WichitaLiberty.TV: Kansas State of the State for 2018

In this episode of WichitaLiberty.TV: Vice president and policy director of Kansas Policy Institute James Franko joins Karl Peterjohn to discuss Governor Brownback’s State of the State Address for 2018. Topics include schools and Medicaid expansion. Bob Weeks hopes to be back next week. View below, or click here to view at YouTube. Episode 179, broadcast January 13, 2018.

Shownotes

In Wichita, three Community Improvement Districts to be considered

In Community Improvement Districts (CID), merchants charge additional sales tax for the benefit of the property owners, instead of the general public. Wichita may have an additional three, contributing to the problem of CID sprawl.

This week the Wichita City Council will hold public hearings considering the formation of three Community Improvement Districts. In Kansas Community Improvement Districts, merchants charge additional sales tax for the benefit of the property owners, instead of the general public. 1

Each of these CIDs will charge customers additional sales tax, with a cap on the amount that may be raised, and a separate cap on the length of the CID. For the three projects this week, here are the details: 2

Delano Catalyst CID: 2% additional tax, raising up to $3,000,000, up to 22 years
Spaghetti Works CID: 2% additional tax, raising up to $3,118,504, up to 22 years
Chicken N Pickle CID: 1.5% additional tax, raising up to $2,300,000, up to 15 years

All these CIDs are of the pay-as-you-go type, which means the city is not borrowing money that would be repaid by the CID tax proceeds. Instead, the CID tax proceeds are periodically sent to the landowners as they are collected. The city retains a 5% administrative fee.

Additionally, two of these CIDs earmark 10% of the CID tax collections for public benefits, which are extra park maintenance for the Spaghetti Works CID, and street improvements for the Chicken N Pickle CID. While these earmarks may seem magnanimous gestures, they directly work to the developers’ benefit. For Spaghetti Works, Naftzger Park is, in effect, becoming the front yard to a development. It will be of great benefit for it to be maintained well, especially considering that the developers will be able to close the park for private events. For the Chicken N Pickle CID, the street improvements the CID will fund are usually paid for by special tax assessments on the nearby landowners, which in this case is the Chicken N Pickle. This is a large savings.

By the way, none of the applications for these economic development incentives pleads economic necessity. They simply want more money, and are willing to let government take the blame when customers notice they’re paying 9% or 9.5% sales tax in these districts.

Of additional note: The Delano and Spaghetti Works developments are receiving many millions of taxpayer-provided subsidy from other economic development incentive programs. 3 4

It will be interesting to see how the council’s two new members, Brandon Johnson (district 1, northeast Wichita) and Cindy Claycomb (district 6, north central Wichita), will vote in these matters. As Progressives, we might expect them to be opposed to higher sales taxes, which affect low-income households disproportionally. We also might expect them to be opposed to targeted tax incentives for the “wealthy,” such as the now-defunct exemption on pass-through business income in Kansas. Here, they are asked to vote on a highly targeted tax incentive that will benefit identifiable wealthy parties.

Issues regarding CID

Perhaps the most important public policy issue regarding CIDs is this: If merchants feel they need to collect additional revenue from their customers, why don’t they simply raise their prices? But the premise of this question is not accurate, as it is not the merchants who receive CID funds. The more accurate question is why don’t landlords raise their rents? That puts them at a competitive disadvantage with property owners that are not within CIDs. Better for us, they rationalize, that unwitting customers pay higher sales taxes for our benefit.

Consumer protection
Customers of merchants in CIDS ought to know in advance that an extra CID tax is charged. Some have recommended warning signage that protects customers from unknowingly shopping in stores, restaurants, and hotels that will be adding extra sales tax to purchases. Developers who want to benefit from CID money say that merchants object to signage, fearing it will drive away customers.

State law is silent on this. The City of Wichita requires a sign indicating that CID financing made the project possible, with no hint that customers will pay additional tax, or how much extra tax. The city also maintains a website showing CIDs. This form of notification is so weak as to be meaningless. See Wichita community improvement districts should have warning signs and In Wichita, two large community improvement districts proposed. In the latter, future Wichita Mayor Jeff Longwell argued that signs showing different tax rates for different merchants would be confusing. Council Member Sue Schlapp said she supported transparency in government, but informing consumers of extra taxes would make the program “useless.”

Eligible costs
One of the follies in government economic development policy is the categorization of costs into eligible and non-eligible costs. The proceeds from programs like CIDs and tax increment financing may be used only for costs in the “eligible” category. I suggest that we stop arbitrarily distinguishing between “eligible costs” and other costs. When city bureaucrats and politicians use a term like “eligible costs” it makes this process seem benign. It makes it seem as though we’re not really supplying corporate welfare and subsidy.

As long as the developer has to spend money on what we call “eligible costs,” the fact that the city subsidy is restricted to these costs has no economic meaning. Suppose I gave you $10 with the stipulation that you could spend it only on next Monday. Would you deny that I had enriched you by $10? Of course not. As long as you were planning to spend $10 next Monday, or could shift your spending from some other day to Monday, this restriction has no economic meaning.

