Update: The Wichita Eagle has published its article that fact checks the campaigns. See Wichita Eagle fact checks Ambassador Hotel campaigns.
This week many Wichitans received a mail piece from “Vote Yes for Wichita,” a group urging Wichitans to “Vote Yes” for a measure that would rebate 75 percent of the guest tax collected by the Ambassador Hotel back to the hotel. The election will be on February 28th.
Following are some of the questions and answers that appear in the mailer, along with what Wichitans should really know about the issue.
Will the Ambassador (Douglas Place) redevelopment create new jobs?
Vote Yes for Wichita answer: YES, according to a study by Wichita State University, 1,102 direct and indirect jobs will be created, 978 for construction and 124 for ongoing operations. These jobs will generate over $39 million dollars in payroll earnings.
Jobs are a good thing. We can all agree on that. What Wichitans need to know is that no matter what the outcome of the February 28th election, these jobs will be created. Ambassador Hotel developers have said they will proceed and open the hotel regardless of the outcome of the February 28th election.
Aside from this, the WSU study that Ambassador Hotel backers rely on contains some important qualifications and additional information than provided in the “Vote Yes” group’s answer to this question. These additional facts are important for Wichitans to know.
The study was produced by Wichita State University Center for Economic Development and Business Research. One of the facts contained in the study is that there is a substitution factor of 50 percent. This means that half of the projected business of the Ambassador Hotel is business taken from other Wichita area hotels. According to Jeremy Hill, who is director of CEDBR, the institute that produced the study: “This particular industry has a 50 percent substitution rate, indicating that 50 percent of the business is new and the remaining 50 percent already existed in the Wichita MSA. Substitution may be applied to both jobs and revenues.”
So when counting jobs and other economic statistics regarding the Ambassador Hotel, we have to discount them by half, according to the study that the hotel relies on.
Furthermore, the 978 new construction jobs are not new jobs. According to CEDBR’s Hill: “It is likely that these expenditures merely support existing construction jobs.”
Finally, there is a question as to how many local workers are being hired for the construction jobs. The Kansas Democratic party, in support of its “Hire Kansas First Act,” says: “Instead of sending millions of dollars of work to out-of-state firms as happened in the Ambassador Hotel and Fairfield Inn projects, contractors or subcontractors working on state contracts of a certain size will have to ensure that at least 70 percent of the employees working on the contract are Kansas residents.”
These facts are inconvenient to the “Vote Yes” supporters. But Wichitans need to know them.
Will there be any new taxes for this project?
Vote Yes for Wichita answer: No, there are no new taxes as part of this project.
On an elementary level this statement is true. But any reasonable analysis will conclude that this hotel is benefiting greatly from taxpayers in Wichita, across the state of Kansas, and even across the country. These taxpayer-provided benefits have a cost.
First, the hotel developers benefit from $3,325,000 in tax increment financing. This diverts money from services like police, fire, and schools to provide benefits to the developers, in this case parking for the hotel. Since the hotel will consume these government services — but is not contributing property taxes to pay for them beyond what the presently vacant building pays — other taxpayers have to step up and pay.
The hotel developers will receive $3,800,000 in tax credits from the State of Kansas. Taxpayers across Kansas have to make up this missing revenue. In fact, Kansas Governor Sam Brownback has recognized the cost to the state of this program, and has proposed elimination of this tax credit program.
The hotel developers will receive $3,500,000 in tax credits from the U.S. government. Taxpayers across the country have to make up this missing revenue.
The hotel developers will receive $537,075 in sales tax exemptions on purchases during the construction and furnishing of the hotel. That’s missing revenue that other Kansas taxpayers have to make up.
These government spending programs are implemented through the tax system, and they have a cost. Indeed, these programs have a new name: Tax expenditures, in recognition that these are really spending programs in disguise, and there is a cost to the taxpayer to provide them
If you are not convinced that these programs have a cost, ask yourself this question: If these programs are without cost, why shouldn’t everyone benefit from them?
The many levels of generous subsidy provided to the Ambassador Hotel are costly. They are harmful to taxpayers, and their negative effects mean that economic activity and jobs are lost elsewhere.
Did the project receive a review?
Vote Yes for Wichita answer: The project received a thorough economic review by an independent committee made up of local residents, private sector business representatives, planners and financial experts before being considered by the City Council.
