tax and sales tax forgiveness. City documents are sketchy as to the amount of tax that will be saved, but documents state “After the five year exemption period, the new improvements would generate an estimated $82,470 annually for the General Fund and $29,196 for the Debt Service Fund.” This means the city alone is forgiving $111,666 per year in taxes. City documents usually give the amount of tax that overlapping jurisdictions are abating, but this information is missing. Based on relative mill levies for the county, school district, and state, I estimate the total property tax benefit at $414,000 per year.

The IRBs also carry a sales tax exemption. The $7,000,000 in machinery and equipment would be exempt from sales tax, and possibly some of the property improvements. If Figeac spent $10,000,000 in expenditures subject to sales tax, the one-time benefit to Figeac is $715,000.

The following table summarizes the benefits.

Summary of benefits for Figeac Aero

WichitaLiberty.TV: Kansas Policy Institute Vice President and Policy Director James Franko

In this episode of WichitaLiberty.TV: Kansas Policy Institute has produced a study of the effect of state and local regulation on business. James Franko of KPI discusses. View below, or click here to view at YouTube. Episode 80, broadcast April 5, 2015.

The complete study from KPI may be read here.

Wichita city council member Jeff Longwell should not have voted

A sequence of events involving Jeff Longwell should concern citizens as they select the next Wichita mayor. Based on Wichita law, Longwell should not have voted on a matter involving the Ambassador Hotel, either for or against it.

In 2011 the Wichita City Council voted to award millions of taxpayer subsidy to the developers of the Ambassador Hotel in downtown Wichita. Because of the nature of one of the ordinances the council passed, citizens were able to petition to have it overturned. A successful petition was filed, so there was an election.

Ambassador Hotel sign 2014-03-07A group named “Moving Wichita Forward” was formed to campaign for the Ambassador Hotel for the February 28, 2012 election regarding the repeal of its special guest tax measure. The measure benefited Paul Coury, Dave Burk, and executives of Key Construction. The primary funder of the campaign was this ownership group.

As part of the campaign, on January 30, 2012 Moving Wichita Forward spent money with Luminance Display, a company that sold space on billboards.

Jeff Longwell Luminance Display 2012-01-30 excerpt

Based on a statement of substantial interests that Longwell filed in 2012, you can see that he had an ownership interest in Luminance Display.

Jeff Longwell SSI 2012-05-31 excerpt

So far, nothing contrary to Wichita city code has taken place. Yes, it is sleazy to sell advertising to people who have had business before the council in the past. But there’s nothing in the Wichita city code addressing this.

Then on April 16, 2013 Longwell voted in favor of Industrial Revenue Bonds for the Ambassador Hotel. The bond package allowed the hotel to avoid paying $703,017 in sales tax, according to city documents.

That is where Longwell crossed the line from being merely sleazy to acting contrary to city code. Here’s an excerpt from Section 2.04.050 Code of ethics for council members from the Wichita city code as passed in 2008:

“[Council members] shall refrain from making decisions involving business associates, customers, clients, friends and competitors.”

The owners of the Ambassador Hotel were customers of a company that Jeff Longwell partially owned. Based on the laws of the City of Wichita, Longwell should not have voted on a matter involving the Ambassador Hotel, either for or against it.

Study on state and local regulation released

This week Kansas Policy Institute released a study of regulation and its impact at the state and local level. This is different from most investigations of regulation, as most focus on federal regulations.

Business Perceptions of the Economic Impact of State and Local Government Regulation coverThe study is titled “Business Perceptions of the Economic Impact of State and Local Government Regulation.” It was conducted by the Hugo Wall School of Public Affairs at Wichita State University. Click here to view the entire document.

Following is an excerpt from the introduction by James Franko, Vice President and Policy Director at Kansas Policy Institute.

Surprising to some, the businesses interviewed did not have as much of a problem with the regulations themselves, or the need for regulations, but with their application and enforcement. Across industries and focus group sessions the key themes were clear — give businesses transparency in what regulations are being applied, how they are employed, provide flexibility in meeting those goals, and allow an opportunity for compliance.

Sometimes things can be said so often as to lose their punch and become little more than the platitudes referenced above. The findings from Hugo Wall are clear that businesses will adapt and comply with regulations if they are transparent and accountable. Many in the public can be forgiven for thinking this was already the case. Thankfully, local and state governments can ensure this happens with minimal additional expense.

