Wichita economic development not being managed

The Wichita Eagle has reported that Wichita has increased its granting of property tax exemptions in recent years. (Wichita doubles property tax exemptions for businesses, October 20, 2013) Buried in the story is the really important aspect of public policy. In his reporting, Bill Wilson wrote:

The Eagle asked the city last week for an accounting of the jobs created over the past decade by the tax abatements, a research project that urban development staffers have yet to complete.

“It will take us some time to pull together all the agenda reports on the five-year reviews going back to 2003. That same research will also reveal any abatements that were ‘retooled’ as a result of the five-year reviews,” city urban development director Allen Bell said. “I can tell you that none of the abatements were terminated.”

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One might have thought that the city was keeping records on the number of jobs created on at least an annual basis for management purposes, and would have these figures ready for immediate review. But apparently that isn’t the case.

We need to recognize that because the city does not have at its immediate disposal the statistics about job creation, it is evident that the city is not managing this effort. Or, maybe it just doesn’t care.

This is a management problem at the highest level. In January when the city council awarded city manager Robert Layton a large raise, the praise from council members was effusive. This means one of several things: (a) that the mayor and city council have not asked for these job creation numbers, or (b) city council members don’t care about the numbers, or (c) they’re not interested in knowing the numbers. There could be other explanations, but all point to a lack of bureaucratic management and political oversight.

I wonder why the city officials didn’t explain that according to their analysis and way of thinking, these tax abatements don’t have a cost. When presented to the council, each abatement opportunity is generally accompanied by a benefit-cost analysis that purports to show that the city, county, school district, and state gain more in tax revenue than they forego from the abatement. Does this extra government revenue create jobs?

In any case, the number of jobs stemming from our economic development efforts is small. In his State of the City Address for 2012, Mayor Carl Brewer said that the city’s efforts in economic development had created “almost 1000 jobs.” While that sounds like a lot of jobs, that number deserves context. According to estimates from the Kansas Department of Labor, the civilian labor force in the City of Wichita for December 2011 was 192,876, with 178,156 people at work. This means that the 1,000 jobs created accounted for from 0.52 percent to 0.56 percent of our city’s workforce, depending on the denominator used. This minuscule number is dwarfed by the normal ebb and flow of other economic activity. (The mayor didn’t mention job creation figures in his 2013 address.)

The case of InfoNXX

Here’s an example of property tax abatements granted for which the city received little in return. In 2005, with great fanfare, the city announced that its economic development recruitment efforts had landed InfoNXX, an operator of call centers. The council agenda report of November 15, 2005 recommended that the council approve a letter of intent for tax abatements. The report stated this:

The Greater Wichita Economic Development Coalition has worked with a national site consultant to recruit a new company to Wichita. InfoNXX, Inc., major provider of telephone directory assistance and enhanced information services to leading communications companies, businesses and consumers located principally in the United States, United Kingdom, France, and Italy. As a result of the recruitment effort, InfoNXX will locate a large customer service center in the former MCI Building, near Rock Road and K-96 in northeast Wichita, and hire over 900 customer care representatives. As an economic development incentive, the City offered InfoNXX Industrial Revenue Bonds (IRBs) and property tax abatement on equipment and furnishings, subject to City Council approval.

RECOMMENDED ACTION: Approve a Letter of Intent to InfoNXX Inc. for Industrial Revenue Bonds in an amount not-to-exceed $6 million, subject to the Letter of Intent conditions, for a term of six-months, approve a 100% tax abatement on all bond-financed property for an initial five-year period plus an additional five years following City Council review, and authorize the application for a sales tax exemption on bond-financed property.

On December 13, 2005 the council approved the ordinance granting the tax abatements.

Fast forward to the February 15, 2011 council agenda packet. The five year initial property tax abatement granted in 2005 was over, and the council could extend it for another five years if the committed goals had been met. The agenda report gave this summary for capital investment: “Purchase furniture, fixtures and equipment for a capital investment of $6 million.” Results, according to city documents, were “Invested $7,331,379 million [sic] in FF&E.”

For job creation, the 2005 commitment was “Create 944 new jobs in five years.” Results, according to city documents, were “Created 870 new jobs; current job level is 185.”

InfoNXX was short of its job creation commitments, but the city used a loophole to grant a one-year extension of the tax abatement. That one-year extension was never the subject of further consideration, as InfoNXX changed its name, and in January 2012 closed the Wichita facility that was the subject of these incentives.

It’s unfortunate for Wichita and the InfoNXX employees that the facility closed. The important public policy consideration is that we learn from this. So, when Wichita counts the number of jobs created, does it adjust for short-lived jobs like these?

The answer, I believe, is no. We don’t adjust our job creation statistics, and we don’t learn.

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In fact, we don’t even keep current. GWEDC — that’s the Greater Wichita Economic Development Coalition credited with recruiting InfoNXX to Wichita — doesn’t update its website to reflect current conditions. InfoNXX closed its facility in Wichita in 2012, and as we saw above, city documents said that at its peak the company employed 870 in Wichita. As of today, here’s what GWEDC says on a page titled Office Operations:

Wichita hosts over a dozen customer service and processing centers – including a USPS Remote Encoding Center (985 employees), InfoNXX (950), T-Mobile (900), Royal Caribbean (700), Convergys (600), Protection One (540), Bank of America (315) and Cox Communications (230.) (emphasis added)

So the official Wichita-area economic development agency proclaims the existence of a company that no longer exists in Wichita, and claims a job count that the company never achieved. This is beyond careless negligence. This is malpractice.

The USPS Remote Encoding Center mentioned? It’s being closed this year.

Going forward

In his State of the City address for 2013 the Wichita mayor lamented the fact that Wichita has no dedicated funding source for economic development. It’s likely that Wichitans will be asked to approve increased taxes for economic development, as well as for many other things we want like a new central library, new water and sewer pipes, improved public transit, and downtown development.

But before Wichita officials ask for more taxes so there can be more spending, they need to convince us that they care about measuring and managing results. They haven’t shown this so far.


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