Remarks delivered at a public hearing for the Sedgwick County solid waste management plan, April 24, 2008. Sedgwick County, Kansas, home to the City of Wichita, is considering a mandatory household recycling program. Or, perhaps people won't be forced to recycle, but they will be required to pay for the cost burden that recycling places on communities.

You may listen to this article in audio form by clicking here.

The economist Frederich Hayek tells us that the price system communicates all the information we need to know about the relative value of things. The price system allows people who don't know each other to coordinate their activities in the most effective and efficient way possible. The price system is truly a miracle.

If you want to see what happens when the price system is not allowed to work, usually because a government attempts to manage prices, just look at the former Soviet Union and other planned economies. The economist Thomas Sowell relates this story:

The last premiere of the Soviet Union, Mikhail Gorbachev, is said to have asked British Prime Minister Margaret Thatcher: How do you see to it that people get food? The answer was that she didn't. Prices did that. And the British people were better fed than those in the Soviet Union, even though the British have never grown enough food to feed themselves in more than a century. Prices bring them food from other countries.

The price system can do its work only when free people trade with each other freely under a system where property rights are respected. Any attempt by governments to manage prices leads to inefficiencies that manifest themselves as shortages, waiting lines, surpluses, and black markets. The emergence of these problems lead to calls for even more government interventionism to fix the very problem the government caused by interfering with the price system. It can be a never-ending cycle.

How does this apply to recycling in Sedgwick County?

In some cases the price system tells us that recycling is a beneficial use of resources. About 75% of automobiles are recycled, and used cardboard is often recycled in commercial settings. That's because the price paid for these recycled items is high enough that, in these contexts, recycling can be profitable. That's the price system at work. It tells us that the best use of an old car is to recycle it, and the same goes for cardboard boxes at the grocery store.

A household setting is different. Households usually have to pay to engage in recycling. The prices that recyclers can get for these recycled goods doesn't cover the cost of collecting them from households, as evidenced by the fact that in Wichita households must pay someone to pick up recyclables. That's the price system at work again. Its sober assessment is that in the context of households, recycling is a waste of resources. That waste can be tremendous. Orange County, Florida, for example, spends roughly $3 million per year to collect recyclable goods from households, but sells them for only $56,000.

What about running out of landfill space? If landfill space were truly scarce, the price system would tell us so, because landfill operators -- if there is a free market for landfills -- could charge high prices for accepting trash. But evidently, they can't.

So the price system tells us sometimes recycling is a good use of resources, and sometimes it isn't.

A mandatory recycling program or one where people have to pay fees even if they don't actually recycle their household goods amounts to the government attempting to override the price system. It is attempting to manage the price system through government interventionism. These policies, should Sedgwick County implement them, will cause citizens to suffer the same inefficiencies that all planned economies have demonstrated, if on a smaller scale.

On Tuesday December 4, 2007, Sedgwick County hosted the formal groundbreaking ceremony for the downtown Wichita arena. While local government leaders and news media hailed the event as a transforming event in the history of Wichita, this writer does not share their enthusiasm.

The building of this arena is government interventionism at its worst. Stakeholders in the arena, such as Bob Hanson of the Greater Wichita Area Sports Commission, demonstrate the harm of rent-seeking, as they seek to obtain, at taxpayer expense, a large and expensive playhouse for their pleasure. Supporters dressed their arguments for the arena in the language of public goods and economic development. But Henry Hazlitt and others have explained that the money spent on the arena is money that wasn't spent somewhere else, with the attendant loss of jobs and economic activity somewhere else. (See my review of Economics in One Lesson at wichitaliberty.org/node/226, and my article "Prepare for Sales Tax-Induced Job Effects Now" at wichitaliberty.org/node/31, also printed in The Wichita Eagle.) As local governments consider an expensive plan for development of the surrounding area, that money -- just like the money collected through the sales tax -- is money that citizens won't be spending somewhere else of their own choosing.

Even the most basic economic arguments given for the arena were flawed. I found out that the estimated operating budget for the arena was defective, as officials were not aware of, or did not care to disclose, the proper government accounting standards the arena would be required to use. (See my articles "Arenas' Financial Statements Not Complete" at wichitaliberty.org/node/13 and "WSU Study on Downtown Wichita Arena Not Complete" at wichitaliberty.org/node/12.)

Government, too, is not qualified to build and own assets like this arena. Consider the status of the Kansas Coliseum, which having opened in 1978 is only 29 years old. Yet three years ago we were told that it required extensive renovation for continued use, that poor condition being the stick used to promote the downtown arena. (Century II, not much older, is often described in the same terms.) So can you spot the irony in Sedgwick County Commission Chairman Dave Unruh's statement at the groundbreaking? "I think probably most everyone here...will have a story they can tell their children and grandchildren on how they had a part in changing the profile and character of our community." If this new arena suffers the same fate as the Coliseum, one generation from now we'll be building another.

Further, government and its officials are not allowed to campaign for the arena as they did. Kansas Attorney General Opinion 93-125 states: "…public funds may not be used to promote or advocate the position of a governing body on a matter which is before the electorate." If you examine news media accounts of the debate before the election in November 2004, you will see that our local government officials and their quasi-governmental surrogates were working in full force for the passage of the arena and its tax, in direct violation of this regulation. See my article "Government Funds Promoting Downtown Wichita Arena" at wichitaliberty.org/node/342.

Finally, by building a government arena, we lose the opportunity to have a privately-owned arena. A private arena, you say? Wouldn't it have to be owned by greedy capitalists, only seeking to exploit our town just to earn a profit? But in the absence of government coercion or intervention, a business can earn a profit only by meeting customers' needs, and doing that efficiently. Governments and their bureaucrats do not have this powerful motivating factor. The absence of the computation of profit and loss means that we will never know whether the resources spent on the arena were spent wisely. See my article "A Public or Private Downtown Wichita Arena, Which is Desirable?" at wichitaliberty.org/node/284.

More Taxes For Wichitans
By Karl Peterjohn, Kansas Taxpayers Network

Expanding gambling in Sedgwick County will lower taxes and provide “…tax relief…,” according to casino advocates’ campaign flyer. This claim is preposterous in light of the soaring property tax hikes and spending expansion plans being generated by local government in our community.

Historically it is also ridiculous when taxes in general and property taxes in particular rose following the passage of the state lottery in the 1980s. Gambling proponents campaign does raise some key questions for this community’s tax status and overall fiscal climate.

In 2006 Sedgwick County commissioners unanimously raised their mill levy 2.55 mills despite a public outcry and uproar opposing this hike. Two commissioners were then removed from office in the 2006 elections because of the county’s property tax hike. This mill levy increase was on top of soaring property tax appraisals that provide additional taxes for the county’s proposed $386.5 million budget a 5.8 percent hike.

The City of Wichita’s 2008 proposed budget is $495.62 million and this is an increase of over $100 million from the 2006’s $390.1 million. City spending is soaring with a two-year increase of 27 percent and an increase over last year’s revised budget of slightly less than 15 percent. There are a large number of new spending proposals pending at city hall too including $24.5 million for the county’s arena project and $290 million to remodel Century II in a few years.

The Wichita public schools are now proposing a two mill property tax hike (many other Wichita area public school districts are also seeking more property taxes too). This is on top of the $24.6 million increase in state tax funds for USD 259. USD 259 plans to hire 163 new employees for a school district with a gradually declining enrollment.

Despite having an opportunity to place this issue before voters August 7, none of the districts decided to let voters have a say in deciding the fate of school tax hikes. Once again, Wichita area voters were disenfranchised. I don't recall hearing any of the school board or Wichita municipal candidates running in last April’s election campaigning on a platform of raising property taxes in particular or backing tax hikes in general at our public forums.

Wichita public schools had massive spending growth over the last few years. The district’s first budget over $300 million was in 2000-01. The first $400 million budget was in 2005-06. The first official $1/2 billion school budget is this year (but if all tax funds were included this actually took place two years ago).

If additional tax funds from Washington and pension tax funds from Topeka are added these figures are much larger. The official USD 259 proposed budget is just under $516 million but if the “off budget” tax dollars are included this figure grows to $577 million.

If all tax funds are included and enrollment remains the same as last year, spending will be close to $13,000 per FTE pupil annually. If only the “official” spending figures are used the spending will be over $11,600 per FTE pupil annually in Wichita.

