Could Wichita be the next Detroit?

That Detroit has declared bankruptcy: Does this mean anything for Wichita? From time to time we see news stories wondering if there is a parallel between these two cities — one known as Motor City, and the other as the Air Capital.

wichita-detroit-job-industry-concentration

The similarity is the concentrated nature of the economies of the two cities. Both have, as can be seen in the nearby chart, a greater percentage of jobs in manufacturing than does the United States as a whole.

Furthermore, when considering the dominant manufacturing industry in each city, we see that Wichita is more concentrated in aviation than Detroit is in automobiles. Much more concentrated, 13 percent to six percent.

Joseph Ashby on Wichita and Detroit.

On his radio show, Joseph Ashby talked about the business of making airplanes. He’s an aerospace engineer. The complexity of airplane manufacturing, he says, has protected the domestic industry from foreign competition. But that can change. I would say that change is likely.

Ashby also noted that our economic development programs heavily favor the aviation industry, which makes it more difficult for aspiring companies in other diverse industries to start and thrive. He isn’t the first to wonder about this. In 2010 Alan Cobb wrote:

What can we do to prevent Wichita from falling into the hole that is Detroit?

A simple answer is to continue throwing money and other goodies to keep the aviation companies. A better answer is we need to get rid of the notion that our elected officials and others have so much forethought to know what will or won’t be successful in 20 or 50 years. They don’t. …

While state and local government poured incentives into the Big Three’s trough, the marginal costs of doing business for everyone else crept up. …

It‘s the classic example of the seen vs. the unseen. We see the new factory Pontiac builds. We don’t see the businesses that reduce their size, close or just move. The irony is we will still see the Pontiac factory after it is closed and boarded up.

For each tax dollar given to the auto industry, one is taken one away from entrepreneurs trying to create the next GM, Ford, Google or Apple. This may not be too bad the first time or the second time, but over years and decades, the results can be significant. The “next big thing” will be created in a state with a better tax and regulatory climate. (Detroit, corporate welfare and Wichita’s future)

This week the Sedgwick County Commission will be asked to make a forgivable loan — in essence, a grant of free money — to an aerospace company. The City of Wichita will likely be asked to do the same. The State of Kansas is probably offering additional business welfare, although the state won’t say. These actions increase the cost of business for the firms that we need to diversify our economy, and makes it more difficult for them to survive.

Here’s something else: Wichita has a lot of debt. Not Detroit levels, thankfully. But we can’t borrow even $30 million to build a new library without swelling debt ratios over acceptable limits.

How does Wichita have so much debt? Here’s an example. Recently the city spent $400,000 on a project to analyze aging fire stations with the aim of planning future projects. Fire stations are a long-lived capital asset, which is the type of asset and spending spending that is commonly financed with long-term debt. But an analysis to see if the spending is necessary and what type of spending is needed? This is current consumption and should not be paid for by long-term debt. Yet, the city paid for this with borrowed funds. This type of borrowing is common.

Finally, a big problem that contributed to Detroit’s problems is corruption. Wichita isn’t Detroit when it comes to corruption. But we could be headed that way. We have serious problems like overpriced no-bid contracts for the mayor’s fishing buddy, mysterious campaign contributions from a Michigan company involved in a large contract before the council, and a Methodist minister’s foray into real estate development and politics. We have city ordinances regarding ethics that seem to have a clear meaning, but the city attorney says they don’t apply.

Warren Theater Brewer's Best 2013-07-18

Notwithstanding these serious issues, it’s darkly comical to note this: Wichita Mayor Carl Brewer has voted several times to grant various forms of business welfare to movie theater owner Bill Warren and his partners. Then — and I swear I am not making this up — when Brewer started manufacturing and selling barbeque sauce, it was sold at Warren’s theaters. It still is, as of last week.

Are there no adults in the room?


4 thoughts on “Could Wichita be the next Detroit?”

  1. Fire stations are a ling-lived capital asset, which is the type of asset and spending spending that is commonly financed with long-term debt.

  2. Sadly, all the ill-fated financial decisions made by Mayor Brewer and his Council today will have a detrimental effect on the future of our City, but that will be left for others to fix in the future. Wichita dropped about 30 places in the Economic Index and will continue to drop until Brewer and the others are out of office.

  3. The City of Wichita has real financial problems. The pension system that was set up after they opted-out of KPERS was an effort for a few to enrich themselves. There are many retirees making more retired than when they were working and the monthly COLA benefits that they set up for themselves is an outrage to the taxpayers.

  4. Bob, In response to your query: “Are there no Adults in the Room? The Sad Answer is that Yes, there are ONLY Adults in the room, but they are dancing to the tune of other Adults, Rich ones, who feel just as entitled as the poorest of the poor. Wichita’s comparison to Detroit is a Carbon Copy of dozens of mid size cities throughout America and particularly in the “rust belts” of Northeastern US, where Nepotism and Cronyism have resulted in decayed cities. Unless and until there is a Cultural and Idealogical “Sea change” the same fate will be Wichita’s. Last week our Eagle announced the possible return of Mr. Knight seeking a Mayoral return. That’s not a harbinger of future prosperity but simply a return to policies that will simply be, more of the same. Today’s paper places the legal responsibility for public easement “mowing” on private home owners, while they have NO “rights” to even plant a tree on such frontage easements. That’s simply wrong when 30 feet from street centerline into private owner property belongs to a City that has abandoned it’s responsibilities to even “mow” such primary streets as Rock Road, Webb, Ridge, Tyler, 13th, 21st, Douglas and Maple. The City maintains a minute sum of just 5500 acres in parks and rights of way, and limits it’s snow and street sweeping solely/exclusively to primary thoroughfares. This is a natural result of law changes due to city growth, but it doesn’t make a Better City or a better Quality of life. Basic Services should take Priority over ALL public-private Development, when Cities suffer times of Economic Decline. Instead we suffer from childish tantrums of entitlement demand from a few Special- Interest people.

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