A transparent and accountable regulatory regime should be considered the “low hanging fruit” of government. Individuals and communities will always land on different places along the continuum of appropriate regulation. And, a give and take will always exist between regulators and the regulated. Those two truisms, however, should do nothing to undermine the need for regulations to be applied equally, based on clear rules and interpretations, and to give each business an opportunity to comply.

Ranzau, Peterjohn endorse Sam Williams for Wichita mayor

Despite past differences, two members of the Sedgwick County Commission have endorsed Sam Williams for Wichita Mayor.

Citing recent revelations that Jeff Longwell voted to use taxpayer funds that helped his private business profit, County Commissioners Richard Ranzau and Karl Peterjohn called on supporters of ethics reform and transparency to oppose Longwell and support Sam Williams.

“Even though Sam Williams has supported our opponents in the past, we think it is vital that he be elected over Longwell,” Peterjohn and Ranzau said in a joint statement.

“We have known for some time that Jeff Longwell has had a problem with ethics. In fact, the voters rejected his approach to government when he ran against me,” Karl Peterjohn stated. “It was during his race against me that Longwell presented the appearance that his vote was for sale. Now there is evidence that not only did he utilize his position on the City Council to enrich his campaign coffers, but he also has used it for his personal enrichment.”

According to campaign finance reports filed by Longwell, his campaign for County Commission accepted multiple out-of-state donations from the CEO of Walbridge and his spouse the day before he voted to award Walbridge a contract that was millions of dollars higher than another bid being considered. Three days after that vote, Longwell accepted thousands of dollars more from other Michigan-based employees of the company.

It was recently reported that Jeff Longwell made a motion and then supported the use of $10,000 in taxpayer money to sponsor the car show known as The Blacktop Nationals. What Longwell failed to disclose was that his company, Ad Astra Printing, which is registered as an LLC with Jeff Longwell as the only listed owner, received compensations for doing work for the event. Longwell recently admitted his firm did profit from the event. According to Wichita’s Code of Ethics for Council Members (Title 2, Section 2.04.050), council members “shall refrain from making decisions involving business associates, customers, clients, friends and competitors.” Longwell’s motion to use public funds for a project where he would personally profit is clearly a violation of the Code of Ethics for Council Members. The relevant Wichita law can be found here.

“For Wichita to move forward and to grow the jobs we all want, we have to work together in the interest of south-central Kansas — not in the self-interests of politicians,” stated Commissioner Richard Ranzau. “It is well-documented that Sam Williams has actually supported my opponents, as well as those of Karl Peterjohn, in the past, but I know that Sam’s top priority is enriching Wichita, not enriching himself. That’s why I am supporting Sam Williams for mayor. The public needs to have greater transparency and I believe Sam Williams will be an advocate for that. Jeff Longwell has been in office for 20 years and has done nothing to increase transparency or to make local government more accessible to the people,” Ranzau stated.

“Longwell’s consistent ethical lapses will damage economic development opportunities in Sedgwick County. Business leaders will shy away doing business in that manner. Sam Williams is a proven job creator, and I urge voters to support him for mayor,” stated Peterjohn.

Downtown Wichita deal shows some of the problems with the Wichita economy

In this script from a recent episode of WichitaLiberty.TV: A look at the Wichita city council’s action regarding a downtown Wichita development project and how it is harmful to Wichita taxpayers and the economy. This is from episode 77, originally broadcast March 8, 2015. View the episode here.

This week a downtown Wichita project received many economic benefits such as free sales taxes and a bypass of Wichita’s code of conduct for city council members.

Exchange Place
Exchange Place
The issue had to do with tax increment financing, or TIF. This is a method of economic development whereby property taxes are routed back to a real estate development rather than funding the cost of government. It’s thought that TIF is necessary to make certain types of projects economically feasible. I appeared before the Wichita city council and shared my concerns about the harmful effects of this type of economic development.

I said that regarding the Exchange Place project in downtown Wichita, I’d like to remind the council of the entire subsidy package offered to the project.

There are historic preservation tax credits, which may amount to 25 percent of the project cost. These credits have the same economic impact as a cash payment, and their cost must be born by taxpayers.

There is $12.5 million in tax increment financing, which re-routes future property tax revenues back to the project for the benefit of its owners. Most everyone else pays property taxes in order to pay for government, not for things that benefit themselves exclusively, or nearly so.

There is a federal loan guarantee, which places the federal taxpayer on the hook if this project isn’t successful.

The owner of this project also seeks to avoid paying sales taxes on the purchase of materials. City documents don’t say how much this sales tax forgiveness might be worth, but it easily could be several million dollars.