In our community government growth is on tax steroids while the private sector struggles with the same growing energy, health insurance, and utility costs that are the justifications being used to raise taxes. Big government in Wichita puts us at a competitive disadvantage compared to similar sized communities in our neighboring states where voters decide the fate of tax increases. This increases the risk and uncertainty for Wichita firms, while it limits economic growth in our community.

From Karl Peterjohn, Executive Director Kansas Taxpayers Network

We need to correct the flawed downtown arena proposal’s mistakes. Since the legislature authorized the county sales tax for the downtown arena it has become abundantly clear that the case against proceeding with the flawed arena project has been made. Enclosed with this testimony is a copy of the 2004 flyer used in that election campaign that shows that the critics of this proposal were correct on the key points in this project.

Here are key points why there should be a revote:

1) The 2004 cost estimates for the downtown arena project at $184.528 million were inaccurate (see county’s Sept. 1, 2004 arena document). The county now projects $201 million and that is likely to grow. In addition, new reports indicate that there is an effort to have the city fund $108 million in additional infrastructure changes for the arena and the area around it.

If the 1 cent sales tax was used entirely for property tax relief, the county’s mill levy could be dropped by roughly 20 mills or roughly 65 percent of the current mill levy.

If you divided the total county and city costs ($201 M + $108 M), that’s almost $700 per person or over $2,700 for a family of four. That’s excessive.

2) There is no anchor tenant for this facility. The Kansas Coliseum rarely sells out. With the same shows and sports franchises, why build a larger facility?

3) There is inadequate parking for this facility. Adding necessary parking will drive the cost of this project even higher.

4) Downtown arena advocates threatened voters with higher property taxes if they did not vote for the sales tax. Sadly, the county property tax mill levy was raised roughly six percent last year and two incumbent commissioners were defeated in their reelection bids as a result.

5) A privately owned and funded arena in Park City is likely to be built and opened well before the downtown arena project is completed. One of the current users of the coliseum will move to this new private facility.

In 1993, Wichita city voters rejected a proposed downtown arena project by better than a 2-to-1 margin. In 2004 voters narrowly, by a 52-to-48 percent margin, approved the downtown arena at $184.5 million. Since then, more realistic cost data about the increased price for a downtown arena has become available.

Let the people vote again on the following four point proposal:

The county will not proceed with the flawed downtown arena project. The roughly $200 million in sales tax revenue that has been raised will be put to the following uses: 1) The Britt Brown Arena will be remodeled with roughly ¼ of the funds generated by the current 1 cent arena sales tax; 2) The current costs that have been incurred in land acquisition, designs, and other contractual costs will be paid with these funds; 3) The remaining sales tax revenue balances will be used to pay down the county’s mill levy (that should be well over ½ of the entire amount raised so far). In addition, the county will seek state authorization to continue the existing 1 cent countywide sales tax with the proviso that it be used entirely to reduce county property taxes. That would provide a reduction of about 65% of the county’s property tax mill levy; 4) All future county mill levy increases must be submitted to voters and approved at a referendum election in the same way that local sales tax increases are approved.

Eliminating this large a portion of the county’s mill levy will provide Sedgwick County businesses, taxpayers, and citizens with a significant comparative advantage over other Kansas counties by reducing this tax on assets as well as reducing the uncertainty concerning future property tax hikes. This will take us one step towards becoming more competitive with progressive states where all tax hikes have to receive voter approval: Colorado, Missouri, and Oklahoma.

The Wichita Eagle editorial board, particularly Randy Scholfield, has been pressing for mandatory recycling. Here's an example of the type of legislation we might see if reason fails us:

AN ACT concerning newspapers, and the recycling thereof, in observance of our state's relationship to Nature, and general lack of trees within this State.

Be it enacted by the Legislature of the State of Kansas:

Definitions.
Sec. 1. As used is this act:
(a) "Newspaper" means a publication printed primarily on newsprint, usually daily.
(b) "Recyclable newspaper" means a newspaper upon which a deposit of at least 10 cents has been paid, or is required to be paid upon the removal of the newspaper from the sale or reading area.
(c) "Dealer" means a person who sells or offers for sale to consumers within this state a newspaper, including an operator of a vending machine containing a newspaper, and including a person operating a delivery route.
(d) "Distributor" means a person who sells newspaper to a dealer within this state, and includes a manufacturer who engages in such sales.
(e) "Manufacturer" means a person who prints newspapers for sale to distributors, dealers, or consumers, with a daily circulation of 75,000 or more.
(f) "Sale or consumption area" means the premises within the property of the dealer where the sale is made, within which newspapers may be read without payment of a deposit, and, upon removing a newspaper from which, the customer is required by the dealer to pay the deposit.

Sec. 2.
(1) A dealer shall not, within this state, sell, offer for sale, or give to consumers a nonrecyclable newspaper.
(2) A dealer who regularly sells newspapers for reading off the dealer's premises shall provide on the premises, or within 100 yards of the premises on which the dealer sells or offers for sale a returnable newspaper, a convenient means whereby the newspaper of any kind, size, and brand sold or offered for sale by the dealer may be returned by, and the deposit refunded in cash to, a person whether or not the person is the original customer of that dealer, and whether or not the newspaper was sold by that dealer.
(3) A dealer shall not refuse to accept from a person a read recyclable newspaper of any kind, size, and brand sold by that dealer, nor refuse to pay to the person its full refund value in cash.
(4) A dealer who does not require a deposit on a recyclable newspaper when the contents are read in the dealer's sale or reading area shall not be required to pay a refund for accepting that read newspaper.
(5) A distributor shall not refuse to accept from a dealer a read recyclable newspaper of any kind, size, and brand sold by that distributor, nor refuse to pay to the dealer its full refund value in cash.
(6) Every newspaper sold or offered for sale by a dealer within this state shall clearly indicate by embossing or by a stamp, a label, or other method securely affixed to the front page, the refund value of the newspaper and the name of this state. A dealer or distributor may, but is not required to, refuse to accept from a person a read recyclable newspaper which does not state on the front page the refund value of the newspaper and the name of this state.
(7) A dealer within this state shall not sell, offer for sale, or give to consumers a plastic newspaper wrapper, any part of which becomes detached when the newspaper is removed.

Should we in Wichita or Sedgwick County be forced to recycle?

Prices for commodities and goods represent the best available information about the worth of them -- that is, unless the government is manipulating prices. The prices people are willing to pay for recycled goods, therefore, tell us everything we need to know about their worth. These prices tell us that there isn't much worth in most recycled goods.

It's not that there aren't markets for recycled goods. About 75% of automobiles are recycled, and used cardboard is often recycled in commercial settings. That's because the price paid for these recycled items is high enough that, in the proper context, recycling can be profitable.

A household setting is different. Recycling of household goods, mostly newsprint, plastics, and glass, (aluminum cans being a possible exception) doesn't pay very well. In fact, it costs households to recycle. The prices that recyclers can get for these recycled goods doesn't even cover the cost of collecting them from households, as evidenced by the fact that in Wichita households must pay someone to pick up recyclables. People can deliver these items to recycling centers, but that involves significant cost to the household.

How much does recycling cost? Orange County in Florida spends roughly $3 million per year to collect recyclables, but sells them for only $56,000.

What about saving the environment through recycling? The contribution of household recycling towards this goal is not certain, once you look beyond the usual recycling propaganda and realize the role that prices play.

Running out of landfill space? If landfill space were truly scarce, landfill operators could charge high prices for trash disposal. But evidently, they don't.

Running out of raw materials? That's not happening. If raw materials were scarce, the price of recycled alternatives would increase. Instead, prices for most recycled goods are low and not increasing. We should be happy that raw materials are inexpensive and that manufacturing processes are efficient.

What this means is that household recycling doesn't pay. Instead, it costs, and costs a lot.

If recycling is voluntary, each person can exercise their own judgment as to the value of recycling versus other activities. With forced recycling, people have to give up activities that they value more than recycling to comply with the mandate. Additionally, we have to pay recycling fees or additional taxes to cover the costs of money-losing recycling efforts.

Then there's the recycling police. We have violent crimes that actually hurt people being committed daily. I think most people would rather have police focusing their attention on those crimes rather than inspecting our trash looking for the wayward aluminum can or newspaper.

Did you know that a study used to promote the economic development benefits of gambling in Wichita has casino workers paying for a large part of the social costs of gambling?

