Economic development planning in Wichita on tap

Tuesday’s meeting of the Wichita City Council features four public hearings concerning Community Improvement Districts. One CID also will have a public hearing on its application for tax increment financing (TIF).

CIDs are a creation of the Kansas Legislature from the 2009 session. They allow merchants in a district to collect additional sales tax of up to two cents per dollar. The extra sales tax is used for the exclusive benefit of the CID.

Under tax increment financing (TIF), developers get to use their property taxes to pay for the same infrastructure (or other costs) that everyone else has to pay for. That’s because in TIF, the increment in property taxes are used to pay off bonds that were issued for the exclusive benefit of a development. Or, as in the case with a new form of TIF called pay-as-you-go, the increment in property taxes are simply given back to the developer. (Which leads to the question: why even pay at all?)

The developments seeking this form of public financing include a grocery story in Plainview, a low-income and, according to the application, underserved area of town. Material on this hearing provided by the city is at Plainview Grocery Store CID and TIF in Wichita, Kansas.

A second applicant asks to charge an extra one cent per dollar sales tax for Central Park Place, a proposed suburban shopping center. Read more here: Community Improvement District at Central Park Place, Wichita, Kansas.

Then the developers of Bowllagio, a proposed bowling alley and entertainment district, will make their pitch to add two cents per dollar sales tax. Read more here: Community Improvement District for Bowllagio (Maize 54 Development).

Finally, the developers of the downtown Wichita Broadview Hotel will ask to add two cents per dollar sales tax on purchases made by the hotel’s visitors. Read more here: Community Improvement District for Broadview Hotel, Wichita, Kansas.

All of these applications should be turned down by the city council, and for a variety of reasons.

For example, the goal of the Plainview grocery store is to serve a low-income area of town. To do that, however, the store will be charging its customers an extra $1 for every $50 spent. Supporters make the case that many of the potential customers presently shop at Quik-Trip, which is not an inexpensive store, so the city is really doing these people a favor. The developer makes the case that he’s just trying to do something for the community, giving back something.

But if the developer really wants to do something for the community, he should agree to pay his share of property taxes like almost everyone else pays. That won’t happen, as most of the taxes he will pay will be routed right back to him through the TIF district.

The extra sales tax is a consumer protection issue, both in the case of the Plainview grocery store and the suburban shopping center. Shoppers won’t have any idea that they’re going to be paying extra sales tax by shopping at these merchants until after they get their receipt. Most people probably won’t notice then.

There are several council members who normally would be in favor of exposing greedy merchants who overcharge people, but they haven’t shown this concern so far regarding Community Improvement Districts.

The Broadview hotel is already the recipient of potentially $4.75 million in Kansas historic preservation tax credits. Despite the name of the program, the tax credits are in effect a grant of money to the developers — the state might as well write the developers a check. The City of Wichita has also assisted the hotel in several ways. But now it’s back at the government trough asking for even more corporate welfare.

We ought to ponder the wisdom of renovating this hotel if it can’t survive without so much government assistance. And having plowed so much into an economically unfeasible project, we can easily see sometime a few years down the road where owner Drury Hotels come to the city saying they can’t make a profit, and they need some other form of assistance.

Having given so much already, the city won’t be able to turn down the request for a little more. It’s happened before.

Even pointing out how the city works at cross-purposes with itself doesn’t impress the council. We spend millions every year subsidizing airlines so that airfares to Wichita are low. Then we turn around and add extra tax to visitors’ hotel bills, with Vice Mayor Jeff Longwell and the Wichita Eagle editorial board approving this as a wise strategy.

People remember high taxes. I don’t think it’s a good strategy to establish high-tax districts designed to capture extra tax revenue from visitors to our city. A good strategy for Wichita to pursue would be to establish itself as a low-cost destination, but we’re going the other way.

Then we must consider: does all this economic development planning work? The answer, emphatically, is: No. City leaders tell us that they do these things to grow Wichita’s economy. The activity of developers who seek subsidy like this is called, in economic terms, rent seeking, and city leaders encourage it. But evidence shows that rent seeking activity harms economic growth.

It’s usually pretty good for the favored developers who receive such economic rents (subsidy). But it’s a bad deal for everyone else. It illustrates one of the primary problems with government taxation and spending. John Stossel explains:

The Public Choice school of economics calls this the problem of concentrated benefits and dispersed costs. Individual members of relatively small interest groups stand to gain huge rewards when they lobby for government favors, but each taxpayer will pay only a tiny portion of the cost of any particular program, making opposition pointless.

We see this in play nearly every week in Wichita as the city seeks to manage economic development. City leaders portray “success stories” (that’s when a company accepts subsidy from the city to build something) as evidence of people having faith in Wichita. Someone has confidence in Wichita because they’re investing here, they say.

But I wonder why these people won’t invest in Wichita unless they receive millions of dollars through preferential tax treatment such as tax abatements, CID, TIF, STAR bonds, forgivable loans, and other forms of local corporate welfare.