I said: Mayor and council, if it in fact is truly necessary to layer on these incentives in order to do a project in downtown Wichita, I think we need to ask: Why? Why is it so difficult to do a project in downtown Wichita?

Other speakers will probably tell you that rehabilitating historic buildings is expensive. If so, working on historic buildings is a choice they make. They, and their tenants, ought to pay the cost. It’s a lifestyle choice, and nothing more than that.

I told the council that I’m really troubled about the sales tax exemption. Just a few months ago our civic leaders, including this council, recommended that Wichitans add more to our sales tax burden in order to pay for a variety of things.

Only 14 states apply sales tax to food purchased at grocery stores for home consumption, and Kansas has the second-highest statewide rate. We in Kansas, and Wichita by extension, require low-income families to pay sales tax on their groceries. But today this council is considering granting an exemption from paying these taxes that nearly everyone else has to pay.

I told the council that these tax subsidies are not popular with voters. Last year when Kansas Policy Institute surveyed Wichita voters, it found that only 34 percent agreed with the idea of local governments using taxpayer money to provide subsidies to certain businesses for economic development. Then, of course, there is the result of the November sales tax election where city voters emphatically said no to the council’s plan for a sales tax increase.

This project is slated to receive many million in taxpayer-funded subsidy. Now this council proposes to wave a magic wand and eliminate the cost of sales tax for its owners. People notice this arbitrary application of the burden of taxation. They see certain people treated differently under the law, rather than all being treated equally under the law. People don’t like this. It breeds distrust in government. This council can help restore some of this trust by not issuing the Industrial Revenue Bonds and the accompanying sales tax exemption.

In response to my remarks, city council member and mayoral candidate Jeff Longwell had a few comments, as we see here in video from the meeting.

We see city council member and mayoral candidate Jeff Longwell contesting the idea that TIF funds are being rerouted to the benefit of the owners of the project. We’re getting a public parking garage is the city’s response.

Let’s look at the numbers and see if we can evaluate this claim. According to city documents, the project will hold 230 apartments, and the garage is planned to hold 273 parking stalls. You can imagine that many of the apartment renters or buyers will want a guaranteed parking space available to them at all times. And in fact, an early version of the development plan states: “A minimum of 195 spaces will be allocated for use by the apartments. The remaining 103 spaces will be for public parking.” So the city is giving up $12.5 million of tax revenue to gain 103 parking spaces. That’s 121 thousand dollars per parking spot. You can buy a very nice house in Wichita for that.

The actual situation could be even worse for the city’s taxpayers. The development agreement states: “A minimum of 103 parking spaces shall be set aside in the Parking Garage for public parking and the balance for the exclusive use of the residents and guests of Exchange Place Building and Douglas Building.” It also holds this: “This allocation can be revised by Developer as market experience may demonstrate a need to reallocate parking spaces with consent of the City Representative (which consent shall not be unreasonably withheld or delayed).”

So a large portion of the parking garage is not a public benefit. It’s for the benefit of the apartments developer. If not for the city building the garage, the developer would need to provide these parking spaces in order to rent the apartments. And because of tax increment financing, the developer’s own property taxes are being used to build the garage instead of paying for government, like almost all other property taxes do, like your property taxes do. If this was not true, there would be no benefit to the developer for using tax increment financing. And if TIF did not have a real cost to the rest of the city’s taxpayers, we might ask this question: Why not use TIF more extensively? Why can’t everyone benefit from a tax increment financing district?

In his remarks, the city manager mentioned the Block One garage as a public asset, as it was funded by tax increment financing, so let’s look at the statistics there. According to the revised budget for the project, the plan is for 270 stalls in the garage. But 125 stalls are allocated for the hotel, and 100 are allocated for the Slawson development, and 45 allocated for the Kansas Leadership Center building. That leaves precisely zero stalls for public use. That’s right. If these three businesses make full use of their allocation of parking stalls, there will be zero stalls available for the public.

It’s not quite that simple, as Slawson will use its spaces only during the workday, leaving them available to the public evenings and weekends. Perhaps the same arrangement will be made for the Kansas Leadership Center. Being near the Intrust Bank Arena, the garage is used for parking for its events. Except, there aren’t very many event in the arena. In some months there are no events. But you can see that something that is promoted for the public good really turns out to be narrowly focused on private interests.