There is a document titled "Economic & Social Impact Anlaysis [sic] For A Proposed Casino & Hotel" created by GVA Marquette Advisors for the Wichita Downtown Development Corporation and the Greater Wichita Convention and Visitors Bureau, dated April 2004. One presentation concludes that the average cost per pathological gambler is $13,586 per year. Quoting from the study in the section titled Social Impact VII-9:

Most studies conclude that nationally between 1.0 and 1.5 percent of adults are susceptible to becoming a pathological gambler. Applying this statistic to the 521,000 adults projected to live within 50 miles of Wichita in 2008, the community could eventually have between 5,200 and 7,800 pathological gamblers. At a cost of $13,586 in social costs for each, the annual burden on the community could range between $71 and $106 million.

If all we had to do was to pay that amount each year in money that would be one thing. But the components of the cost of pathological gamblers include, according to the same study, increased crime and family costs. That is, people are hurt, physically and emotionally, by pathological gamblers. Often the people harmed are those such as children who have no option to leave the gambler.

But this study makes the argument that the economic benefits of gambling will more than pay for this social misery: "While this community social burden could be significant, its quantified estimate is still surpassed by the positive economic impacts measured in this study."

How does the report make this conclusion? The largest components of the positive economic impacts are employee wages ($37 million), additional earnings in the county, and state casino revenue share, along with some minor elements. Together these total $142 million, which is, as the authors point out, larger than the projected costs shown above.

But this analysis is flawed. Casino employee wages can't be used to offset the social costs of pathological gamblers, as these employees probably want to spend their wages on other things!

Economic impact studies like this often assume that any economic activity the proposed development might create is due solely to its existence, and that these monies can be used to pay for whatever problems or costs the development causes.

Just ask the prospective casino employees where they want their wages to go: into their own pockets, or be used, as this study uses them, to pay for the social costs of gambling.

... it is our opinion that public funds may not be used to promote or advocate the position of a governing body on a matter which is before the electorate. However, this does not mean that public funds may not be expended to educate and inform the electorate.

That's the opinion of the Kansas Attorney General Robert Stephan from 1993. In this opinion, the Attorney General cited this court opinion:

It would be establishing a dangerous and untenable precedent to permit the government or any agency thereof, to use public funds to disseminate propaganda in favor of or against any issue or candidate. This may be done by totalitarian, dictatorial, or autocratic governments but it cannot be tolerated, directly or indirectly, in these democratic United States of America. This is true even if the position advocated is believed to be in the best interest of our country. To educate, inform, to advocate or promote voting on any issue may be undertaken, provided it is not to persuade nor to convey favoritism, partisanship, partiality, approval or disapproval . . . of any issue, worthy as it may be.

Now, look back at the actions of our elected government leaders in the months leading up to the November 2004 election.

Were they presenting educational material about the benefits of a new arena? Were they promoting an open and honest debate of a new arena's merits?

Or were they cheerleading and advocating for the arena, using their offices and government resources?

I submit that our local governments, our elected officials, and their quasi-governmental surrogates were working in full force for the passage of the arena and its tax.

That's not just my opinion. Others noticed it too.

An editorial by Phillip Brownlee, published in the Wichita Eagle on September 5, 2004, read in part: "If the plan is to pass, city and county elected officials -- supported by business leaders -- must continue their strong leadership and high-profile support for the arena."

After the election, another Wichita Eagle editorial by Rhonda Holman published on November 4, 2004 stated in part: "What made the difference this time, in addition to the effective marketing campaign and all those pennant yard signs, was the unified show of political will on the part of Wichita and Sedgwick County officials. Their willingness to declare the need for such a facility, then argue for raising taxes to meet that need, helped attract necessary support from the businesses that backed the campaign, and finally from voters asked to pay for the arena with a 30-month, 1- percent sales-tax increase."

The Wichita Downtown Development Corporation, led by its president Ed Wolverton, was a prominent booster for the arena. Do you know where this organization receives its funds? It is funded through property taxes and its contract with the City of Wichita. Other taxpayer funded institutions, such as the Greater Wichita Convention & Visitors Bureau, the Greater Wichita Area Sports Commission, the Hyatt Regency Wichita, and even the Kansas Turnpike Authority contributed money or in-kind resources to the pro-arena Vote Yea campaign, and most of these institutions campaigned for the arena, too.

In a television story about Wichita city manager George Kolb, the reporter said: "Some things Kolb says he filled the council in on were ... helping get the downtown arena passed." The clear meaning of this is that city manager Kolb was proud of how he and the Wichita city council worked to help pass the downtown arena tax. Now if Mr. Kolb had talked about how he helped educate the electorate on the issues surrounding the arena tax ballot measure, that would be acceptable. Instead, he and other government leaders are proud of how they worked to ensure passage of the arena tax. That behavior is contrary to how the Kansas Attorney General said they should act.

I asked our District Attorney to look into this issue of government advocacy for the arena. That office decided, even in light of all this and more evidence, that there was no wrongdoing by our leaders.

Does this seem a correct conclusion by the district attorney, in light of these facts about the behavior of our local government officials?

Were local government officials, especially the Sedgwick County Commission, presenting educational material, or were they campaigning for the arena?

I believe the only conclusion we can make is that they were all campaigning -- and campaigning vigorously -- for the arena, in spite of what Kansas Attorney General Opinion 93-125 says is acceptable behavior for government officials and the expenditure of public funds.

A Wichita businessman proposes building an arena that, while not as large as the downtown Wichita arena being built by Sedgwick County, would provide some competition to the government-owned arena.

Normally, private investment is welcomed. If you believe in limited government as I do, it is vastly preferred to government spending. But if you're a Sedgwick County Commissioner getting ready to spend some $200 million in sales tax collections on a government arena, it seems that competition from the private sector isn't welcome. As reported in The Wichita Eagle:

Sedgwick County Commission Chairman Dave Unruh said he would prefer Hartman [the Wichita businessman] not go "head to head" with the county. "I am definitely (in favor) of free enterprise and allowing folks to do whatever they think they can do to improve their own financial stature," Unruh said. "This, however, I think would present some competitive challenges to the downtown arena, and I prefer he not do it."

The absurdity in Commissioner Unruh's statement is eye-catching and revealing of his arrogance. He says, and I believe I am accurate in my interpretation, that free enterprise is good, unless it happens to provide a challenge to a government project!

Assistant Sedgwick County Manager Ron Holt is a little gentler in his criticism of the proposed private arena, remarking that "overall, it would not be in the best interest of the community."

Wichita and Kansas need private investment. When government officials make remarks like these, it a wonder that anyone would choose to invest here. Yet, people do invest here, and the results show the failures of government projects and government-subsidized partnerships. Consider, for example, the government-subsidized Waterwalk vs. the privately developed Waterfront. Consider that the government-owned Kansas Coliseum is not yet 30 years old, but, by most accounts, not suitable for continued use.

It's even worse when government is investing in projects of dubious value to the community at large, but is requiring everyone to pay for it. It is telling that in an article about the downtown arena, The Wichita Eagle looks to Greater Wichita Area Sports Commission president and chief executive Bob Hanson for a reaction. It tells how the downtown arena is a gift to special interests, Mr. Hanson being an especially vocal member of this special interest group that will benefit from a taxpayer-supplied arena.

Arena Project’s Failing Finances
Critics And Tax Hike Opponents Were Right

From Kansas Taxpayers Network

“The arena critics are being proven right,” said Karl Peterjohn, Executive Director of the Kansas Taxpayers Network, the oldest taxpayer organization in Kansas. “As the leading opponent of the 2004 downtown arena project in Wichita, it is becoming increasingly clear that this project is in major trouble.”

“In 2004 KTN’s Vote NO flyer warned, ‘Key details about the arena such as location, parking, and design, are not known’,” Peterjohn said. “Our vote NO flyer also warned, ‘With a $184.5 million price tag and no guarantee of events, the arena is a huge gamble with taxpayers money. Half of the events at the Kansas Coliseum (12,000 seats) have less than 3,000 people attend’.” Now the "guaranteed $184.5 million price tag," is history and the total cost for this deeply flawed project continues to grow and critical details remain up in the air.

“In our final item urging county voters to reject the sales tax hike to fund the arena, KTN’s flyer warned, ‘The build it and they will come syndrome sounds good but the money spent would be better utilized in YOUR pocket’,” Peterjohn said. “If the county’s sales tax for the arena was used to lower the county’s property tax, we could reduce the county’s mill levy by over 60 percent or roughly 20 mills for the duration of this tax.”