These preferential tax treatments increase the cost of government for everyone else in the city. That fuels the cycle of people coming to city council saying their plans are not feasible unless they receive tax breaks. This expanding role of Wichita in centralized economic planning is great if you’re a city hall bureaucrat like Wichita city manager Bob Layton and Wichita economic development director Allen Bell. It satisfies the incentives and motivations of bureaucrats. But it’s bad for economic freedom and the people of Wichita.

Finally, perhaps the simplest public policy issue is this: If merchants feel they need to collect additional revenue from their customers, why don’t they simply raise their prices? Why the roundabout process of the state collecting extra sales tax, only to ship it back to the merchants in the CID?


15 thoughts on “Economic development planning in Wichita on tap”

  1. I was outraged this am reading the Eagle article on the proposedPlaneview grocery and the additional 2 cent tax being asked for. This is outrageous, if approved. Surely there is another way to help the citizens in Planeview as opposed to screwing them.

  2. Yes this is an outrage!!! The government needs to quit meddling in the private sector. Let the free market work.
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    Oh wait. The land has been vacant for years and there hasn’t been a grocery in that area for 30 years. Guess the free market is at work and if they need some assistance to make it happen, then so be it.

  3. Yep, it’s an outrage. Those people in Planeview have all starved to death by now right? That land has been vacant for 30 years, therefore there is no food available in Planeview.

    The reason nothing’s there is because the land owner is waiting for the city or county to buy him a grocery store, and they did.

    Later
    Mike

  4. There are actually 4 grocery stores right across the street from Planeview on Hillside, & one more just around the corner from Hillside on 31st Street South. Two are owned by Americans of Latino descent and three by Americans of southeast Asian descent. Perhaps the race of the owners is the reason the media refuses to report that these are indeed grocery stores and carry milk, eggs, apples, oranges, fish, fresh meats, lettuce, celery, cheese, cereals, spices and all the other basics of a good, healthful diet.

    However, one does have to go to QuikTrip if one wants pizza. Thus the “need” for a “Save-a-Lot” financed by you and me. Cheaper pizza, that staple of food stamp life.

    p.s. The claim by the government-subsidized developer that this must be built because there are large numbers of residents of Planeview who don’t have cars (and thus have to walk to get their pizza) is also false.

  5. @ ^^^^^

    If you watch the video of the city council meeting (can be found on the city’s website), you might have a more informed opinion of this matter.

  6. Yes, more info:
    There are actually 6 grocery stores right across the street from Planeview. And one more right around the corner from Hillside on 31st St South.

    Why don’t you, Anonymous of Sep 17 at 11:43 am, go shopping there — tell us something you can’t find. They do have all those things that the people speaking in favor of the city subsidy claimed they don’t have.

  7. I don’t need to go shopping there. Why don’t you? You seem rather willing to pontificate on the matter. Just pointing out that there are broader considerations. Considerations that you summarily dismiss as false because you don’t agree with them.

    If the residents of that area who will either be benefitted or harmed, support it and appear before the council to discuss and share their perspective, don’t you think that that carries some weight? Shouldn’t it?

  8. My previous comment stands. There are living humans in Planeview, therefore it is and was unnecessary to provide my tax dollars to pay to build someone a new grocery store. SIMPLE and easy to understand…

    Later y’all

    Mike

  9. Well, they are not YOUR tax dollars until you spend ‘em and since you probably won’t be setting foot in the store, guess your point is moot.

  10. The developer in this project is well known for buying up distressed property and renting the units for a profit. Supporting a new grocery store close to his properties improves his area and increases the value of his properties. In addition, by charging poor, immigrant, and less educated people an additional sales tax we continue to take more from those who can least afforded….Thank you Mayor Brewer!

  11. Hi

    Well, you’re somewhat correct. “Well, they are not YOUR tax dollars until you spend ‘em and since you probably won’t be setting foot in the store, guess your point is moot.”

    I probably won’t shop there since I don’t live in the area, BUT since none of the tax dollars generated by that business will go into the general fund (correct?), MY tax dollars (generated by me personally) will be used instead of those generated by this new store.

    In case this is unclear, I’m still completely against TIF, CID, etc.

    Mike

  12. Well, if you’d stop and think about taxation in general and how the money is spent, then you’d realize that YOUR tax money subsidizes everyone in town and MY tax money helps subsidize you too.

  13. Hi, RIGHT. “Well, if you’d stop and think about taxation in general and how the money is spent, then you’d realize that YOUR tax money subsidizes everyone in town and MY tax money helps subsidize you too.”

    Everyone’s tax dollars subsidize EVERYONE, EXCEPT tax dollars gained from that guy’s new grocery. Those tax dollars go to pay for that store.

    How about all tax dollars going to the general fund?

    Mike

  14. Except they’re not YOUR tax dollars since YOU aren’t shopping there. And if it improves the quality of life in the neighborhood, it will help to reduce the amount of YOUR tax dollars being used for public services that are currently being spent in that area.

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