Notification and withdrawal
If a merchant moves into an existing CID, how might they know beforehand that they will have to charge the extra sales tax? It’s a simple matter to learn the property taxes a piece of property must pay. But if a retail store moves into a vacant storefront in a CID, how would this store know that it will have to charge the extra CID sales tax? This is an important matter, as the extra tax could place the store at a competitive disadvantage, and the prospective retailer needs to know of the district’s existence and its terms.

Then, if a business tires of being in a CID — perhaps because it realizes it has put itself at a competitive disadvantage — how can the district be dissolved?

The nature of taxation
CIDs allow property owners to establish their own private taxing district for their exclusive benefit. This goes against the grain of the way taxes are usually thought of. Generally, we use taxation as a way to pay for services that everyone benefits from, and from which we can’t exclude people. An example would be police protection. Everyone benefits from being safe, and we can’t exclude people from participating in — and benefiting from — police protection.

But CIDs allow taxes to be collected for the benefit of one specific entity. This goes against the principle of broad-based taxation to pay for an array of services for everyone. But in this case, the people who benefit from the CID are quite easy to identify: the property owners in the district.


Notes

  1. Weeks, Bob. Community improvement districts in Kansas. Available at https://wichitaliberty.org/kansas-government/community-improvement-districts-kansas/.
  2. Wichita City Council Agenda Packet for January 9, 2018. Agenda items IV-1, IV-2, and IV-3.
  3. Weeks, Bob. Naftzger Park project details. Available at https://wichitaliberty.org/wichita-government/naftzger-park-project-details/.
  4. Weeks, Bob. Delano catalyst site. https://wichitaliberty.org/wichita-government/delano-catalyst-site/.

Year in Review: 2017

Here are highlights from Voice for Liberty for 2017. Was it a good year for the principles of individual liberty, limited government, economic freedom, and free markets in Wichita and Kansas?

Also, don’t miss these notable episodes of WichitaLiberty.TV in 2017:

January

No one is stealing* from KPERS. No one is stealing from KPERS, the Kansas Public Employees Retirement System. But there are related problems.

Understanding job growth and the Kansas tax reforms. Commissioned by Kansas Policy Institute and written by researchers from Arizona State University, a new report looks at the Kansas economy after the tax reforms passed in 2012.

Kansas school employment. Kansas school employment rose slightly for the current school year, and ratios of employees to pupils fell, also slightly.

Kansas civil asset forfeiture. The law of Kansas civil asset forfeiture is among the worst in the nation, and demands reform.

In Kansas, the war on blight continues. Kansas governments are trying — again — to expand their powers to take property to the detriment of one of the fundamental rights of citizens: private property rights.

Fake news, meet fake research. Do you think we have a problem with fake news? Let me introduce you to fake research.

February

Analysis of proposed tax changes in Kansas. Proposed changes in the Kansas motor fuel tax and sales tax on groceries affects households in different ways.

Greater Wichita Partnership. Greater Wichita Partnership features untruthful information on its website, which casts doubt on the reliability of the organization and the City of Wichita.

Expanding Medicaid in Kansas. Expanding Medicaid in Kansas would be costly, undoubtedly more costly than estimated, has an uncertain future, and doesn’t provide very good results for those it covers.

In Wichita, the surveillance state expands again. In Wichita, we see another example of how once government starts a surveillance program, it probably won’t produce the promised results, yet will be expanded.

State and local government employee and payroll. Considering all state and local government employees in proportion to population, Kansas has many, compared to other states, and especially so in education.

March

Downtown Wichita tax base is not growing. There’s been much investment in downtown Wichita, we’re told, but the assessed value of property isn’t rising.

Wichita business property taxes still high. An ongoing study reveals that generally, property taxes on commercial and industrial property in Wichita are high. In particular, taxes on commercial property in Wichita are among the highest in the nation.

Kansas manufacturing and oil not recovering. While total employment in Kansas is growing, two industries are the exception.

Highway budget cuts and sweeps in Kansas. A public interest group makes claims about Kansas roads and highways that are not supported by data. It’s not even close.

Sedgwick County to consider raising debt limit. This week the Sedgwick County Commission will consider raising its limit on borrowing for reasons which need to be revealed, and then carefully examined.

For Wichita Eagle, no concern about relationships. Should the Wichita Eagle, a city’s only daily newspaper and the state’s largest, be concerned about the parties to its business relationships?

April

Fake government spawns fake news. Discussions of public policy need to start from a common base of facts and information. An episode shows that both our state government and news media are not helping.

Downtown Wichita business trends. There has been much investment in Downtown Wichita, both public and private. What has been the trend in business activity during this time?

Downtown Wichita jobs, sort of. The claim of 26,000 workers in downtown Wichita is based on misuse of data so blatant it can be described only as malpractice.

Growth in Downtown Wichita Jobs. Even if we accept the measure of jobs used by the City of Wichita, the trend is in the wrong direction. Citizens should ask for truth and accountability.

May

On Wichita’s STAR bond promise, we’ve heard it before. Are the City of Wichita’s projections regarding subsidized development as an economic driver believable?

Metro Monitor for the Wichita economy. A research project by The Brookings Institution illustrates the performance of the Wichita-area economy.

Coverage of Downtown Wichita workers. The Wichita Eagle’s coverage of the number of workers in Downtown Wichita isn’t fake news, just wrong news.