The arena tax hike was narrowly approved by just over 50 percent of voters in November, 2004. “If the voters had another chance at the arena issue at the ballot box, and taking the tax money that has already been collected and not yet spent, to be used to lower county property taxes and refunded to taxpayers, the downtown arena project would be terminated by the people,” Peterjohn said.

Arena tax hike advocates succeeded in forcing voters to approve this sales tax increase with the not-so-veiled threat that a property tax hike would otherwise occur. Sedgwick County commissioners unanimously approved a large property tax hike, in August 2006, funding higher county spending in addition to the arena sales tax hike.

Two of the three incumbent county commissioners seeking reelection in 2006 lost their seats in large part due to their support for raising property taxes in particular and all county taxes in general. The two incumbents, commissioners Burtnett and Sciortino, were defeated by challengers, Parks and Welshimer, who signed KTN’s Taxpayer Protection Pledge promising not to raise county taxes.

Maximum Taxes Means Minimum Growth
By Karl Peterjohn, Kansas Taxpayers Network

Kansas has high taxes. Even worse, the high taxes are high property taxes that stifle capital formation and hold down wages. Two new studies rank Kansas at the bottom of this region when it comes to soaring property taxes. That should not be too surprising since Kansas and Nebraska are the two states that provide their citizens will almost no opportunity to vote on whether or not property taxes should be raised.

The Tax Foundation as well as the Small Business & Entrepreneurship Council both issued reports recently pointing out Kansas’ high property tax status. The Tax Foundation measured property taxes per person as well as a percentage of income and Kansas scored 13th and 14th highest among the 50 states and the District of Columbia on these two measurements.

All of the surrounding states in our region were lower than Kansas. Nebraska came closest to Kansas with slightly lower property taxes than Kansas. Oklahoma easily had the lowest property taxes in this region scoring 47th out of the 50 states and the District of Columbia, according to this Tax Foundation study using 2004 federal tax data.

High property taxes are a major burden stifling economic growth. So it really should not be a surprise that Kansas has had lagging growth for quite a while. While federal tax revenues have grown 30 percent over the last two years, Kansas growth has been less than 2/3 the national rate. That type of stagnation occurs when taxes are excessive.

Confirming the Tax Foundation was the Small Business & Entrepreneurship’s 2006 study ranking the business climate in all 50 states. The SBE property tax data also ranked Kansas with the 13th highest property taxes in the country. Nebraska was 18th, Colorado 33rd, Missouri 40th, and Oklahoma 47th.

If a business has a bad year and loses money, there is no corporate income tax due. The corporate income tax is paid only when a profit is made. Property taxes ignore profits or the lack thereof. These taxes must be paid regardless of the success or failure of the business, farm, or family.

Kansas high property taxes make this state a much harder place to successfully operate for the average business. In addition to having higher property tax rates, the fact that citizens do not get to vote on raising property taxes makes it easier to raise these rates even higher and this increases the uncertainty and risk of operating a Kansas business.

In the second largest county in Kansas, Sedgwick County commissioners took up a proposal to raise county property taxes as much as 14 percent last summer. The unanimous and bipartisan five member commission voted to raise the property tax over eight percent. This was in addition to the automatic property tax hike through higher appraisals that totaled six percent.

If Sedgwick County voters would have had the opportunity to vote on this tax hike, it is likely that this tax hike would have been defeated. Two of the three incumbent commissioners who were up for reelection who voted for this tax hike lost their office to challengers who opposed that tax hike and pledged not to make any further increases.

The largest private employer in Sedgwick County covering the Wichita area is Cessna Aircraft. Cessna and other large aircraft firms testified in support of raising this property tax to get taxpayer subsidies for training aircraft workers in this highly cyclical industry. Cessna President Jack Pelton personally testified in support of raising property taxes to subsidize his business by expanded worker training programs.

The aircraft industry layoffs in the Wichita area followed the September 11 attack and the 2000 recession. Since 2005 the aircraft industry has been on a cyclical rebound.

The Wichita aircraft industries were back in front of the Wichita city council seeking hundreds of millions of dollars in property tax abatements in November. Sadly, this segment of big business in Kansas is supportive of higher property taxes for everyone else besides themselves.

Cessna has over 8,000 Wichita area employees. This is down several thousand from 2001. However, despite the declining workforce, the demands for special property tax breaks for Cessna and other aircraft firms continue to grow. Small business, homeowners, and other property taxpayers get to make up the difference for these corporate tax hypocrites. That shift in the tax burden is not apparent when examining Kansas’ overall property tax rating. This makes Kansas’ effective tax rate much higher for the Kansans excluded from the special property tax breaks. These are all reasons why Kansas growth lags.

(From October, 2004)

Image what our town could be like if the Wichita downtown arena vote fails and Sedgwick County Commissioners put aside for a moment their plans for the renovation of the Kansas Coliseum.

Suppose, instead, that arena supporters, along with those who would vote yes for the sales tax and anyone else who wants to, formed a corporation to build and own an arena.

Instead of having paid taxes to government, arena supporters would be investors. They would own something: their shares in the arena. They would have the pride and responsibility that comes with ownership. They would have a financial stake in its success. Even taxpayer-funded arena opponents might see merit in investing in a local business rather than paying taxes.

Instead of politicians and bureaucrats deciding what the people of our town want and need, a privately owned arena would be subject to the guidance and discipline of markets. It would either provide a valuable service to its customers and stay in business, or it would fail to do that and it would go out of business. Governments do not have such a powerful incentive to meet the needs of their constituents.

Instead of the bitter feelings dividing this town over the issue of a taxpayer-funded arena and other perceived governmental missteps, the arena corporation would act in the best interests of its shareholders and customers. Even if it didn't, it wouldn't be the public's business, because after all, the corporation is formed of private individuals investing their own money.

When individuals invest in an arena they are nurturing the virtues of investment, thrift, industry, risk-taking, and entrepreneurship, Wichita having an especially proud tradition of the last. There is nothing noble about politicians spending someone else's money on projects like a downtown arena, or a renovated Kansas Coliseum for that matter.

At this time in our town we have a chance to let private initiative and free markets work, or we can allow government to continue to provide for us in ways that few seem truly satisfied with. Writing about a public utility in England that was transferred to private enterprise, economist John Blundell observed:

When it was "public" it was very private. Indeed, it was totally captured by a small band of bureaucrats. Even members of Parliament struggled to find out what was going on. No proper accounts were produced, and with a complete lack of market signals, managers were clueless as to the correct course to take. The greatest casualty was a lack of long-term capital investment.

Now it is "private" and very public. Not just public in the sense of open, but also in the sense of accountable directly to its shareholders and customers. Copious reports and accounts are available and questioning citizens will find their concerns taken very seriously indeed.

If we allow the government instead of private enterprise to build a new arena or to renovate the Kansas Coliseum, this is the opportunity we lose.

Sedgwick County Surrenders Key Tax Advantage
By Karl Peterjohn, Executive Director, Kansas Taxpayers Network

Spirit Aerosystems CEO Jeff Turner defended the massive spending hike that was used as the primary justification for the county's 8.8 percent property tax hike in his editorial August 9, 2006. Turner's support for this increased government spending ignored some important ramifications behind this economically destructive vote.

Sedgwick County has an important fiscal advantage over 19 other Kansas counties. Sedgwick County has no community college and hence no community college property tax. That property tax is a major reason why this levy makes the total tax burden higher in Butler, Cowley, and Reno counties. The Wichita Area Technical College is becoming this community's community college. This will mean increasing pressure to raise property taxes. This would be in addition to the current 1.5 mills left over from the old Wichita University days that the county charges.

Sadly, the Sedgwick County commission seems intent on creating another tax dependent entity here in this community. If Jeff Turner, Spirit Aerosystems and Turner's former company Boeing want to promote property tax hikes, that is certainly their prerogative.

It is a public record that Boeing tied as the largest donor for the 2000 Wichita school bond issue with a five figure donation and Raytheon was the largest corporate donor in support of the Local Option Budget property tax hike for Wichita during that 1997 property tax referendum. Cessna's CEO Jack Pelton spoke out in support of the county's spending plans that required this property tax hike August 9.

On the other hand, when the news cameras are generally gone, these aircraft companies return to the city or the county and seek sizable, often 100 percent property tax abatements. So a small or medium sized business gets to pay a much higher proportion of say $100,000 worth of their commercial property than the largest public businesses in this community. This is not fair.

