Wichita Warren Theater groundbreaking raises policy issues

Friday’s groundbreaking of a new Warren Theater and renovation of the existing theater in west Wichita provide an opportunity to revisit some of the public policy issues surrounding Wichita city government and its intervention in the economy in the name of economic development.

Wichita Mayor Carl Brewer and Vice Mayor Jeff Longwell claim that the economic development incentives or subsidies offered to Warren do not cost Wichita taxpayers anything.

Reading comments left to stories at various media outlets, there is definitely a problem with citizens understanding the nature of the city’s industrial revenue bond program. There is no money being lent by the city, as many citizens seem to believe. Instead, the benefit of the program is the escape from paying property taxes and possibly sales taxes. The fact that tax forgiveness is mixed in with a private loan or bond purchase is definitely a source of confusion. The city should seek to simplify this program, if it intends to continue this practice.

But what about the claim that tax forgiveness does not cost other taxpayers? Will the new theater make use of city services such as fire and police protection? Will employees of the theater send their children to public schools? Vice mayor Longwell says that the city is not adding new police officers because of the new theater, so there is no additional cost for police protection. At the margin, that may be true — each additional house or building does not require a new policeman be hired. But at some time, additional city services and personnel will be required.

The city’s practice of liberally granting tax abatements goes against the constant refrain that we must “build up the tax base.” The city’s position is that by “investing” in tax breaks, the city will gain more revenue in the future.

The fallacy of the city’s investment philosophy can easily be seen. When the city grants tax abatements, there is a cost-benefit analysis that accompanies the proposal. The rationale of this analysis that by giving up tax revenue now, more will flow in at some future time.

That’s the source of the fallacy. The return to the city and other governmental units is more tax revenue. Is it the purpose of the city to generate more and more tax revenue? Is it productive to grant one taxpayer favored status so that other hapless taxpayers can be soaked instead?

When a business invests, it does so in order to increase its productive capacity so that it can earn higher future profits, those profits — or losses — being the measure of success of the investment. Government has no ability to calculate profit and loss, and therefore has no way to judge whether its investment has been wise and productive.

There is also, of course, the concept that private business investment is voluntary, while the action the city takes is not voluntary. Citizens must comply.

The companies that receive tax breaks are often prominent companies that ask for large tax abatements. It is worth considerable time and effort — and campaign contributions — for these companies to pursue these benefits. Small companies, however, often don’t fit into the various programs the city has. Instead, they face additional taxes to pay for the taxes the city doesn’t collect when it grants incentives and subsidies.

Recently Alan Cobb wrote of the harm that targeted incentives cause, using Detroit as an example: “While state and local government poured incentives into the Big Three’s trough, the marginal costs of doing business for everyone else crept up.” See Wichita targeted economic development should end.

An aspect of the incentive or subsidy package granted in this case is a fixed, negotiated, growth in property taxes the renovated theater will pay. There are a few points that deserve discussion. First, the base taxable value for the theater is the present value. The theater owner, however, is spending several million dollars on a renovation of that theater. This, according to the Sedgwick County Appraisers Office, would increase the taxable value of the theater by a large amount.

But based on the deal struck with the City of Wichita, this increase in value will not figure into the base taxable value and therefore, will not affect the taxes (PILOT, actually) the theater owner will pay.

Further, the rate of growth in value, 2.3 percent per year, is lower than what might be expected for commercial property to increase in value in many years. This fixed, predictable rate of growth is reminiscent of last year’s Proposition K proposal. The Wichita Eagle rejected this proposal, editorializing: “Over time, this system could result in significant disparities and a disconnect from actual market values, thus likely violating the Kansas Constitution’s requirement of a ‘uniform and equal basis of valuation.'”

But in this case one politically-favored business was able to receive this benefit. These special deals breed justifiable cynicism and distrust of not only City Hall politicians and bureaucrats but businesses that seek this form of pork-barrel spending through the tax system.

Finally, the payments the existing theater will make are not taxes, but payment in lieu of taxes, or PILOT. These payments are different in character from regular property taxes. Instead of falling under the Kansas property tax law regarding payment and possible sale of the property to pay taxes if the taxpayer falls behind for long enough, PILOTS are more in the form of a contract between the city and the taxpayer. If the taxpayer were to fail to pay, the city would have to sue for breach of contract. If the city should prevail in such a suit, it would stand in line with other creditors instead of taking a preferred position as in a tax sale.

This is, of course, assuming the city would choose to pursue such a lawsuit. Nothing would require it to do so. As the city has in the past bailed out this theater owner with a no-interest and low-interest loan, we could easily imagine the city deciding to let these missing or late PILOT payments slide by.

This too assumes that failure to pay PILOT payments as agreed would become public knowledge. The Sedgwick County Treasurer’s office prints lists of delinquent property taxpayers. There is no corresponding list of delinquent PILOT payments.


11 thoughts on “Wichita Warren Theater groundbreaking raises policy issues”

  1. Here we go again! Mr. Longwell either doesn’t understand the financial aspects of the issues that he votes for, or he is misinforming his constituents. Either way, he needs to be replaced in the Spring of 2011

  2. How much longer are we going to tolerate the fleecing of the Wichita’s taxpayers by the Mayor and City Council members? In the next few days, while additional residents lose their jobs, Mayor Brewer and the City Council members will receive a cost-of-living pay increase!