The manager also mentioned the garage on Main Street. According to city documents, the cost to rehabilitate this garage is $9,685,000, which creates 550 parking stalls. But the city is renting 180 parking stalls to a politically-connected company at monthly rent of $35. We looked at this a few months ago and saw how bad this deal is for city taxpayers.

In his remarks, Mayor Carl Brewer thanked city staff and the developers for “working collectively as a team.” He criticized those who say, in his words, “let’s not do anything, let’s just see where the chips may fall.” As an alternative, he said “we can come together, we can work together, we can work collectively together, and we can bring about change and form it the way we want.”

These remarks illustrate the mayor’s hostility to free markets, that is, to thousands and millions and billions of people trading freely in order to figure out how to allocate scarce resources. But the mayor likens the marketplace of free people to a random event — where the chips may fall, he said. But that’s not how markets work. Markets are people planning for themselves, using their knowledge and preferences and resources in order to build things they want, and what they think others will want. That’s because in markets, the only way you can earn a profit is by doing things that other people want. You have to please customers in order to profit.

But Wichita Mayor Carl Brewer says we need to work collectively together. He says we can form the future the way “we” want. Well, who is the “we” he’s talking about? As we see, the dynamics of free markets results in people doing what other people want. But the “we” the mayor talks about is politicians, bureaucrats, cronies, and do-gooders deciding how they want things to be done, and using your money to do it. That reduces your economic freedom. Your money is directed towards satisfying the goals of politicians and bureaucrats rather than actual, real people.

Here’s how bad this deal really is for Wichita. In my remarks to the council I also said this: Might I also remind the people of Wichita that some of their taxpayer-funded subsidies are earmarked to fund a bailout for a politically-connected construction company for work done on a different project, one not related to Exchange Place except through having common ownership in the past? I don’t think it is good public policy for this city to act as collection agent for a private debt that has been difficult to collect.

I was referring to the fact that the Exchange Place project started as an endeavor of the Minnesota Guys, two developers who bought a lot of property in downtown Wichita and didn’t do very well. They both have been indicted on 61 counts of securities violations in relation to their work in downtown Wichita. One of their projects was the Wichita Executive Center on north Market Street. The Minnesota Guys still owe money to contractors on that project, and some of the taxpayer funding for the Exchange Place project will be used to pay off these contractors.

Why, you may be asking, is the city acting as collection agent for these contractors? There’s an easy answer to this. Money is owed to Key Construction company. We’ve talked about this politically-connected construction firm in the past. Through generous campaign contributions and friendships, Key Construction company manages to gain things like no-bid contracts and other subsidies from the city.

Wichita Mayor Carl Brewer with major campaign donor Dave Wells of Key Construction.
Wichita Mayor Carl Brewer with major campaign donor Dave Wells of Key Construction.
This is a problem. Dave Wells, the president of Key Construction, is a friend of the mayor, as well as frequent and heavy campaign financier for the mayor and other council members. And the mayor voted for benefits for Wells and his company. That is a violation of Wichita city code, or at least it should be. Here’s an excerpt from Wichita city code section 2.04.050, the Code of ethics for council members as passed in 2008: “[Council members] shall refrain from making decisions involving business associates, customers, clients, friends and competitors.”

Dave Wells and Carl Brewer are friends. The mayor has said so. But the City of Wichita’s official position is that this law, the law that seem to plainly say that city council members cannot vote for benefits for their friends, this law does not need to be followed. Even children can see that elected officials should not vote economic benefits for their friends — but not the City of Wichita.

There’s much research that shows that tax increment financing is not an overall benefit to a city’s economy. Yes, it is good for the people that receive it, like the developer of Exchange Place and the mayor’s friends and cronies. But for cities as a whole, the benefit has found to be missing. Some studies have found a negative effect of TIF on economic progress and jobs. That’s right — a city is worse off, as a whole, for using tax increment financing. The evolving episode involving Exchange Place — the massive taxpayer subsidies, the cronyism, the inability of the mayor and council members to understand the economic facts and realities of the transactions they approve, the hostility towards free markets and their benefits as opposed to government planning of the economy — all of this contributes to the poor performance of the Wichita-area economy. This is not an academic exercise or discussion. Real people are hurt by this.

Mayor Brewer has just a month left in office, and there will be a new mayor after that. We, the people of Wichita, have to hope that a new mayor and possibly new council members will chart a different course for economic development in Wichita.

A Wichita Shocker, redux

Based on events in Wichita, the Wall Street Journal wrote “What Americans seem to want most from government these days is equal treatment. They increasingly realize that powerful government nearly always helps the powerful …” But Wichita’s elites don’t seem to understand this.

