Yesterday’s award of $2.5 million by the City of Wichita to aircraft manufacturer Hawker Beechcraft to ward off a threatened move to Louisiana stands out as an example of corporate welfare given for its own sake, and not in response to any real threat.
Hawker will also ask Sedgwick County for the same amount, in addition to receiving $40 million in credits and incentives from the State of Kansas.
It was widely reported that Hawker had received an offer, said by some to be worth as much as $400 million, to move to Louisiana. But that offer was not a valid threat of Hawker leaving Kansas, as in a December 2010 television news report, Louisiana’s governor said “they couldn’t guarantee the number of jobs that would have been required for them to come here.”
Further evidence of the payment being corporate welfare for its own sake is lack of a cost-benefit analysis that usually accompanies such matters. Generally, the city justifies spending on economic development by citing a cost-benefit analysis performed by Wichita State University. By giving up some tax revenue or making a payment, the city feels it will gain even more tax revenue in the future. But no such numbers were cited as justification for this payment to Hawker Beechcraft.
Speaking from the bench, new council member James Clendenin (district 3, south and southeast Wichita) said “At the end of 10 years, I don’t think anyone wants to have to go this process again.” He asked economic development director Allen Bell if there was a process in place so that we wouldn’t be blindsided, so that we could “come up with solutions ahead of time.” A streamlining of the corporate welfare, so to speak. Bell said there is such an effort: IDEA (Industrial Development and Expansion Assistance), plus informal discussions between high level city officials and businesses.
Council Member Michael O’Donnell (district 4, south and southwest Wichita) brought out the fact that although it has been widely reported that the agreement requires Hawker to keep employment at 4,000 or more, it’s not until employment falls below 3,600 that clawback provisions become triggered. O’Donnell said he wanted to protect these 400 jobs, but Bell said the agreement was negotiated between Hawker and the State of Kansas (under former governor Mark Parkinson), and that O’Donnell was correct. O’Donnell expressed his concern: “I think that we definitely need to get the word out that we’re voting for something that could be 3,601 jobs and not 4,000 jobs like’s been sold to us and the public. … I think that’s problematic when we’re dealing with multi-millions of dollars.”
Two members of the public addressed the council on this matter, including myself based on my remarks in Hawker Beechcraft to receive subsidy from Wichita City Council.
In a lecture delivered to Clinton Coen, a young man who spoke against the Hawker incentive, Mayor Brewer spoke of the “employment rate [sic] before the recession” at Cessna, which the mayor cited as 12,000 employees, noting that there are only 6,000 today. The mayor said “That’s part of what contributed to this,” but did not make a connection between the decline in employment at Cessna and requirement of the subsidy being offered to Hawker. Cessna, by the way, received approval of similar incentives from the state and local governments for an expansion to be made in Wichita, but the declining aviation market led Cessna to cancel the expansion and the incentives.
The mayor also mentioned how we lost 1,500 jobs from one company because another state paid the company $1 million per job. The mayor did not mention the company, and inquiries to the mayor’s office and the city’s information office and staffers could not produce an answer. The mayor might have been referring to a 2008 offer by North Carolina to Spirit Aerosystems to build a plant there. That deal, as reported by the Triangle Business Journal, was an offer worth up to $250 million for employment expected to reach 1,031 within six years. That’s about $242,000 per job — a long way from a million. Furthermore, the report listed Jacksonville, not Wichita, as the main competition for the plant, even through Spirit is headquartered in Wichita.
The mayor also lectured Coen, as he has to others, about “philosophies or a theory” one may have concerning economic development, and how it is easy to say the things Coen did “if you really truly don’t know.” He also mentioned the threat of losing the entire company, not only to Louisiana, which he said is not the only competition, but the entire world.
All council members except O’Donnell voted for the measure.
Hawker as Wichita corporate citizen
At the city council meeting, I noted that the Hawker Beechcraft campus, although entirely surrounded by the city of Wichita, is not itself within the city limits. Apparently this does not limit the ability of Wichita to spend its citizens’ money on Hawker, but no one on the council or staff wanted to tackle that issue at the meeting.
Being outside the city limits of Wichita, Hawker pays no property tax to the city, as confirmed by examining tax records maintained by the Sedgwick County Treasurer’s Office.
In his lecture to Coen, the mayor mentioned the recent aviation summit held by Kansas Governor Sam Brownback in Wichita. At that event, the attitude of the industry towards government assistance was clear: much is demanded.
Lynn Nichols, who is President of the Wichita Metro Chamber of Commerce and also owner of an aviation service business, answered several questions, including one asking which state incentives and tax and regulatory polices are important?
Nichols listed the sales tax exemption on aircraft service, repair, and modification; business expensing on capital expenditures; and reasonable and practical compliance policies from the Kansas Department of Health and Environment. Then, he added: “And of course, we can’t wait for Secretary [of Commerce Pat] George’s new cookie jar with his proposed economic development discretionary deal-closing fund. So we support you on that one, Secretary.”
The choice of language by Nichols — “cookie jar” — was found to be offensive by Sedgwick County Commissioner Richard Ranzau, and he commented on that at a recent commission meeting:
Overall, the tone of the summit was that the Kansas aviation industry is dependent on support and incentives from state and local governments. Without that, industry leaders said it will be difficult to survive or resist offers to move to other states.
But as we saw yesterday at the Wichita City Council, perceived threats need not be credible in order to extract taxpayer funds in the form of corporate welfare. The taxpayer-funded cookie jar is open for business.