This distorts the overhead costs shifting the fiscal burden from the taxpayer subsidized onto the businesses without the tax breaks. It also shifts this burden onto homeowners and other taxpayers. Special tax breaks provides the subsidized firms with lower overhead costs so they can afford pay more for employees too. That places small and medium sized firms that lack the political clout and leverage, at a hiring disadvantage as well. If the non tax abated firms have out-of-state competitors their extra overhead costs hurts their ability to compete. However, tax abatements are a big help in cyclical industries that are in perpetual “hiring and firing” cycles and need to pay more because of this employment instability.

There is certainly a need for qualified workers for many Wichita area businesses. This $40 million county spending hike, that is well above per foot construction costs, ignores a bigger question. How much spending in the government school establishment is enough? Property tax hike advocates are ignoring the fact that well over $3/4 billion in taxes are going to be spent on the 10 public school districts in this county in 2006-07. This figure is growing rapidly in the age of judicial edicts and Montoy.

2004 Census data indicates that Kansas has the 14th highest property taxes in all 50 states as well as the highest property taxes per capita in our five state region. Soaring appraisals have been the primary cause of this situation but the county's rising mill levy without getting voter approval is an insult to every county voter. In 1997 almost 90 percent of county voters wanted to retain the property tax lid on local government. County officials helped kill the property tax lid in 1999 and now will not let voters decide this property tax hike at the ballot box. Creating a new level of local government in Sedgwick County with higher property taxes will hurt and hinder overall economic growth here.

High Tax Kansas Exposed Again
By Karl Peterjohn, Executive Director, Kansas Taxpayers Network

Businesses and homeowners know that Kansas has high taxes. The appointed and occasionally elected officials setting this state's fiscal policy are often contemptuous of the fiscal burden being imposed upon Kansans but this is a reality that should not continue to be ignored.

USA Today reported July 28 that Kansans pay the 14th highest level of per capita property taxes among all 50 states. This was 2004 Census Department data. The high property tax in Kansas means that Kansans pay well above the U.S. average property tax too. This is a bigger problem for Kansans because income in Kansas is only 93 percent of the U.S. average. The number one and two states having the highest property taxes in this survey, New Jersey and Connecticut, both have higher than average income levels.

The high Kansas property tax creates several surprises that are being ignored by public officials. This includes residential and farm property tax hike advocates like Governor Sebelius. Since there are high taxes on property in Kansas there is a relative decline in housing prices. When relatively hidden property taxes, like special assessments, are included on newer housing, the property tax burden is actually higher since most other states do not impose this extra property tax burden.

So national surveys look at affordability in housing and Kansas scores well. There is a lot of reasonably priced housing that has large property tax bills on it in this state.

Since capital goes where it is appreciated, there is a relative decline in business here so commuting times are low. When business leaves, so go the jobs. Kansas employment growth lags behind the U.S. average. According to the governor's most recent Economic and Demographic Report for the 2007 state budget, show Kansas job growth and income levels both lagging behind national and regional growth. So, it should not be a surprise that public school enrollment continues to decline too. Job seekers take their children with them.

When Kansas students graduate and enter the job market they often discover that economic opportunity is not in Kansas and they move to more economically vibrant and competitive areas. Even former Governor Graves joined this exodus and left Kansas. Often these folk become "Kansas tourists" who return to see family at Christmas, Thanksgiving, or maybe for a week in summer.

Affluent Kansans have a tendency to move to states without income taxes as well as states where there are limits on government growth like Colorado with their Taxpayers Bill Of Rights. Colorado scored 23rd on per capita property taxes but far exceeded national income averages.

Oklahoma, which requires super-majorities for some tax hikes and voter approval before state taxes are raised, had the lowest property taxes in this region scoring 47th nationally. Arkansas scored 49th while Alabama was 50th. Missouri was 37th. It is interesting to note that only Nebraska has a lower percentage growth in population than Kansas according to Census figures. Nebraska's average property taxes were only a couple of notches lower than Kansas at 16th.

This per capita rating does not adjust for the wide variance in property taxes within or between states. Utility property is the highest taxed in Kansas with a 33 percent assessment that is almost three times higher than the 11.5 percent assessed on residential property. Small businesses in Wichita pay a much higher proportion of property tax on $100,000 of commercial property than Boeing or Cessna who enjoy their 100 percent property tax abatements. The details in taxation matter a lot.

The average Kansan may not know the tax details but they do know that when all else fails, they can still vote with their feet. The fact that neighboring Arkansas has now passed Kansas in population is a wake up call that is being ignored by Kansas public officials. High Kansas property taxes in particular and high Kansas taxes in general are both reasons for Kansas' decline.

At the July 25, 2006 Sedgwick County Commission meeting, during the public hearing on the proposed 2007 Sedgwick County budget, a speaker said this in support of funding for mental health services: "I agree with the previous presenter and I'd be willing to forego a few cheeseburgers this year so that if I need to pay more taxes to help provide services, I'm willing to do that."

It hardly seems necessary to remind this speaker that she may give whatever she wants of her time and money to any organization she wants. She doesn't need the Sedgwick County Commission to do it for her.

This speaker may be thinking that if she agrees to pay a little more in taxes to support her cause, then everyone else will have to pay more, too. In this way, her small additional sacrifice is leveraged by the additional taxes everyone else must pay.

In fact, many people think this way. Everyone has their own ideas of what the government should do, and if by paying just a little more in taxes myself I can get the government to tax everyone else, why, that's quite a good deal for me and my pet project!

The problem is that this government activity is wrong. The economist Walter E. Williams makes the case succinctly:

Can a moral case be made for taking the rightful property of one American and giving it to another to whom it does not belong? I think not. That's why socialism is evil. It uses evil means (coercion) to achieve what are seen as good ends (helping people). We might also note that an act that is inherently evil does not become moral simply because there's a majority consensus.

It doesn't matter how noble the cause. To take from one and give to another is wrong, even if it is to provide food or medical services to truly needy people.

Furthermore, this government "charity" deprives us of our ability to give true charity ourselves, and in the process, makes us less happy than we could be. Arthur C. Brooks, associate professor at Syracuse University's Maxwell School of Public Affairs, in a commentary in the December 8, 2005 Wall Street Journal titled "Money Buys Happiness" tells us this:

In fact there is another explanation for unchanging happiness levels over time which is rather less supportive of income redistribution. As incomes rise, so generally do levels of government revenues and spending, and there is evidence that these forces work against personal income on the overall level of happiness. For example, a $1,000 increase in per capita income is associated with a one-point decrease in the percentage of Americans saying they are "not too happy." At the same time, a $1,000 increase in government revenues per capita is associated with a two-point rise in the percentage of Americans saying they are not too happy. In other words, not only can money buy happiness, but it may be that the government can tax it away as well.

Mr. Brooks also tells us that donating money and time -- that is, the giving of charity -- illustrates the link between money and happiness: "Givers of charity earn substantial mental and physical health rewards, even more than do the recipients of charity -- empirical evidence that it is indeed more blessed to give than to receive."

The operative idea is "to give." When government takes by taxation, it is not giving.

Thank you to John Todd for this excellent material.

Dear Commissioners:

My name is John Todd. I am a real estate broker and developer and I come before you in opposition to the County’s proposed use of eminent domain for the downtown arena footprint.

On August 25, 2004 and prior to the arena vote in November of that year, I presented testimony before this Commission questioning the wisdom of building a downtown arena without knowing the exact location of the parcel(s) of land the project would be located on. I asked the questions, does the Commission know the exact location of the arena project? Is the needed land for sale? Are the property owners willing to selling their land? And, most importantly, has the County secured a contract option to purchase the needed land with an exact purchase price? I believed then and now that the taxpaying public needed to know the answers to those questions before making a decision on a $184.5 million dollar project in the voting booth. From what I have been reading in the news recently, it seems apparent to me now that County officials failed in their "due diligence" responsibility to the citizens of this county by not securing the land for the arena in advance, and should now be willing to authorize another "non-binding" or perhaps a "binding" and final public vote on the arena project.

There is precedence for another vote since a "non-binding" no vote in 1992 was ignored by local officials, and perhaps a third and perhaps this time a "binding" vote could be used to settle this matter for good, with the express stipulation that any sales tax money collected for the arena to date be used to reduce property taxes in the county through a reduced mil levy over the next 2 or 3 years. As you will recall, the fear of higher property taxes was the primary argument proponents for the arena used in securing their thin 48% to 52% yes vote in 2004. Perhaps the prospect of property tax reduction would appeal to the voters. And another vote on an arena could give the county commission an opportunity to avoid the confrontational use of their eminent domain power to involuntarily strip 22 property owners of their land and in some cases businesses.