Wichita, Kansas, and U.S. economic dashboards. Dashboards of economic indicators for Wichita and Kansas, compared to the United States.

June

The yardstick for the Kansas experiment. A politician’s boasting should not be the yardstick for policy.

In Kansas, sweeps to continue. Even though the Kansas Legislature raised taxes, sweeps from the highway fund will continue.

Decoding Duane Goossen. When reading the writings of former Kansas State Budget Director Duane Goossen, it’s useful to have a guide grounded in reality.

July

Deconstructing Don Hineman. Another Kansas legislator explains why raising taxes was necessary. So he says.

More Cargill incentives from Wichita detailed. More, but likely not all, of the Cargill incentives will be before the Wichita City Council this week.

Wichita WaterWalk contract not followed, again. Wichita city hall failed to uphold the terms of a development agreement from five years ago, not monitoring contracts that protect the public interest.

Tax collections by the states. An interactive visualization of tax collections by state governments.

A Wichita social media town hall. A City of Wichita town hall meeting ends in less than nine minutes, with a question pending and unanswered.

August

Wichita employment trends. While the unemployment rate in the Wichita metropolitan area has been declining, the numbers behind the decline are not encouraging.

Wichita in the Wall Street Journal. A Wall Street Journal article reports on Wichita, but there are a few issues with quotes from the mayor.

Naftzger Park public hearing. On Tuesday August 15 the Wichita City Council will hold a public hearing to consider authorizing spending TIF funds on Naftzger Park.

In Wichita, not your tax dollars. At a Wichita City Council meeting, citizens are told, “These tax dollars are not your tax dollars.”

September

Wichita job growth. Wichita economic development efforts viewed in context.

Wichita economy shrinks. The Wichita-area economy was smaller in 2016 than the year before.

Kansas highway spending. A look at actual spending on Kansas highways, apart from transfers.

October

Kansas school fund balances. Kansas school fund balances rose this year, in both absolute dollars and dollars per pupil.

Downtown Wichita report omits formerly prominent data. The new State of Downtown Wichita report for 2017 is missing something. What is it, and why is it missing?

Living in downtown Wichita. Wichita economic development officials use a circuitous method of estimating the population of downtown Wichita, producing a number much higher than Census Bureau estimates.

November

Kansas school spending. New data for spending in Kansas schools is available.

In Wichita, the surveillance state expands again — and again. In Wichita, we see another example of how once government starts a surveillance program, the urge to expand it is irresistible.

Wichita personal income up, a little. For 2016, personal income in Wichita rose, but is still below 2014 levels.

PEAK benefits across Kansas. The use of PEAK, a Kansas economic development incentive program, varies widely among counties.

December

NOTA a needed voting reform. “None of the Above” voting lets voters cast a meaningful vote, and that can start changing things.

Wichita school student/teacher ratios. During years of purported budget cuts, what has been the trend of student/teacher ratios in the Wichita public school district?

Spirit expands in Wichita. It’s good news that Spirit AeroSystems is expanding in Wichita. Let’s look at the cost.

Spirit Aerosystems incentives reported. Opinions vary on economic development incentives, but we ought to expect to be told the truth of the details.

Delano catalyst site. A development near downtown Wichita may receive subsidy through four different avenues.

Panhandling in Wichita. The City of Wichita cracks down on panhandling.

Naftzger Park project details. The city has finalized a proposal for a development near Naftzger Park. It includes a few new and creative provisions.

WichitaLiberty.TV: Radio Host Andy Hooser

In this episode of WichitaLiberty.TV: Radio Host Andy Hooser of the Voice of Reason appears with Bob Weeks to discuss issues in state and national political affairs. View below, or click here to view at YouTube. Episode 177, broadcast December 23, 2017.

Shownotes

From Pachyderm: Local legislative priorities

From the Wichita Pachyderm Club: Local government officials present their legislative priorities. Appearing are James Clendenin for the City of Wichita, Dave Unruh for Sedgwick County, and Sheril Logan for the Wichita Public School District. This was recorded December 22, 2017.

Kansas personal income

Today the Bureau of Economic Analysis, an agency of the United States Department of Commerce, released personal income figures for the states for the third quarter of 2017.

For the country as a whole, personal income grew at the annual rate of 0.7 percent from the previous quarter. For Kansas, the rate was 0.3 percent. That was the forty-seventh best rate. This continues the trend of Kansas underperforming the nation in recent years.

Click for larger.

Naftzger Park project details

The city has finalized a proposal for a development near Naftzger Park. It includes a few new and creative provisions.

This week the City of Wichita will consider a development agreement for land and buildings near Naftzger Park in downtown Wichita. 1

Community Improvement District

The plan includes the formation of a Community Improvement District. In CIDs, merchants charge additional sales tax for the benefit of the property owners, instead of the general public.2 In this CID, the proposed additional sales tax is two cents per dollar, the maximum available under state law, and could generate up to $3.1 million over a period as long as 22 years.3

This proposed CID contains a “sweetener,” likely designed to reduce public opposition. Ten percent of the CID revenue would be used to maintain Naftzger Park. We’ve seen this before, as in the Cabela’s CID where some of the funds paid for road improvements near the store.4

The action the city council will consider this week is whether to accept the petitions to form the CID and set January 9, 2018 as the date for the public hearing.