  3. This is not the kind of government I want working for me, slipping their buddies tax breaks and lying about it. I wish their ambitions were to serve the taxpayer and not themselves.

  4. Bob, you are being too nice to Bill Warren. Here’s what a quick scan of Wichita Eagle news stories shows about this man.

    When Warren ran for mayor of Wichita in 2003, he told an Eagle reporter “I hate Wichita.”

    The Eagle also uncovered that at the time he ran for mayor had had voted only once in his life.

    He got a friendly judge to seal court records “in which he and his fiancee trade allegations including abuse, threats, extortion and slander,” according to an Eagle story.

    The Eagle then wrote in an editorial “Mr. Warren’s assertion to the public that these issues are “in the past” just isn’t credible. And his attempt to deflect the scandal and cover-up by blaming the media and accusing unnamed opponents of “sleazy, political scare tactics” without evidence is wrong. Further, the highly unusual order to seal the records – by then-Judge David Dewey, who is running for a seat on the Wichita City Council – smells.”

    Later in the campaign the Eagle analyzed on of Warren’s campaign ads. It wrote “Warren ‘s claim that he has “supported thousands of jobs” is difficult to substantiate. He said he has approximately 500 people on the payroll at his theaters, about 175 of whom are full-time employees.”

    After advancing to the general election, the Eagle wrote in a story “Bill Warren said Tuesday that he plans to sell his movie theaters and that he regrets entering the Wichita mayor’s race.”

    This moved the Eagle’s editorial writer to observe ”
    Rather, Mr. Warren has generated his own news coverage with his words and deeds. Then, in transparent attempts to avoid responsibility for his own actions, he has tried to blame others. And it’s not just The Eagle. In the course of his disintegrating campaign, Mr. Warren has pointed his finger at TV news reporters, his own lawyers, his political opponents, the political system, his fiancee, a man who briefly dated his fiancee and others.”

    A little later another editorial write said “The surreal campaign to succeed Wichita Mayor Bob Knight hit a disappointing new low in recent days, with candidate Bill Warren ‘s unsubstantiated charge that front-runner Carlos Mayans offered to support the Wichita WaterWalk project in exchange for campaign contributions from its developers. …. Mr. Warren ‘s erratic, irresponsible behavior continues to taint what should have been a defining campaign for the future of Wichita.”

    This is the type of person the Wichita City Council chooses to grant millions in tax favors to.

  5. I guess I’m trying to focus on the public policy issues and not personalities. But thank you for reminding readers of this history.

  6. Bill Warren is a tax paying businessman in Wichita who deserves recognition for his efforts in building the best movie houses in the country. Citizens in Wichita that got out and voted elected Mayor Brewer and the City Council to represent them in the public policy making arena. The elected officials have more information available to them than the average citizen, and we all have differences of opinions. In a democracy that is healthy.

  7. Mr. Warren may be building good theaters, but he is a millionaire and should be footing the bill himself. Not on the back of the taxpayers.

    Why are we even talking of helping out anything on the West side anyway? We are impoverishing ourselves to “build up” the downtown area. If Warren was going to be encouraged to build anything with tax dollars/subsidies/special favors from the city, it should be to enrich the money pit downtown.

    Wichita did elect Brewer, but I doubt they thought he would give their tax dollars away so readily.

    On campaigns, people say anything to get elected. Then once elected, they do whatever they want. (And what will ultimately benefit them..).

    Trust me, after his Mayor-ship retires, he will be one of those millionaires too. He will be paid back by people like Warren.

  8. Sue,
    You are too nice, Brewer is running again for another 4 years in the Spring of 2011 and he expects to be re-elected so that he can give his buddies more taxpayer-funded goodies. As a City Council member he already had a record of wasting taxpayer dollars under Bob Knight. I don’t understand what your expectations were?

  9. I did not vote for Brewer. I was trying to give the “benefit of the doubt” to those who did, though. LOL

    I saw him for who he was and what he was going to do to us taxpayers. Sad to say I was right. Ugh.

  10. Folks, we have to get rid of both Mayor Brewer and Councilman Longwell in the Spring of 2011, but we have to start today. Use the social media to inform others and educate your friends on the issues. We have to take our City back!

  11. Your chance to speak out about Bill Warren!
    Never met Bill Warren or Susan Miller, but soon will get to.. This history behind Bill Warren and all the issue with the city surrounding the public in Witchita KS…This greedy individual. will soon be served subpoena sometime around the end of March 27,2014, if you are a reporter for witchita Eagle or any other news worthy out let you may want to pack your bags and be in Selma Alabama for this trail! BIll Warren and Susan Miller will be severed addtional subpoena’s. This is your chance to uncover any fraudulant activity you may have suspentions of and put the pressure on Bill Warren with any questions you want yo ask please let us know or your local news station. Its time for Bill Warren and any of his contacts whom pad his pocket to be held accountable. If you would like to share any information that you have about Bill Warren please do . We will keep you updated on the ongoing trail. You are welcome to look up the court case number filed under Warren and Miller verse Hilton in Mobile Alabama. .

    along
    Shawn Derr districtcourtwitchita has witness

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