I oppose the County's use of their eminent domain power to correct the due diligence responsibilities to the citizens of Sedgwick County they missed when they failed to secure the arena footprint land in advance of any public vote for funding on the project.

Secure private property rights are the bedrock for all of our other rights. Eminent domain abuse damages people's faith in their own government, and people who are not secure in their own possessions cannot plan for their own future. A healthy economy is best achieved when individuals are free to use their own resources as they see fit. When government decides how the individual uses his property, the resultant system works poorly because it necessitates the use of coercion. The protection of private property rights is therefore essential to a healthy economy.

Nobel Prize winning economists Milton Friedman says, "In an economically free society, the fundamental function of government is the protection of private property and the provision of a stable infrastructure for a voluntary exchange system. When a government fails to protect private property, takes property itself without full compensation, or establishes restrictions (and follows policies) that limit voluntary exchange, it violates the economic freedom of its citizens."

Mr. Mayor, Members of the City Council:

You may recall that I have spoken to this body in years past expressing my opposition to the AirTran subsidy. At that time we were told that the subsidy was intended to be a short-tem measure. Today, four years after the start of the subsidy, with state funding planned for the next five years, it looks as though it is a permanent fixture.

Supporters of the subsidy have made a variety of claims in its support: that the subsidy and the accompanying Fair Fares program are responsible for $4.8 billion in economic impact, that being a pioneer in subsidizing airlines is equivalent to the role that Kansas played in the years immediately prior to the Civil War, and that we would have a mass exodus of companies leaving Wichita if the subsidy were to end.

I believe there is no doubt that fares are lower than what they would be if not for the subsidy. That points to the subsidy's true achievement: government-imposed price controls. Its effect is to force many airlines to price their Wichita fares lower than they would otherwise. If it didn't do that, there would be no reason to continue the subsidy.

Economists tell us -- and human behavior confirms -- that when the price of any good is held lower than it would be in a free market, the result is a reduction in the quantity supplied.

We see this happening. Earlier this year the Wichita Eagle reported that there are fewer daily flights supplied to and from Wichita, from 56 last year to 42 at the time of the article. It has been explained that the financial woes of Delta and NWA are to blame for this reduction. This is demonstrably false, as NWA recently added a daily flight to Wichita, and both airlines have added (and dropped) flights on many routes while in bankruptcy. Furthermore, even though in bankruptcy, theses airlines still desire to operate as profitably as possible.

Now we learn that the legacy airlines -- those established, older airlines that take pride in their comprehensive nationwide networks of routes -- are revising their strategies. A Wall Street Journal article from earlier this year ("Major Airlines Fuel a Recovery By Grounding Unprofitable Flights" published on June 5, 2006) tells us that the legacy airlines are beginning to look at the profitability of each route and flight. They are not as interested as they have been in providing flights just for the sake of having a complete nationwide network.

When we couple this change in airline strategy with our local price controls, I believe that we in Wichita are in danger of losing more service from the legacy airlines. If AirTran -- a new-generation airline with low labor costs -- can't earn a profit on its Wichita route at the fares it charges, how can the legacy airlines be expected to do so? And if they can't earn a profit on a flight to or from Wichita, and if they are beginning to scrutinize the profitability of each flight, can we expect them to continue providing service in Wichita?

No government has ever been able to successfully impose price controls without the people suffering harmful consequences. As economist Thomas Sowell wrote in a 2005 column:

Prices are perhaps the most misunderstood thing in economics. Whenever prices are "too high" -- whether these are prices of medicines or of gasoline or all sorts of other things -- many people think the answer is for the government to force those prices down.

It so happens there is a history of price controls and their consequences in countries around the world, going back literally thousands of years. But most people who advocate price controls are as unaware of, and uninterested in, that history as I was in the law of gravity.

Prices are not just arbitrary numbers plucked out of the air or numbers dependent on whether sellers are "greedy" or not. In the competition of the marketplace, prices are signals that convey underlying realities about relative scarcities and relative costs of production.

Those underlying realities are not changed in the slightest by price controls. You might as well try to deal with someone's fever by putting the thermometer in cold water to lower the reading.

This is my fear, that someday I will open the newspaper and learn that American, United, Delta, Northwest, or Continental has reduced or even ceased service to and from Wichita. That day, when it becomes difficult to travel to or from Wichita at any price, that is the day we will feel the harm the subsidy causes.

On a personal level, my job as software engineer requires me to make from ten to twenty airline trips each year. Some of the places I travel to -- Jackson, Mississippi and Lexington, Kentucky, for example -- are not served by AirTran. If I am not able to travel there, no matter what the price, I will either have to find a different job or move from Wichita.

Mr. Mayor and Council Members, I urge you to reconsider your support of the AirTran subsidy. Even though the legislature and governor have agreed to pay for most of the subsidy, I believe the subsidy is not in our long-term interest. We need to let the price system, operating in a free market, do its job in guiding the allocation of scarce resources for both producers and consumers. The result may be more expensive fares. The alternative, which is the very real possibility of greatly reduced service to and from Wichita, is much more harmful.

Other Voice For Liberty in Wichita articles on this topic:

The AirTran Subsidy and its Unseen Effects
As Expected, Price Controls Harm Wichita Travelers
AirTran Subsidy Is Harmful
Wichita City Council Meeting, April 19, 2005
Wichita Eagle Says "AirTran Subsidies Foster Competition"
AirTran Subsidy Remarks
The Downside of Being the Air Cap by Harry R. Clements. This article makes a striking conclusion as to why airfares in Wichita were so high.
Letter to County Commissioners Regarding AirTran Subsidy
Open Letter to Wichita City Council Regarding AirTran Subsidy
Stretching Figures Strains Credibility

Writing from Pittsburgh, Pennsylvania

In a June 20, 2006 Wichita Eagle editorial, Rhonda Holman writes about the WaterWalk project in Wichita.

Evidently there is controversy over the public not knowing the name of the "destination restaurant" that is being courted and favored with a gift of $1 million. To me, the controversy is not the identify of the restaurant or when and how the city should conduct its negotiations, but that we are paying for a restaurant to be built.

We are not lacking for fine restaurants in Wichita. On both the east and west sides of town (and other parts, too), many excellent restaurants have been opened recently, and more are being built as I write. The Eagle has even reported on their astonishment at how many there are.

The problem is, I believe, that these restaurants were not built where Ms. Holman and our local government leaders feel they should have been built. But that's not a problem, except to her and them.

The people who built these restaurants did so by investing their own money, or the money that others entrusted to them. These people did so voluntarily. They presumably built their restaurants where they thought they could earn the best return on their investment. And having invested several million dollars of their own money in the restaurant, they have a strong incentive to make the restaurant a success.

But that's not good enough for Ms. Holman. Evidently she does not appreciate the sacrifice that people have made in order to accumulate the funds needed to make these spectacular investments. She may not be aware of -- or maybe she does not respect or value -- the tremendous effort and work it takes to run a successful restaurant.

Just because these people did not build their restaurants where she (and our local government leaders) thought they should have been built, she wants to tax them -- and the rest of us, too -- and give the proceeds of that tax to a new competitor.

Is this the type of behavior by our local government and our town's leading newspaper that is likely to lead to other new private investment?

Ms. Holman's editorial stance, along with the actions of our local government leaders, constitute a slap in the fact for those who have been foolish enough (we can now conclude this) to invest money in any industry in which the government is likely to set up their competitor.

This harmful attitude is summarized in this plea to get the WaterWalk project moving faster, "... so that citizens not only can see where their money is going but also soon start enjoying more of their investment."

Making an investment, I might remind Ms. Holman, is something that people do voluntarily because they believe it is in their interest.

The WaterWalk project and the new downtown restaurant are being paid for by taxes. The expenditure is being made to serve the interests of politicians, subsidized developers, and people like Ms. Holman who believe they know best what to do with others' money. There is a tremendous difference between the two.

Writing from Natchez, Mississippi

In a June 16, 2006 column, Wichita Eagle editorial writer Rhonda Holman again congratulates local and state government for its success in renewing the AirTran subsidy, and for getting the entire state of Kansas to help for it.