A Wichita ShockerThree years ago from today the Wall Street Journal noted something it thought remarkable: a “voter revolt” in Wichita. Citizens overturned a decision by the Wichita City Council regarding an economic development incentive awarded to a downtown hotel. It was the ninth layer of subsidy for the hotel, and because of our laws, it was the only subsidy that citizens could contest through a referendum process.

In its op-ed, the Journal wrote:

The elites are stunned, but they shouldn’t be. The core issue is fairness — and not of the soak-the-rich kind that President Obama practices. One of the leaders of the opposition, Derrick Sontag, director of Americans for Prosperity in Kansas, says that what infuriated voters was the veneer of “political cronyism.”

What Americans seem to want most from government these days is equal treatment. They increasingly realize that powerful government nearly always helps the powerful, whether the beneficiaries are a union that can carve a sweet deal as part of an auto bailout or corporations that can hire lobbyists to write a tax loophole.

The “elites” referred to include the Wichita Metro Chamber of Commerce, the political class, and the city newspaper. Since then, the influence of these elites has declined. Last year all three campaigned for a sales tax increase in Wichita, but voters rejected it by a large margin. It seems that voters are increasingly aware of the cronyism of the elites and the harm it causes the Wichita-area economy.

Last year as part of the campaign for the higher sales tax the Wichita Chamber admitted that Wichita lags in job creation. The other elites agreed. But none took responsibility for having managed the Wichita economy into the dumpster. Even today the local economic development agency — which is a subsidiary of the Wichita Chamber — seeks to shift blame instead of realizing the need for reform. The city council still layers on the levels of subsidy for its cronies.

Following, from March 2012:

A Wichita shocker

“Local politicians like to get in bed with local business, and taxpayers are usually the losers. So three cheers for a voter revolt in Wichita, Kansas last week that shows such sweetheart deals can be defeated.” So starts today’s Wall Street Journal Review & Outlook editorial (subscription required), taking notice of the special election last week in Wichita.

The editorial page of the Wall Street Journal is one of the most prominent voices for free markets and limited government in America. Over and over Journal editors expose crony capitalism and corporate welfare schemes, and they waste few words in condemning these harmful practices.

The three Republican members of the Wichita City Council who consider themselves fiscal conservatives but nonetheless voted for the corporate welfare that voters rejected — Pete Meitzner (district 2, east Wichita), James Clendenin (district 3, southeast and south Wichita), and Jeff Longwell (district 5, west and northwest Wichita) — need to consider this a wake up call. These members, it should be noted, routinely vote in concert with the Democrats and liberals on the council.

For good measure, we should note that Sedgwick County Commission Republicans Dave Unruh and Jim Skelton routinely — but not always — vote for these crony capitalist measures.

The Wichita business community, headed by the Wichita Metro Chamber of Commerce endorsed this measure, too.

Hopefully this election will convince Wichita’s political and bureaucratic leaders that our economic development policies are not working. Combined with the startling findings by a Tax Foundation and KMPG study that finds Kansas lags near the bottom of the states in tax costs to business, the need for reform of our spending and taxing practices couldn’t be more evident. It is now up to our leaders to find within themselves the capability to change — or we all shall suffer.

WichitaLiberty.TV: A downtown Wichita deal shows some of the problems with the Wichita economy

In this episode of WichitaLiberty.TV: We’ll examine the city council’s action regarding a downtown Wichita development project and how it is harmful to Wichita taxpayers and the economy. View below, or click here to view at YouTube. Episode 77, broadcast March 8, 2015.

How TIF routes taxpayer-funded benefits to Wichita’s political players

From January 2012, how tax increment financing routes benefits to politically-connected firms.

It is now confirmed: In Wichita, tax increment financing (TIF) leads to taxpayer-funded waste that benefits those with political connections at city hall.

The latest evidence we have is the construction of a downtown parking garage that benefits Douglas Place, especially the Ambassador Hotel, a renovation of a historic building now underway.

The flow of tax dollars Wichita city leaders had planned for Douglas Place called for taxpayer funds to be routed to a politically-connected construction firm. And unlike the real world, where developers have an incentive to build economically, the city created incentives for Douglas Place developers to spend lavishly in a parking garage, at no cost to themselves. In fact, the wasteful spending would result in profit for them.