Industrial Revenue Bonds and tax forgiveness

This project is also requesting Industrial Revenue Bonds. under this program, the city will not be lending money, nor will it be responsible for repaying any loans. Instead, the program allows the developers to avoid paying sales tax on construction.5 City documents don’t give an amount of tax savings, but it could be over one million dollars. 6

City documents state that a property tax abatement is not being requested. That isn’t available for this project, as its property taxes are already allocated by TIF.

Tax Increment Financing (TIF)

The project has already been approved for of Tax Increment Financing. In this case, future property tax revenues from this project will be rerouted from their normal flow to reconstruct Naftzger Park, something that is seen as a large benefit to the developers.

Construction administration fee

The city will pay the developers up to $250,000 for construction administration of the park.

Parking

This agreement also contains something I’m sure is considered as creative. We also saw this as an incentive offered to Cargill earlier this year. In this case, the city will pay the developers a fee for using their parking spaces. In this case, the city proposes paying a one-time easement fee of $10,000 per spot for from 80 to 90 parking spots. The total payment would be from $800,000 to $900,000. These parking spots would be available to the public outside of business hours, which are defined as 6:00 a.m. to 6:00 p.m. Monday through Friday.

Private events

Buried with the development agreement is a provision that the developers may use the park for private events: “The City and the Board will cooperate with Developers, upon Developers’ request, to create an Annual Master Calendar of private and public events for the Park, with the expectation that the Developers will have the use of the Park for certain private events.”

Little else is mentioned regarding these private events, such as the maximum number of private events. This seems subject to abuse.

Other Naftzger Park material

  1. City of Wichita Agenda Packet for December 19, 2017, Item IV-6.
  2. Weeks, Bob. Community improvement districts in Kansas. Available at https://wichitaliberty.org/kansas-government/community-improvement-districts-kansas/.
  3. Council Agenda: “The Developer and Park Board control the land within the proposed CID. The requested CID would provide pay-as-you-go financing for qualified project costs through the imposition of a 2% special retail sales tax on all taxable retail sales within the district for a maximum of 22 years. The eligible project costs identified in the CID petition include costs of renovating the building at 691 E. William and construction of the Class A commercial building. The City will receive 10% of the CID revenue to fund Naftzger Park maintenance and or ROW repairs and improvements, in addition to the 5% administrative fee. The revenue is estimated to be $310,000. The maximum amount of project costs that can be reimbursed is $3,118,504 based on the projected revenue of the project, exclusive of the City’s administrative fee and Naftzger Park maintenance.”
  4. Weeks, Bob. Cabela’s CID should not be approved in Wichita. Available at https://wichitaliberty.org/wichita-government/cabelas-cid-should-not-be-approved-in-wichita/.
  5. Weeks, Bob. Industrial revenue bonds in Kansas. Available at https://wichitaliberty.org/kansas-government/industrial-revenue-bonds-kansas/.
  6. “The Developer is also requesting the issuance of a letter of intent to issue Industrial Revenue Bonds (IRBs), valid through December 31, 2022, in an amount not-to-exceed $26,000,000 to achieve a sales tax exemption on items purchased for the redevelopment project. No property tax abatement is being requested.”

WichitaLiberty.TV: Judicial selection in Kansas

In this episode of WichitaLiberty.TV: Attorney Richard Peckham joins Karl Peterjohn and Bob Weeks to discuss judicial selection and other judicial issues in Kansas. View below, or click here to view at YouTube. Episode 176, broadcast December 16, 2017.

Shownotes

Panhandling in Wichita

The City of Wichita cracks down on panhandling.

In today’s Wichita Eagle Chase Billingham has an excellent column explaining the recent changes to panhandling laws in the City of Wichita (Chase Billingham: New laws will criminalize homeless). An assistant professor of sociology at Wichita State University, he makes important observations and warnings about the effect of these laws.

In his column, Billingham notes a problem with the ordinance designed to regulate “aggressive” panhandling: “Importantly, though, the ordinance defines ‘contact’ in an extremely vague manner.” I may have noticed the same problem in this example from Ordinance No. 50-643:

Section 2: “Contact” means the intentional action by any person which attempts to attract the attention of any other person for the purpose of inducing such other person to slow, stop or which obstructs or hinders the movement of such other person to facilitate a transfer of anything to or from either person.

Street theater in New Orleans. Would this be legal in Wichita? Click for larger.
What is an example of attracting someone’s attention to induce them to slow or stop? Busking. And it’s designed to encourage — “facilitate” — the transfer of money to the busker.

In the ordinance, the city says its purpose is to “regulate behaviors that are intimidating, threatening or harassing.” At the same time, the city takes actions that work in cross-purposes. In particular, the city has taken steps to allow — if not to encourage — more alcohol consumption. In 2016 laws were changed that both restricted and liberalized alcohol consumption. This year the city lobbied the state for laws that would establish “common consumption areas.” These are geographically-defined areas where free-range drinking is allowed. That is, you can drink outside in public, like on Bourbon Street in New Orleans. Besides Old Town, the city mentioned Delano and College Hill as possible common consumption areas.