We should take a moment to understand, however, that while the allure of the subsidy is undeniable, it may eventually extract a high price on Wichita. Currently, the legacy airlines provide service to Wichita and other small markets partly because they feel a duty to provide comprehensive, nationwide service. But that may be changing. In an article titled "Major Airlines Fuel a Recovery By Grounding Unprofitable Flights" from the June 5, 2006 Wall Street Journal, we learn that this may change:

The big carriers, which for decades have doggedly pursued market share at any cost, now are focusing just as aggressively on the profitability of each route and flight.

The so-called legacy carriers -- those like American Airlines and Delta Air Lines, with big pension and other obligations that predate the industry's deregulation in 1978 -- have abandoned many of the tactics that have led to their cyclical weakness. They are increasingly unwilling to fly half-empty aircraft to stay competitive on a given route just for the sake of feeding their nationwide networks.

As I have written before, if AirTran -- one of the newer airlines without the baggage of high costs that plague the legacy airlines -- can't earn a profit on its service to Wichita, it may be that other airlines are not, either. This article tells us that we may be in danger of losing the service of the legacy airlines. And, as I have written earlier, there are a great many destinations you can't get to on AirTran.

(The same article also tells us that during much of the time of the subsidy, airfares were falling nationwide anyway: "... the Air Travel Price Index, a quarterly measure of changes in airfares, rose 9.1% in the fourth quarter of last year from a five-year low a year earlier." So we might have had lower fares even without the subsidy. Of course, we can't know that, just as subsidy advocates can't know how much we've saved from the subsidy, no matter what they may say.)

Our local government leaders simply do not have the knowledge needed to successfully run a planned economy, which, in essence, is what they are doing when they apply price controls to the airfare market in Wichita. That's right. The subsidy is a form of price controls. After all, if the subsidy didn't serve to reduce the price of airfare, what would be its reason for existence?

No government has ever been able successfully impose price controls without the people suffering harmful consequences. As economist Thomas Sowell wrote in a 2005 column:

Prices are perhaps the most misunderstood thing in economics. Whenever prices are "too high" -- whether these are prices of medicines or of gasoline or all sorts of other things -- many people think the answer is for the government to force those prices down.

It so happens there is a history of price controls and their consequences in countries around the world, going back literally thousands of years. But most people who advocate price controls are as unaware of, and uninterested in, that history as I was in the law of gravity.

Prices are not just arbitrary numbers plucked out of the air or numbers dependent on whether sellers are "greedy" or not. In the competition of the marketplace, prices are signals that convey underlying realities about relative scarcities and relative costs of production.

Those underlying realities are not changed in the slightest by price controls. You might as well try to deal with someone's fever by putting the thermometer in cold water to lower the reading.

Municipal transit used to be privately owned in many cities, until local politicians' control of fares kept those fares too low to buy and maintain buses and trolleys, and replace them as they wore out. The costs of doing these things were not reduced in the slightest by refusing to let the fares cover those costs.

All that happened was that municipal transit services deteriorated and taxpayers ended up paying through the nose as city governments took over from transit companies that they had driven out of business -- and government usually did a worse job.

The immediate effect of the subsidy is a drop in airfares. The long-term effects, the effects that we can't really see right now (even though the number of daily flights to and from Wichita has decreased in the last year) are unknown, but are likely to be quite bad for our town. These unseen effects of a policy are important, and, being unseen, are hard to spot, even if you're looking. Frederic Bastiat, in his pamphlet titled "That Which is Seen, and That Which is Not Seen" http://bastiat.org/en/twisatwins.html said this:

Between a good and a bad economist this constitutes the whole difference -- the one takes account of the visible effect; the other takes account both of the effects which are seen, and also of those which it is necessary to foresee. Now this difference is enormous, for it almost always happens that when the immediate consequence is favourable, the ultimate consequences are fatal, and the converse. Hence it follows that the bad economist pursues a small present good, which will be followed by a great evil to come, while the true economist pursues a great good to come, -- at the risk of a small present evil.

Henry Hazlitt writes of the fallacy of unseen effects, but realizes they are often obfuscated by "the special pleading of selfish interests."

Economics is haunted by more fallacies than any other study known to man. This is no accident. The inherent difficulties of the subject would be great enough in any case, but they are multiplied a thousandfold by a factor that is insignificant in, say, physics, mathematics or medicine -- the special pleading of selfish interests. While every group has certain economic interests identical with those of all groups, every group has also, as we shall see, interests antagonistic to those of all other groups. While certain public policies would in the long run benefit everybody, other policies would benefit one group only at the expense of all other groups. The group that would benefit by such policies, having such a direct interest in them, will argue for then plausibly and persistently. It will hire the best buyable minds to devote their whole time to presenting its case. And it will finally either convince the general public that its case is sound, or so befuddle it that clear thinking on the subject becomes next to impossible.

In addition to these endless pleadings of self-interest, there is a second main factor that spawns new economic fallacies every day. This is the persistent tendency of men to see only the immediate effects of a given policy, or its effects only on a special group, and to neglect to inquire what the long-run effects of that policy will be not only on that special group but on all groups. It is the fallacy of overlooking secondary consequences.

We must hope that the legacy airlines choose to continue their service to and from Wichita, in spite of our government's action.

Writing from Miami, Florida

In a free society dedicated to personal liberty, people should be able to gamble. But that's not what we have, as in a free society dedicated to personal liberty, people wouldn't be taxed to pay for the problems that others cause in the pursuit of their happiness.

How does this relate to the issue of casino gambling in Wichita and Kansas?

There is a document titled "Economic & Social Impact Anlaysis [sic] For A Proposed Casino & Hotel" created by GVA Marquette Advisors for the Wichita Downtown Development Corporation and the Greater Wichita Convention and Visitors Bureau, dated April 2004. This document presents a lot of information about the benefits and the costs of gambling in the Wichita area. One of their presentations of data concludes that the average cost per pathological gambler is $13,586 per year. Quoting from the study in the section titled Social Impact VII-9:

Most studies conclude that nationally between 1.0 and 1.5 percent of adults are susceptible to becoming a pathological gambler. Applying this statistic to the 521,000 adults projected to live within 50 miles of Wichita in 2008, the community could eventually have between 5,200 and 7,800 pathological gamblers. At a cost of $13,586 in social costs for each, the annual burden on the community could range between $71 and $106 million.

If all we had to do was to pay that amount each year in money that would be bad enough. But the components of the cost of pathological gamblers include, according to the same study, increased crime and family costs. In other words, people are hurt, physically and emotionally, by pathological gamblers. Often the people who are harmed are those who have no option to leave the gambler, such as children.

Quoting again from the study: "While this community social burden could be significant, its quantified estimate is still surpassed by the positive economic impacts measured in this study." The authors are saying that the amount of money the casino generates will more than pay for the increased social costs. While it is likely true that the amount of money the casino generates is greater than the increased social costs, whether this analysis makes sense depends on what you mean by "generate."

The largest components of the positive economic impacts are employee wages, additional earnings in the county, and state casino revenue share, along with some minor elements. Together these total $142 million, which is, as the authors point out, larger than the projected costs shown above. But this analysis is flawed. It assumes that salaries paid to employees somehow compensate for increased social costs. Employee wages don't go towards paying the costs of treating pathological gamblers, as employees probably want to spend their wages on other things. Furthermore, the state casino revenue share is supposed to go towards schools. It is a huge mistake to treat employee wages as compensating for increased social costs.

The absurdity mounts as we realize that gambling is promoted by none other than Governor Kathleen Sebelius (and many others) as a way to raise money for schools. Often the figure quoted for the amount of money gambling would generate for the state is $150 million per year. But here is a study concluding that the monetary costs to the Wichita area alone would be a large fraction of that, and when you add the human misery, it just doesn't make sense to fund schools with revenue from gambling.

AirTran Subsidy Is Harmful

(This is a longer version of my opinion piece that appeared in The Wichita Eagle last week.)

From the beginning, we in the Wichita area have been told each year that the AirTran subsidy was intended as a temporary measure, that soon AirTran would be able to stand on its own, and there will be no need to continue the subsidy. Mayor Mayans said as much last year, and so did City Manager Kolb this year.

But State Senator Carolyn McGinn, R-Sedgwick, on a recent television program, may have made a revealing slip when she referred to the AirTran subsidy as a "pilot program." Now that the subsidy appears to be a permanent requirement, funded locally and perhaps statewide, we should ask ourselves if this subsidy is in our best interests.