The original plan for Douglas Place as specified in a letter of intent that the city council voted to support, called for a parking garage and urban park to cost $6,800,000. Details provided at the August 9th meeting of the Wichita City Council gave the cost for the garage alone as $6,000,000. The garage would be paid for by capital improvement program (CIP) funds and tax increment financing (TIF). The CIP is Wichita’s long-term plan for building public infrastructure. TIF is different, as we’ll see in a moment.

At the August 9th meeting it was also revealed that Key Construction of Wichita would be the contractor for the garage. The city’s plan was that Key Construction would not have to bid for the contract, even though the garage is being paid for with taxpayer funds. Council Member Michael O’Donnell (district 4, south and southwest Wichita) expressed concern about the no-bid contract. As a result, the contract was put out for competitive bid.

Now a winning bid has been determined, according to sources in city hall, and the amount is nearly $1.3 million less than the council was willing to spend on the garage. This is money that otherwise would have gone into the pockets of Key Construction. Because of the way the garage is being paid for, that money would not have been a cost to Douglas Place’s developers. Instead, it would have been a giant ripoff of Wichita taxpayers. This scheme was approved by Mayor Carl Brewer and all city council members except O’Donnell.

Even worse, the Douglas Place developers have no incentive to economize on the cost of the garage. In fact, they have incentives to make it cost even more.

Two paths for developer taxes

Recall that the garage is being paid for through two means. One is CIP, which is a cost to Wichita taxpayers. It doesn’t cost the Douglas Place developers anything except for their small quotal share of Wichita’s overall tax burden. In exchange for that, they get part of a parking garage paid for.

Flows of funds in regular and TIF development.
Flows of funds in regular and TIF development.
But the tax increment financing, or TIF, is different. Under TIF, the increased property taxes that Douglas Place will pay as the project is completed won’t go to fund the general operations of government. Instead, these taxes will go to pay back bonds that the city will issue to pay for part of the garage — a garage that benefits Douglas Place, and one that would not be built but for the Douglas Place plans.

Under TIF, the more the parking garage costs, the more Douglas Place property taxes are funneled back to it — taxes, remember, it has to pay anyway. (Since Douglas Place won’t own the garage, it doesn’t have to pay taxes on the value of the garage, so it’s not concerned about the taxable value of the garage increasing its tax bill.)

Most people and businesses have their property taxes go towards paying for public services like police protection, firemen, and schools. But TIF allows these property taxes to be used for a developer’s exclusive benefit. That leads to distortions.

Why would Douglas Place be interested in an expensive parking garage? Here are two reasons:

First, the more the garage costs, the more the hotel benefits from a fancier and nicer garage for its guests to park in. Remember, since the garage is paid for by property taxes on the hotel — taxes Douglas Place must pay in any case — there’s an incentive for the hotel to see these taxes used for its own benefit rather than used to pay for firemen, police officers, and schools.

Second, consider Key Construction, the planned builder of the garage under a no-bid contract. The more expensive the garage, the higher the profit for Key.

Now add in the fact that one of the partners in the Douglas Place project is a business entity known as Summit Holdings LLC, which is composed of David Wells, Kenneth Wells, Richard McCafferty, John Walker Jr., and Larry Gourley. All of these people are either owners of Key Construction or its executives. The more the garage costs, the higher the profit for these people. Remember, they’re not paying for the garage. City taxpayers are.

The sum of all this is a mechanism to funnel taxpayer funds, via tax increment financing, to Key Construction. The more the garage costs, the better for Douglas Place and Key Construction — and the worse for Wichita taxpayers.

Fueled by campaign contributions?

It’s no wonder Key Construction principals contributed $16,500 to Wichita Mayor Carl Brewer and five city council members during their most recent campaigns. Council Member Jeff Longwell (district 5, west and northwest Wichita) alone received $4,000 of that sum, and he also accepted another $2,000 from managing member David Burk and his wife.

This scheme — of which few people must be aware as it has not been reported anywhere but here — is a reason why Wichita and Kansas need pay-to-play laws. These laws impose restrictions on the activities of elected officials and the awarding of contracts.

An example is a charter provision of the city of Santa Ana, in Orange County, California, which states: “A councilmember shall not participate in, nor use his or her official position to influence, a decision of the City Council if it is reasonably foreseeable that the decision will have a material financial effect, apart from its effect on the public generally or a significant portion thereof, on a recent major campaign contributor.”

This project also shows why complicated financing schemes like tax increment financing need to be eliminated. Government intervention schemes like this turn the usual economic incentives upside down, and at taxpayer expense.