There is a reason why cities have long outlawed drinking on the streets and sidewalks. But I guess that no longer applies.

I wonder if the city is running the risk of creating a Disneyland downtown, where everything is planned, staged, and regulated. Our city planners set design standards for buildings, and then use the lure of our tax money to encourage compliance. Is there a purportedly problematic public park interfering with you plans for development? No problem. Just ask the city to redirect your tax dollars away from police and schools so that the park can be rebuilt at no cost to you — in a Disneyland style. Too much crime on the streets? The city will install expensive and obtrusive surveillance systems to protect you, and also to harvest revenue if you forget to activate your turn signal in time.

The city uses words like “vibrant” to describe its vision for downtown and other areas. In this commentary about Indianapolis we see the same issues at play. This is from Erika D. Smith: Tougher panhandling law would hurt Indy’s urban fabric:

Vibrant urban areas need organic, grass-roots use of public spaces. It’s a big part of what makes a city a city and not a carefully manicured suburb. It’s knowing that the unexpected could be around any corner and fully embracing that possibility.

Funny thing is, the entities that are pushing for this crackdown on panhandling know this. Visit Indy, Indianapolis Downtown Inc. and Ballard’s administration called for the promotion of organic urban experiences in the Velocity Action Plan released earlier this month.

They want a freer, livelier atmosphere Downtown. They want “guerrilla-style” takeovers of public spaces. They want visitors and residents to be surprised by randomness. In short, they want a true urban environment.

But here’s the inconvenient truth: To get that kind of organic, vibrant urban atmosphere, you cannot control everything. And part of not being able to control everything is that, to a certain extent, you have to accept the good with the bad. The pretty with the ugly.

The mime outside Bankers Life Fieldhouse and the man sitting quietly with a sign asking for money. The woman sprawled on the sidewalk with a cup and the saxophone-playing busker who sends people to the Chatterbox club to hear more jazz.

This is the messiness of an urban environment. It’s not always pretty. But it’s not supposed to be. The people who live Downtown know this. We understand it. It’s why we moved here and not to Carmel.

Wichita check register

Wichita spending data presented as a summary, and as a list.

As part of an ongoing transparency project, I asked the City of Wichita for check register data. I’ve made the data available in a visualization using Tableau Public. Click here to access the visualization. To access a simple list of the data, click here.

Analyzing this data requires a bit of local knowledge. For example, there is a vendor named “Visit Wichita” that started to receive monthly payments in March 2015. What about payments for January and February? Those were made to a vendor named “Go Wichita,” which changed its name to “Visit Wichita.”

Similarly, there are payments made to both “Westar Energy” and “Westar Energy — EDI.” These are the same entities, just as “Visit Wichita” and “Go Wichita” are the same entity. To the city’s credit, the matching pairs have the same vendor number, which is good. But resolving this requires a different level of analysis.

Of note, it looks like there were 2,605 checks issued in amounts $20 or less over a period of nearly three years. Bank of America has estimated that the total cost of sending a business check ranges from $4 to $20.

It is by now routine for governmental agencies to post spending data like this, but not at the City of Wichita. Upon inquiry, city officials told me that the present financial management system “does not include many modern system features such as an ‘open checkbook.’” An “open checkbook” refers to a modern web interface where citizens can query for specific data and perhaps perform other analysis. An example is Denver’s open checkbook.

We’ve been promised a modern system for many years.

While the next-generation Wichita financial system will probably have such a feature, there’s no reason why citizens can’t experience some of the benefits now. The spreadsheet of spending data could easily be posted on the city’s website on a monthly basis. People like myself will take that data and make it more useful, as I did. The city has demonstrated that it is able to post documents to its website, so there is no reason why this should not be happening.

Delano catalyst site

A development near downtown Wichita may receive subsidy through four different avenues.

This week the Wichita City Council will consider approval of a development agreement with EPC Real Estate, LLC, for the Delano catalyst site. This is vacant land north of Douglas, between the Advanced Learning Library and the River Vista project.

Update: The measure passed four votes to three, with Bluebaugh, Frye, and Longwell in the minority.

Wichita Eagle reporting mentions some of the public subsidy the development will receive: $12 million over a period of years, in the form of Tax Increment Financing and Community Improvement District sales tax. (Delano project looks to add 180 apartments, hotel next to new Wichita library)

One form of additional subsidy is forgiveness of sales tax on the construction of buildings. The Letter of Intent for Industrial Revenue Bonds the council will consider states: “The City’s governing body has authorized an application for sales tax exemption with an estimated value of $1,611,822.”

But a really big gift to the developers is the price of the land. City document state the selling price for the 7.2 acre plot is $750,000. That’s about ($750000 / 7.2 acres) = $104,167 per acre. It’s a pretty good deal for the buyers. A look at some current commercial land listings in Wichita finds these:

1.20 acres at 47th South and Seneca for $425,000, or $354,167 per acre.
0.50 acres at 140 N. West St. for $225,000, or $450,000 per acre.
20.00 acres at 1462 S. Maize Road “Great for entertainment, retail, etc.” for $4,251,456, or $212,573 per acre.
0.52 acres at 640 N. Webb Road for $368,570, or $708,788 per acre.