This statement is true. The review board, however, is stacked with people who benefit financially from taxpayer subsidy to downtown developers, and with bureaucrats who benefit from the expansion of government control and planning in Wichita. There is not a single person on that board who is even remotely skeptical of government intervention into the economy. The term “rubberstamp” applies.
Who pays the hotel tax?
Vote Yes for Wichita answer: Visitors — the transient occupancy tax (bed tax) is paid by visitors to the city. People from out of town will help to pay for this important downtown redevelopment.
This statement, on the surface, is true. But when we look under the surface, we see a different picture.
Recall that the WSU study says the substitution factor for this hotel is 50 percent. This means that half the business of this hotel is business taken away from other Wichita hotels. This also means that other Wichita hotels will not be collecting guest tax on behalf of the city to the extent of 50 percent of the Ambassador Hotel’s business.
The diversion of the Ambassador Hotel’s guest tax is contrary to city policy. According to the Wichita budget document, the purpose of this fund is to “support tourism and convention, infrastructure, and promotion of the City.” The document also states the priorities of the fund, which are given as “1) debt service for tourism and convention facilities, 2) operational deficit subsidies and 3) care and maintenance of Century II.”
Besides being contrary to established city policy, diversion of guest tax revenue away from the Convention and Tourism Fund means that some other group of taxpayers will have to pay. This fund is running a loss of $2 million this year, and after next year the fund’s balance will be nearly zero. As there are plans to continue — and even increase — spending on maintenance and upgrades to Century II, the Convention and Tourism Fund needs revenue. As business is shifted from other Wichita hotels to the Ambassador Hotel (which is proposed to pay the city just 25 percent of its guest tax), it is likely that Wichita taxpayers will be asked to make up the missing revenue that has flowed to the Ambassador’s developers. Wichitans, contrary to the claim of “Vote Yes” backers, will pay.
Did the Wichita City Council approve this project?
Vote Yes for Wichita answer: YES, the Wichita City Council by a vote of 6-1 approved the project.
This statement is true. It is also true that the six members who voted for the project have all received generous campaign contributions from the hotel developers.
Was a comprehensive financial feasibility study conducted?
Vote Yes for Wichita answer: YES, as required by the City of Wichita, an independent financial study was conducted. The report concluded that the revenues (benefits) of the District and Project Area exceed the expenditures (costs) and that the private to public investment ratio is nearly 3-to-l.
The feasibility study referred to is the one conducted by the WSU CEDBR and referred to earlier.
Regarding the costs and benefits of this project, the WSU study produced these numbers:
ROI Cost-benefit ratio
City Fiscal Impacts General Fund 163.2% 2.63
City Fiscal Impacts Debt Service -17.2% 0.83
City Fiscal Impacts -9.8% 0.90
WSU evaluated the impact of the Ambassador Hotel on the City of Wichita’s finances in two areas: The impact on the city’s General Fund, and separately on the city’s Debt Service Fund. The two were combined form the total fiscal impact, which is the bottom line in this table.
Supporters of subsidy to the hotel cite only the 2.63 cost-benefit ratio to the General Fund. The City itself also cites only this figure. But the impact on the Debt Service fund is negative, and the impact in total is negative.
It’s true that the ROI and cost-benefit ratio for the General Fund are large numbers and indicate a positive investment return. But the cost of the Ambassador Hotel subsidy program to the General Fund is $290,895, while the cost to the Debt Service Fund is $7,077,831 — a cost factor 23 times as large.
Wichitans need to ask the “Vote Yes” group why they cite only economic impact that is positive and ignore the much larger negative impact. Citizens should also be asking the City of Wichita this same question.
For the state of Kansas, the WSU study shows a large positive economic impact. But the only costs to the state that the study includes is that of the sales tax exemption, which the study gives as $695,569. Remember, however, that the state is contributing $3,800,000 in tax credits, at a cost of that same amount to the state’s treasury. The WSU study does not include these costs.
CEDBR’s Hill states “CEDBR did not receive sufficient information regarding the state and federal incentives; however, the purpose of the analysis was for the benefit and cost for the City of Wichita and Sedgwick County.”
We can’t ignore the costs to taxpayers that are not included in the economic impact study. Wichitans should ask the “Vote Yes” group and Wichita officials why their focus is so narrow and why the full facts are not included.