The benefits of the subsidy are regularly overstated -- and sometimes by huge amounts. In 2004, the Chairman of Fair Fares claimed that the Fair Fares program was worth $4.8 billion in economic benefit to the state. No reasonable analysis could make a conclusion that the benefit is as large as this.

Last year, the present Chairman of Fair Fares spoke before the Wichita City Council and equated what Wichita is doing to pricing in the airline industry with the role that Kansas played in the years before the Civil War. It hardly seems worth noting that one struggle was against the immoral institution of slavery; the other is a taxpayer-funded effort to override the natural workings of free markets.

Yes, it is undeniable. Low airfares are preferred over high airfares, and it is probably true that airfares are lower than what they would be without the subsidy. But the airline industry is changing. As an example, carriers tell us they have eliminated or reduced the very high fares for walkup ticket purchases. We simply do not know what airfares would be in Wichita if there had not been the subsidy, so any estimate of how much has been saved is merely a guess.

The harm the subsidy causes reveals itself in several ways. We may have less air service in Wichita due to the subsidy. Last year Delta canceled seven important daily flights. Was this in retaliation for Wichita's decision to not subsidize Delta, as some claim? Or was it the law of supply and demand expressing itself: that when the price of something is lowered (lowering prices is the desired effect of the subsidy), less is supplied. There are fewer daily flights supplied to and from Wichita, from 56 last year to 42 today. As the subsidy lowers the price that airlines may charge for tickets but doesn't do anything to reduce the costs of providing service, we should not be surprised to see more reductions in service.

Backers of the subsidy claim it is necessary to keep businesses from leaving and to attract new businesses to our area. We should consider the converse: have businesses considered Wichita, and seeing a meddlesome local government, one that picks and chooses winners and losers, decided not to locate here?

Local lawmakers abandon their principles to back the subsidy. Last year a Sedgwick County Commissioner assured me that he was a "free market" thinker, but was backing the subsidy nonetheless. Local business leaders, some who consider themselves believers in free markets, back the subsidy and have even formed private fundraising efforts to augment the subsidy.

Consider this: if a subsidy is good for economic development, why shouldn't we try the subsidy approach with other businesses? If we feel that, say, advertising rates in Wichita are too high, why doesn't the city select one local television station and subsidize its operations, thereby compelling other stations to match the subsidized price? Or to help people with something that really hits home, why not grant a subsidy to one chain of grocery stores so that other stores have to lower their prices? Or in the case of a monopoly such as a local daily newspaper, why doesn't the city or county fund a startup to supply competition? I think most Wichitans would consider these measures extreme and contrary to fairness. I find it difficult, though, to differentiate these actions from the AirTran subsidy.

Whether to continue funding the AirTran subsidy is a bright line that we can choose to cross or not. On one side we see low airfares, and those airfares are highly visible. What we may not see as easily is the cost of a permanent expansion of government, government that intrudes increasingly on our lives and liberties. We also may not notice the loss of valuable information that prices in a free market supply, and without those price cues, we will not recognize the misallocation of capital and resources that follows.

On the other side of the line is the harsh realization that Wichita has factors such as low population that work against low airfares. On this side, however, we will find liberty and free markets. You will find me on this side, lonely though it is.

Writing from Cedar Rapids, Iowa

Readers of The Voice For Liberty in Wichita are well aware that I believe that when the government provides subsidies to businesses -- either in the form of cash payments or preferential tax treatment -- we create a corrosive business environment. Government picks winners and losers for political reasons, rather than letting the market decide which companies are doing a good job. Government also spends money inefficiently. Instead of letting the market decide where to best allocate capital, government chooses who receives capital taken from the people through taxation according to the whims of politicians spending other peoples' money.

It is no wonder that government-favored enterprises rarely do well. Capital markets are quite efficient, and if there is an unmet need, capital usually flows to fill the need. The fact that capital is not flowing to fill a need strongly suggests that the need is not real. Yet, governments may feel that a need is not being met, and they will allocate taxpayers' capital to fill it, even though taxpayers on their own do not select to invest in the subject project.

This practice is not limited to the State of Kansas. There is a paper titled "Do Tax Increment Finance Districts in Iowa Spur Regional Economic and Demographic Growth?" written by two economics professors at Iowa State University. (The paper may be read at http://www.econ.iastate.edu/research/webpapers/paper_4094_N0138.pdf.) This paper shows that despite the claims of politicians and the very obvious benefit to the companies that receive the TIF financing, there is no benefit to the state as a whole.

Following are some quotes from the paper's conclusion:

"There are several issues to consider about TIF ordinances and TIF outcomes in Iowa. From our research here and from our larger study of the topic, it seems apparent that the ease with which TIF district designation can be done in Iowa, along with the multiplicity of uses that TIF districts can be put, that the law now has become a de facto entitlement for new industry and housing development in much of the state with little to no evidence of overall public benefit or meaningful discussion of the mean costs of the practice. It also seems apparent that given the ease with which these districts can be developed that many cities may be preemptively capturing new valuation and tax revenues in the name of economic development, but that in the main, this preemption is likely yielding much more collective fiscal harm across taxing districts in the long run than good."

"City officials believe that the TIF action was instrumental in job growth in their town and in their region. How could it not be? We have an investment, and we have a firm with jobs. On net, however, except for the increment to manufacturing jobs, there is no evidence of economy wide benefits (trade, all nonfarm jobs), fiscal benefits, or population gains. There is indirect statistical evidence that this profligate practice is resulting in a direct transfer of resources from existing tax payers to new firms without yielding region-wide economic and social gains to justify the public's investment."

"This analysis suggests that the enabling legislation for tax based incentives deserves revisiting. Though the TIF programs is highly popular among city government officials, and why wouldn't it be given the growth in property tax yield over the years, there is virtually no evidence of broad economic or social benefits in light of the costs."

Writing from Memphis, Tennessee

Today's Wichita Eagle (November 5, 2005) tells us of a new economic development package that our local governments have given to induce a call center to locate in Wichita. The deal is described as "one of the biggest the two-year-old economic development coalition [Greater Wichita Economic Development Coalition] has landed."

There is an interesting academic paper titled "The Failures of Economic Development Incentives," published in Journal of the American Planning Association, and which can be read here:http://www.planning.org/japa/pdf/04winterecondev.pdf. A few quotes from the study:

Given the weak effects of incentives on the location choices of businesses at the interstate level, state governments and their local governments in the aggregate probably lose far more revenue, by cutting taxes to firms that would have located in that state anyway than they gain from the few firms induced to change location.

On the three major questions -- Do economic development incentives create new jobs? Are those jobs taken by targeted populations in targeted places? Are incentives, at worst, only moderately revenue negative? -- traditional economic development incentives do not fare well. It is possible that incentives do induce significant new growth, that the beneficiaries of that growth are mainly those who have greatest difficulty in the labor market, and that both states and local governments benefit fiscally from that growth. But after decades of policy experimentation and literally hundreds of scholarly studies, none of these claims is clearly substantiated. Indeed, as we have argued in this article, there is a good chance that all of these claims are false.

The most fundamental problem is that many public officials appear to believe that they can influence the course of their state or 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 their expectations about their ability to micromanage economic growth and making the case for a more sensible view of the role of government -- providing the foundations for growth through sound fiscal practices, quality public infrastructure, and good education systems -- and then letting the economy take care of itself.

On the surface of things, to the average person, it would seem that spending to attract new businesses makes a lot of sense. It's a win-win deal, backers say. Everyone benefits. This is why it appeals so to politicians. It lets them trumpet their achievements doing something that no one should reasonably disagree with. After all, who could be against jobs and prosperity? But the evidence that these schemes work is lacking, as this article shows.

Close to Wichita we have the town of Lawrence, which has recently realized that it as been, well, bamboozled? A September 29, 2005 Lawrence Journal-World article ("Firms must earn tax incentives") tell us: "Even with these generous standards for compliance, to have 13 out of 17 partnerships fail [to live up to promised economic activity levels] indicates that the city has received poor guidance in its economic development activities." Further: "The most disconcerting fact is that Lawrence would probably have gained nearly all of the jobs generated by these firms without giving away wasteful tax breaks."

On November 6, 2005, an article in the Lexington (Kentucky) Herald-Leader said this:

The Herald-Leader's investigation, based on a review of more than 15,000 pages of documents and interviews with more than 100 people, reveals a pattern of government giveaways that, all too often, ends in lost jobs, abandoned factories