It’s clear that the developers are buying the land from the city for a small fraction of its value.

By the way: Wichita Mayor Jeff Longwell says the city will no longer offer cash incentives for economic development. But selling land a deeply discounted price: Is that different from a cash incentive?

We might also note that this project will receive millions in benefits from Tax Increment Financing. This was a program born out of a perceived need to help redevelop blighted property. This development site, however, is vacant land.

Finally: If downtown Wichita is really progressing as well as its boosters say, why is it necessary to offer so much subsidy to develop a project like this?

Spirit Aerosystems incentives reported

Opinions vary on economic development incentives, but we ought to expect to be told the truth of the details.

The Wichita Business Journal has reported on the economic development incentives used to cement the Spirit AeroSystems expansion announced last week. Following are some quotes from its article How Wichita won the battle for Spirit AeroSystems’ expansion. Background on the aspects of the deal can be found at Spirit expands in Wichita.

Wichita Business Journal: “And many aren’t shy about bringing cash to the table as an incentive. In Wichita, in the wake of the defeat at the polls in 2014 of a sales tax measure that would have been used in part for economic development activities, such a war chest isn’t an option.”

Wichita and Sedgwick County are contributing cash and cash-equivalents to the deal. See below for more.

Further, the city has other ways to fund a “war chest” of incentives. While the sales tax failed to pass, there was nothing to prevent the city council from raising other taxes (such as property tax or franchise fees) to raise funds for economic development. Now there is a property tax limitation imposed by the state, but there are many loopholes the council could drive a large truck through, including holding an election asking voters to raise property taxes.

Also, the city justifies spending on economic development incentives by the positive return to the city. That is, for every dollar the city spends or forgoes in future taxes, it receives a larger amount in return. For this project, the analysis provided by Center for Economic Development and Business Research at Wichita State University reports a benefit/cost ratio of 2.75 to one for the city. That is, the city believes it will receive $2.75 for every $1.00 “invested.” If the city truly believes this, it should have no hesitation to issue bonds to fund this incentive, repaying the bonds with the projected benefits.

Wichita Business Journal: “‘Here … the state, city and county put together a very creative package focused on infrastructure and training,’ [Spirit CEO Tom] Gentile said.”

I suppose the innovative aspects of the package are the formation of a new business entity to build and own a large building, funded largely by the city and county. Also, the infrastructure referred to may mean the city’s forgiveness of Spirit’s debt to the city regarding a special water project.

Wichita Business Journal: “The government investment isn’t cash, but it is a way of helping Spirit grow that Gentile said combined with local training opportunities to make the government involvement important to Spirit’s decision to expand in Wichita.”

According to the agreement the city and county will consider this week, both Sedgwick County and the City of Wichita are contributing cash. The city will also forgive a large debt owed by Spirit. It’s hard to see how canceling a debt is different from giving cash.

Also, city, county, state, and school district are canceling millions in property and sales taxes that Spirit would otherwise owe, which is also difficult to distinguish from a cash benefit.

Finally, the state, under the PEAK problem, will likely refund to Spirit the state income tax withheld from their paychecks (minus a small fee).

Wichita Business Journal: “‘Because Spirit was willing to look at another way of investing, because this community said it was more important to invest in other ways, they’re allowing us to invest in infrastructure instead of handing Spirit cash,’ Wichita Mayor Jeff Longwell said Wednesday. ‘We believe that our community can rally behind that. We’re investing in Spirit and they’re investing in our community.'”

I’d really like to know the “another way of investing” the mayor mentions. Plus, contrary to the mayor’s assertion, the city is handing Spirit cash. Well, it’s giving cash to a new business entity whose sole purpose is to provide a new building for Spirit. Perhaps for Jeff Longwell that’s a distinction with a meaningful difference. If so, that’s too bad.

There are differing opinions as to the necessity and wisdom of economic development incentives. But we ought to expect the unvarnished truth from our mayor and economic development officials. It would be great if the Wichita Business Journal helped report the truth.

Spirit expands in Wichita

It’s good news that Spirit AeroSystems is expanding in Wichita. Let’s look at the cost.

While it is good news that Spirit AeroSystems is expanding its Wichita operations, it is not without cost to several governmental agencies. Here’s a summary of what is publicly available so far.

First, a new “entity” will be formed in order to facilitate the construction and ownership of a new building on the Spirit campus. 1

This entity will be funded with $7 million in cash from Sedgwick County and $3 million cash from the City of Wichita. Further, the city will forgive Spirit’s debt of $3.5 million associated with a water project. 2

Second, through the mechanism of Industrial Revenue Bonds,3 Spirit receives a property tax exemption of one hundred percent for five years, with renewal for another five years if goals are met. Despite the use of the term “bond,” no governmental entity is lending money to Spirit, and no one except Spirit is liable for bond repayment.

Third: The bonds confer another benefit to Spirit: According to city documents, “IRBs will, pursuant to STATE law, provide for a sales tax exemption on materials and labor subject to sales tax necessary to construct and equip FACILITY.” 4 City documents give no dollar amount is given for the sales tax exemption. But in the analysis conducted by Center for Economic Development and Business Research at Wichita State University these figures are used for the amount of sales tax exemption: City of Wichita: $279,445. Sedgwick County: $137,354. State of Kansas: $5,370,270. Total: $5,787,069. 5

Fourth, this project will undoubtedly qualify for PEAK, or Promoting Employment Across Kansas. This is a State of Kansas program that allows companies to keep the state income taxes their employees pay through paycheck withholding, less a small fee. 6 It isn’t possible to know in advance how much PEAK benefit the company will receive, because the individual circumstances of each employee determine the income tax withheld. The following calculation, however, gives an indication of the magnitude of the amount of PEAK benefits Spirit can expect:

$56,000 annual salary / 26 pay periods = $2,154 per bi-weekly pay period. For a married worker with two children, withholding tables show $55 to be withheld each pay period, or $55 * 26 = $1,430 per year. For 1,000 employees, the PEAK benefit is $1,430,000 per year. 7

There may be other programs that this project qualifies for.

Are these incentives necessary?

Taxpayers might be wondering if these incentives are necessary for Spirit to be able to expand its operations, and for it to select Wichita as the site. Spirit says it has received generous offers from other locations. If so, Spirit could do itself a favor by revealing these offers. So too, could other Wichita companies that have claimed intense courtship by other cities. But the economic development industry operates in darkness.

One thing that would also increase the credibility of economic development efforts is for Wichita Mayor Jeff Longwell (and others) to stop making claims of “no more cash incentives.” The city explicitly offers cash in this proposal. The city also offers to cancel a debt, which is just like cash. Forgiveness of future taxes is as good as cash, too.

For years we’ve been told that Wichita needs to diversify its economy, meaning that it relies too heavily on the aircraft industry. This expansion by Spirit will undoubtedly heighten that concentration. We should not turn down this expansion of our local economy. But the incentives that are offered have a cost, and that cost is paid — partly — by other business firms in other industries that are trying to grow in Wichita.

Many will undoubtedly cheer the Spirit announcement as an economic development win on a large scale. It will add many jobs. But the Wichita-area economy is so far behind it will take much more growth than this to catch up with the rest of the nation. In fact, the Wichita-area economy shrank last year. 8 And while many cheer our low unemployment rate, sole reliance on that number hides a shrinking labor force. 9

Also, let’s be appropriately humble when boasting about this expansion. A region’s largest employer deciding to expand in the same city: This is the minimum level of competence we ought to expect from our economic development machinery.

Further, economists caution us to look beyond any single project, no matter how large, and consider the entirety of the local economy. As economist Art Hall has noted, large-employer businesses have no measurable net economic effect on local economies when properly measured. “The primary finding is that the location of a large firm has no measurable net economic effect on local economies when the entire dynamic of location effects is taken into account. Thus, the siting of large firms that are the target of aggressive recruitment efforts fails to create positive private sector gains and likely does not generate significant public revenue gains either.” 10

That’s assuming that the incentives even work as advertised in the first place. Alan Peters and Peter Fisher, in their paper titled The Failures of Economic Development Incentives published in Journal of the American Planning Association, wrote on the effects of incentives. A few quotes from the study, with emphasis added:

Given the weak effects of incentives on the location choices of businesses at the interstate level, state governments and their local governments in the aggregate probably lose far more revenue, by cutting taxes to firms that would have located in that state anyway than they gain from the few firms induced to change location.

On the three major questions — Do economic development incentives create new jobs? Are those jobs taken by targeted populations in targeted places? Are incentives, at worst, only moderately revenue negative? — traditional economic development incentives do not fare well. It is possible that incentives do induce significant new growth, that the beneficiaries of that growth are mainly those who have greatest difficulty in the labor market, and that both states and local governments benefit fiscally from that growth. But after decades of policy experimentation and literally hundreds of scholarly studies, none of these claims is clearly substantiated. Indeed, as we have argued in this article, there is a good chance that all of these claims are false.

The most fundamental problem is that many public officials appear to believe that they can influence the course of their state or local economies through incentives and subsidies to a degree far beyond anything supported by even the most optimistic evidence. We need to begin by lowering their expectations about their ability to micromanage economic growth and making the case for a more sensible view of the role of government — providing the foundations for growth through sound fiscal practices, quality public infrastructure, and good education systems — and then letting the economy take care of itself.


Notes

  1. “The CITY, COUNTY and COMPANY would each take action to establish a new legal entity separate and apart from the CITY, COUNTY and COMPANY for development of the PROJECT (the “ENTITY”) which will take such form as the PARTIES may approve.” Memorandum of Understanding for Project Eclipse, Section I.A. Contained within agenda packet for Wichita City Council meeting for December 13, 2017.
  2. “The COUNTY participation of $7 million US is anticipated to be available cash; the CITY participation would consist of cash in the amount of $3 million US, forgiveness of $3.5 million US in future COMPANY payments associated with the CAPITAL COMPONENT and an agreement to make additional capital improvements relating to the WATER AGREEMENT in an approximate cost of $1 million US.” Memorandum of Understanding for Project Eclipse, Section I.B
  3. Weeks, Bob. Industrial revenue bonds in Kansas. Available at https://wichitaliberty.org/kansas-government/industrial-revenue-bonds-kansas/.
  4. Memorandum of Understanding for Project Eclipse, Section I.3.E
  5. Project Eclipse – ROI calcs plus author’s calculation. Available at https://drive.google.com/file/d/1uGaxTgrctYpBjkG7PR6bP81SxgFjpzjo/.
  6. Weeks, Bob. PEAK, or Promoting Employment Across Kansas. Available at https://wichitaliberty.org/kansas-government/peak-promoting-employment-across-kansas/.
  7. Kansas Department of Revenue Withholding tables. Available at https://www.ksrevenue.org/pdf/whtables2017.pdf.
  8. Weeks, Bob. Wichita economy shrinks. Available at https://wichitaliberty.org/economics/wichita-economy-shrinks/.
  9. “It is possible that the unemployment rate falls while the number of people employed falls or rises slowly. This is the general trend in Wichita for the past seven years or so.” Weeks, Bob. Wichita employment up. Available at https://wichitaliberty.org/wichita-government/wichita-employment-up/.
  10. William F. Fox and Matthew N. Murray, “Do Economic Effects Justify the Use of Fiscal Incentives?” Southern Economic Journal, Vol. 71, No. 1, 2004, p. 79. A

Wichita school student/teacher ratios

During years of purported budget cuts, what has been the trend of student/teacher ratios in the Wichita public school district?

When discussing school funding, there is controversy over how spending should be measured. What funds are included? Is KPERS included? Should we adjust for enrollment and inflation? What about bond and interest funds and capital outlay?

The largest expenditures of schools — some 80 percent nationwide — is personnel costs. In Kansas, and Wichita in particular, we’re told that budget cuts are causing school class sizes to increase.

When we look at numbers, we see that the USD 259, the Wichita public school district has been able to reduce its student/teacher ratios over the last ten years. (Student/teacher ratio is not the same statistic as class size.) There have been a few ups and downs along the way, but for all three levels of schools, student/teacher ratios are lower than they were ten years ago. (For middle schools, the trend over the past nine years is rising, although the ratio is lower than elementary and high schools.)

So however spending is categorized in funds, whether KPERS contributions are included or not, whether the funding comes from state or local sources, whether or not spending is adjusted for inflation, the Wichita school district has been able to improve its student/teacher ratios over the past ten years.

Data is from USD 259 Comprehensive Annual Financial Report for various years.

WichitaLiberty.TV: Senator Jim DeMint and Convention of States

In this episode of WichitaLiberty.TV: Former United States Senator Jim DeMint joins Karl Peterjohn and Bob Weeks to talk about the Convention of States. David Schneider, regional director for Citizens for Self-Governance also appears. View below, or click here to view at YouTube. Episode 175, broadcast December 9, 2017.

Shownotes

Wichita school revenue

Revenue for the Wichita public school district continues its familiar trend.

Wichita school revenue. Click for larger.
Now that USD 259, the Wichita public school district, has finally published its Comprehensive Annual Financial Report for the year ending June 30, 2017, we can start to look at some figures.

The nearby chart shows data from the CAFR along with my calculations. I took two data series, total revenue and the sum of state and local revenue, divided by FTE enrollment, and adjusted for inflation. I plot the sum of state and local revenue because in 2015 there was a change in the way some taxes were allocated. Plotting the sum of the two removes the effect of the change.

As can be seen in the chart, the trend for both series is generally rising, with a few dips along the way.

Briefs

Another Wichita Eagle publisher

Wichita Business Journal: “McClatchy Co. spokeswoman Jeanne Segal told the Wichita Business Journal on Wednesday that Kelly Mirt has resigned and will rejoin his family in North Carolina. … Mirt was announced as the Eagle’s publisher and vice president of advertising in July. … Mirt came to Wichita after the of former Eagle publisher Roy Heatherly in May. Mirt was the newspaper’s sixth publisher since 2007.” See Wichita Eagle publisher resigns, McClatchy says.

The system is rigged against you

Wichita Eagle Opinion Line, December 6, 2017: “Reading the article about Southeast High School has hardened my resolve even more that my kids will never attend public school.” Dear writer: I’m sorry to inform you, but there is an entire industry in Kansas that works to make sure that public schools are the only viable option for most Kansas families.

Will we ever know the cost?

Wichita Eagle headline: Spirit plans ‘mega project’ with $1 billion investment, 1,000 more jobs in Wichita. This is good news. I wonder, however, if we will ever know all the news, specifically how much it cost to make this happen. Also: Will Wichita Mayor Jeff Longwell’s pledge to forego cash incentives apply to this project?

DeMint in Wichita this week

At the Wichita Pachyderm Club this week: Former Senator Jim DeMint of South Carolina. DeMint served in the U.S. House of Representatives from 1999 to 2005, representing the fourth district of South Carolina. From 2005 to 2013 he served in the United States Senate, again representing South Carolina. From 2013 to 2017 he was president of the Heritage Foundation, one of the nation’s leading conservative think tanks. Now he serves as senior advisor to Citizens for Self-Governance, a group which is seeking to call a convention to propose amendments to the United States Constitution in order to reduce federal government spending and power. See here for details.

Individual liberty, limited government, economic freedom, and free markets in Wichita and Kansas

%d bloggers like this: