Wichita MSA employment series

Charts of employment in the Wichita metro area, along with Kansas and the United States.

Since 1990 the country has experienced three recessions. For the first two, Wichita was able to catch up with the employment growth experienced by the entire nation.

For the most recent recession, however, this hasn’t been the case. In fact, as time has progressed since 2010, the gap between Wichita and the nation has grown. Wichita is falling farther behind. You can also see evidence of this in the chart of one-year and five-year changes in employment. The peaks for the five-year series have become shorter and narrower, indicating weaker recoveries from recessions.

Source of data is Bureau of Labor Statistics, an agency of the United States Department of Labor, 1 specifically the Current Employment Statistics program. 2 Charts created by the author. The charts of employment are indexed so that relative changes may be compared. Clicking charts may produce larger versions.

Wichita MSA employment since 1990.
Wichita MSA employment since 2010.
Changes in Wichita MSA employment since 1990.
Five-Year change in Wichita MSA employment.


Notes

  1. “The Bureau of Labor Statistics of the U.S. Department of Labor is the principal Federal agency responsible for measuring labor market activity, working conditions, and price changes in the economy. Its mission is to collect, analyze, and disseminate essential economic information to support public and private decision-making. As an independent statistical agency, BLS serves its diverse user communities by providing products and services that are objective, timely, accurate, and relevant.” Bureau of Labor statistics. About BLS. https://www.bls.gov/bls/infohome.htm.
  2. https://www.bls.gov/sae/

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.

Two weeks ago a Wichita Eagle article reported on a 2002 public-private partnership that called for the private-sector company to submit an annual report to the city. But the company did not submit the reports, and the city didn’t ask for them. The city did after the Eagle inquired. 1

Much of the Eagle article described why current city officials were not aware of the 2002 agreement: “Due largely to turnover on the city staff and term limits on the City Council, top officials at City Hall were unaware of the contract provisions until The Eagle inquired about them. … No city official who played a major role in the 2002 contract is still actively involved in government.”

The article quoted Mayor Jeff Longwell as “interested in WaterWalk fulfilling any contractual agreement they have in place (with the city), even if that contract was made 20 years prior to my time.”

Now we know that the city did not enforce a similar agreement with the same WaterWalk developer made while Longwell was a council member. The city manager who oversaw the agreement is still manager.

WaterWalk additional rent calculation, excerpt. Click for larger.
We don’t have to look as far back in history as 2002 to find an agreement the city did not enforce, one where the city was not protecting the interest of taxpayers. In 2012 the city entered into a same or similar agreement in the same WaterWalk development with the same developer, Jack P. Deboer. It also called for the city to potentially earn payments, called “additional annual rent.” It also called for reports to be made, although the exact language used is “provide that calculation.” 2

I asked for the annual reports on July 10. Three days later I received a message indicating the documents would be ready on July 19. On that day they arrived. Like those provided to the Eagle, they were heavily redacted and showed that no additional rent was due the city.

Upon further inquiry, it is clear that these reports were not filed with the city on an annual basis, but were created only after I asked for them. 3

Calculations use incorrect formula

The 2012 agreement specified that the WaterWalk developer would be able to annually deduct 20 percent of the construction costs as “development cost return.” But, in the calculations provided to me by the city, 17 percent is used instead. 4

WaterWalk additional rent calculation, excerpt. Click for larger.

The city excused this error as being in favor of the city, and no additional rent was due in any case.

Redacted, not really

As shown in the examples above, the documents provided to me were heavily redacted, with nearly all numbers obscured. The illustrations show the appearance of the pdf document when opened in Acrobat reader or another pdf reader.

But a simple copy and paste into another application like Microsoft Word revealed the blacked-out numbers. The procedure used by the city didn’t really redact the numbers. It appears that someone used the Acrobat drawing tools to draw thick black lines over the numbers, which isn’t effective. Acrobat offers a set of redaction tools specifically designed for removing sensitive content from pdfs, and the city should have used this method. 5

When I reported this finding to the city, Elder replied: “We would ask that you respect the privacy of this information as well as the City’s obligations under the Kansas Open Records Act at K.S.A. 45-221(b), included below, which strictly prohibits the release of the financial information of a taxpayer, and not disclose the financial information.” 6

I don’t believe that the Kansas Open Records Act prohibits the disclosure of this information, and it is in the public interest that these numbers are available. At the moment, I am inclined to respect the city’s request.

Again

Here is another example of the city and its private-sector partners failing to observe a contract. The city did not monitor its agreements to protect the public interest, and this agreement is recent enough that remoteness in time is not an excuse.

Were the 2002 and 2012 development agreements wise for the city? At the time of the 2012 deal, I wrote this: 7

[There] is a provision that requires the apartment developer to pay “Additional Annual Rent.” Under this concept, each year the apartment developer will calculate “Adjusted Net Cash Flow” and remit 25 percent of that to the city.

To the casual observer, this seems like a magnanimous gesture by the apartment developer. It makes it look like the city has been a tough negotiator, hammering out a good deal for the city, letting citizens profit along with the apartment developer.

But the definition of cash flow includes a comprehensive list of expenses the may be deducted, including the cost of repaying any loans. There’s also an allowable expense called “Tenant Development Cost Return,” which is the apartment developer’s profit. The agreement defines this profit as 20 percent, and it’s deducted as part of the computation of “Adjusted Net Cash Flow.”

If there is ever any money left over after the dedication of all these expenses and profit margin, I will be surprised. Shocked, even. Here’s one reason why. One of the allowable deductions that goes into the computation of “Adjusted Net Cash Flow” is, according to city documents: “Amounts paid into any capital, furniture, fixture, equipment or other reserve.” There’s no restriction as to how much can be funneled into these reserve accounts. We can be sure that if this project was ever in the position where it looked like it might have to remit “Additional Annual Rent” to the city, contributions to these reserve funds would rise. Then, no funds paid to the city.

This is an example of the city appearing to be concerned for the welfare of taxpayers. In reality, this concept of “Additional Annual Rent” is worse than meaningless. It borders on deception.

Beyond this, we now know that neither the city nor the WaterWalk developer followed the terms of the deal. The annual reports were not supplied by the company, and they were not requested by the city. As it turns out the annual reports purport to show that the city was owed no money under the profit sharing agreement.

But that’s not the point. The issue is that the city did not enforce a simple aspect of the agreement, and the private-sector company felt it did not need to comply. Taxpayers were not protected, and we’re left wondering whether these agreements were really meant to be followed.


Notes

  1. Lefler, Dion. WaterWalk profit-sharing: 15 years, zero dollars for Wichita. Wichita Eagle, July 8, 2017. Available at http://www.kansas.com/news/politics-government/article160147944.html.
  2. “As Additional Annual Rent Tenant shall pay a sum equal to twenty-five percent (25%) of the Adjusted Net Cash Flow commencing with the first day the Tenant Improvements open for business. The Tenant shall calculate Adjusted Net Cash Flow for each Current Year within forty-five (45) days after the end of the Current Year (or portion thereof) and provide that calculation, and pay to the Landlord the Additional Annual Rent, within sixty (60) days after the end of the Current Year. Additional Annual Rent shall continue until this Lease expires. Adjusted Net Cash Flow is Gross Revenues less Total Expenses, less the total amount of capital expenses for furniture, fixtures, and equipment for the Tenant Improvements in excess of the aggregate amount expended from any reserve during such year.” Amendments to WaterWalk Developer Agreements. August 21, 2012. Available at https://drive.google.com/file/d/0B97azj3TSm9Mdm1tWjlQbVAzemM/view?usp=sharing.
  3. Email from city development analyst Mark Elder, July 21, 2017. “The annual report for this project was requested in the same time frame as the reports provided for Gander Mountain however, the documents were provided to the City within the last week.”
  4. Wichita City Council agenda packet for August 21, 2012. Waterwalk Ground Lease, Section 16.08. “Tenant Development Cost Return, defined as, on an annual basis, twenty percent (20%) of the total Construction Costs for all Tenant Improvements paid by Tenant, Developer, or permitted assignees and sublessees. As further clarification, the amount determined to be twenty percent (20%) of the total Construction Costs for all Tenant Improvements may be included in the calculation of the Total Expenses each year during the Term of this Lease.”
  5. Adobe.com. Removing sensitive content from PDFs. Available at https://helpx.adobe.com/acrobat/using/removing-sensitive-content-pdfs.html.
  6. “Except to the extent disclosure is otherwise required by law or as appropriate during the course of an administrative proceeding or on appeal from agency action, a public agency or officer shall not disclose financial information of a taxpayer which may be required or requested by a county appraiser or the director of property valuation to assist in the determination of the value of the taxpayer’s property for ad valorem taxation purposes; or any financial information of a personal nature required or requested by a public agency or officer, including a name, job description or title revealing the salary or other compensation of officers, employees or applicants for employment with a firm, corporation or agency, except a public agency. Nothing contained herein shall be construed to prohibit the publication of statistics, so classified as to prevent identification of particular reports or returns and the items thereof.”
  7. Weeks, Bob. Wichita WaterWalk apartment deal not good for citizens. https://wichitaliberty.org/wichita-government/wichita-waterwalk-apartment-deal-not-good-for-citizens/.

National Transit Database, an interactive visualization

An interactive visualization of data over time from the National Transit Database.

Do you wonder how much it costs to run your transit system? The National Transit Database holds data for transit systems in the U.S. I’ve gathered some key statistics and presented them in an interactive visualization.

In the case of Wichita, we see that “OpExp per PMT” for 2015 is $1.02. This is total operating expense per passenger mile traveled. It’s not the cost to move a bus a mile down the street. It’s the cost to move one passenger one mile. And, it is operating cost only, which means the costs of the buses are not included.

Some definitions used in the database:

  • UZA: The name of the urbanized area served primarily by a transit agency.
  • UPT: Unlinked passenger trips.
  • PMT: Passenger miles traveled.
  • Total OpExp: Total operating expense.

The visualization holds three tabs. One is a table of figures. The other two illustrate data for a single transit system or single mode.

Click here to access the visualization.

Example from the visualization for Wichita. Click for larger.

In Wichita, new stadium to be considered

The City of Wichita plans subsidized development of a sports facility as an economic driver.

West Bank Redevelopment District. Click for larger.
This week the Wichita City Council will consider a project plan for a redevelopment district near Downtown Wichita. It is largely financed by Tax Increment Financing and STAR bonds. Both divert future incremental tax revenue to pay for various things within the district.1 2

City documents promise this: “The City plans to substantially rehabilitate or replace Lawrence-Dumont Stadium into a multi-sport athletic complex. The TIF project would allow the City to make investments in Lawrence-Dumont Stadium, construct additional parking in the redevelopment district, initiate improvements to the Delano multi-use path and make additional transportation improvements related to the stadium project area. In addition to the stadium work, the City plans to construct, utilizing STAR bond funds, a sports museum, improvements to the west bank of the Arkansas River and construct a pedestrian bridge connecting the stadium area with the Century II block. The TIF project is part of the overall plan to revitalize the stadium area and Delano Neighborhood within the district.”3

We’ve heard things like this before. Each “opportunity” for the public to invest in downtown Wichita is accompanied by grand promises. But actual progress is difficult to achieve, as evidenced by the example of Block One.4

Trends of business activity in downtown Wichita. Click for larger.
In fact, change in Downtown Wichita — if we’re measuring the count of business firms, jobs, and payroll — is in the wrong direction, despite large public and private investment. 5

Perhaps more pertinent to a sports facility as an economic growth driver is the Intrust Bank Arena. Five years ago the Wichita Eagle noted the lack of growth in the area. 6 Since then, not much has changed. The area surrounding the arena is largely vacant. Except for Commerce Street, that is, and the businesses located there don’t want to pay their share of property taxes. 7

I’m sure the city will remind us that the arena was a Sedgwick County project, not a City of Wichita project, as if that makes a difference. Also, the poor economic performance cited above is for Downtown Wichita as delineated by zip code 67202, while the proposed stadium project lies just outside that area, as if that makes a difference.

By the way, this STAR bonds district is an expansion of an existing district which contains the WaterWalk development. That development has languished, with acres of land having been available for development for many years. We’ve also found that the city was not holding the WaterWalk developer accountable to the terms of the deal that was agreed upon, to the detriment of Wichita taxpayers. 8

Following, selected articles on the economics of public financing of sports stadiums.

The Economics of Subsidizing Sports Stadiums

Scott A. Wolla, “The Economics of Subsidizing Sports Stadiums,” Page One Economics, May 2017. This is a project of the Federal Reserve Bank of St. Louis. Link.
“Building sports stadiums has an impact on local economies. For that reason, many people support the use of government subsidies to help pay for stadiums. However, economists generally oppose such subsidies. They often stress that estimations of the economic impact of sports stadiums are exaggerated because they fail to recognize opportunity costs. Consumers who spend money on sporting events would likely spend the money on other forms of entertainment, which has a similar economic impact. Rather than subsidizing sports stadiums, governments could finance other projects such as infrastructure or education that have the potential to increase productivity and promote economic growth.”

What economists think about public financing for sports stadiums

Jeff Cockrell, Chicago Booth Review, February 01, 2017. Link.
“But do the economic benefits generated by these facilities — via increased tourism, for example — justify the costs to the public? Chicago Booth’s Initiative on Global Markets put that question to its US Economic Experts Panel. Fifty-seven percent of the panel agreed that the costs to taxpayers are likely to outweigh benefits, while only 2 percent disagreed — though several panelists noted that some contributions of local sports teams are difficult to quantify.”

Publicly Financed Sports Stadiums Are a Game That Taxpayers Lose

Jeffrey Dorfman. Forbes, January 31, 2015. Link.
“Once you look at things this way, you see that stadiums can only justify public financing if they will draw most attendees from a long distance on a regular basis. The Super Bowl does that, but the average city’s football, baseball, hockey, or basketball team does not. Since most events held at a stadium will rely heavily on the local fan base, they will never generate enough tax revenue to pay back taxpayers for the cost of the stadium.”

Sports Facilities and Economic Development

Andrew Zimbalist, Government Finance Review, August 2013. Link.
“This article is meant to emphasize the complexity of the factors that must be evaluated in assessing the economic impact of sports facility construction. While prudent planning and negotiating can improve the chances of minimizing any negative impacts or even of promoting a modest positive impact, the basic experience suggests that a city should not expect that a new arena or stadium by itself will provide a boost to the local economy.

Instead, the city should think of the non-pecuniary benefits involved with a new facility, whether they entail bringing a professional team to town, keeping one from leaving, improving the conveniences and amenities at the facility, or providing an existing team with greater resources for competition. Sports are central to cultural life in the United States (and in much of the world). They represent one of the most cogent ways for residents to feel part of and enjoy belonging to a community. The rest of our lives are increasingly isolated by modern technological gadgetry. Sport teams help provide identity to a community, and it is this psychosocial benefit that should be weighed against the sizeable public investments that sports team owners demand.”


Notes

  1. Weeks, Bob. STAR bonds in Kansas. Available at https://wichitaliberty.org/kansas-government/star-bonds-kansas/.
  2. Weeks, Bob. Wichita TIF projects: some background. Available at https://wichitaliberty.org/wichita-government/wichita-tif-projects-background/.
  3. Wichita City Council, agenda packet for July 18, 2017.
  4. Weeks, Bob. Downtown Wichita’s Block One, a beneficiary of tax increment financing. Before forming new tax increment financing districts, Wichita taxpayers ought to ask for progress on current districts. Available at https://wichitaliberty.org/wichita-government/downtown-wichita-block-one-beneficiary-tax-increment-financing/.
  5. Weeks, Bob. Downtown Wichita business trends. Available at https://wichitaliberty.org/wichita-government/downtown-wichita-business-trends/.
  6. “Ten years ago, Elizabeth Stevenson looked out at the neighborhood where a downtown arena would soon be built and told an Eagle reporter that one day it could be the ‘Paris of the Midwest.’ What she and many others envisioned was a pedestrian and bike-friendly neighborhood of quaint shops, chic eateries and an active arts district, supported by tens of thousands of visitors who would be coming downtown for sporting events and concerts. It hasn’t exactly turned out that way. Today, five years after the opening of the Intrust Bank Arena, most of the immediate neighborhood looks much like it did in 2004 when Stevenson was interviewed in The Eagle. With the exception of a small artists’ colony along Commerce Street, it’s still the same mix of light industrial businesses interspersed with numerous boarded-up buildings and vacant lots, dotted with ‘for sale’ and ‘for lease’ signs.” Lefler, Dion. 5 years after Intrust Bank Arena opens, little surrounding development has followed. Wichita Eagle. December 20, 2014. Available at http://www.kansas.com/news/local/article4743402.html.
  7. Riedl, Matt. Has Commerce Street become too cool for its own good? Wichita Eagle. April 8, 2017. http://www.kansas.com/entertainment/ent-columns-blogs/keeper-of-the-plans/article143529404.html.
  8. Weeks, Bob. Wichita WaterWalk agreement not followed. Available at https://wichitaliberty.org/wichita-government/wichita-waterwalk-agreement-not-followed/.

More Cargill incentives from Wichita detailed

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

A division of Cargill, Cargill Meat Solutions Corporation, is moving from an office on North Main Street in downtown Wichita to the site of the former Wichita Eagle building, also in downtown Wichita. Last year it was widely reported that Cargill was considering moving this division to another city. Reports of incentives offers to Cargill from other cities spurred the City of Wichita to offer its own incentives if Cargill would remain in Wichita. This week the city council will consider additional subsidies and incentives besides those already offered. 1

As summarized in the agenda packet:

“In exchange for Cargill’s commitment, the City has negotiated the following:

  • Issue Industrial Revenue Bonds (Letter of Intent approved April 18, 2017) 100% property tax abatement; 5+5 year basis
  • Sales tax exemption
  • Acquisition of a 15 year parking easement for public access to the garage in the evenings and on weekends (estimated cost of $6,500,000)
  • Expedited plan review (50% reduction in time)
  • Reduced permitting fees (50%) (estimated savings of $85,000)
  • Assign a project manager/ombudsman for a single point of contact for the company”

Industrial Revenue Bonds

In April the city council approved a letter of intent regarding Cargill’s participation in the Industrial Revenue Bond program. 2 The city won’t be lending Cargill money. Instead, IRBs are a (convoluted) method whereby local governments are able to forgive the payment of property taxes. For the case of Cargill, city documents from April state the tax forgiveness could be worth $1,359,531 per year. 3 This would be shared by these taxing jurisdictions in these annual amounts, again according to city documents:

  • City of Wichita: $378,450
  • Sedgwick County: $340,958
  • USD 259, the Wichita Public School District: $622,723
  • State of Kansas: $17,400

Cargill has agreed to make an annual Payment-In-Lieu-Of-Taxes (PILOT) of $413,900, according to city documents.

In addition to the property tax exemption, the IRBs also carry a sales tax exemption for purchases related to construction. City documents give an estimated value of $2,026,291 for the sales tax Cargill will not have to pay. 4

Parking easement

At one time, it was thought that the city would build a parking garage and let Cargill use it an no cost, or at a greatly reduced cost. Instead, the city now proposes that Cargill build the garage and the city will acquire an easement. This has sounded almost benign, but now we realize that the city will pay Cargill an estimated $6.5 million. In return, the city will be able to use up to approximately 700 parking spaces outside of Cargill business hours for a period of 15 years.

Is this a good deal for the city? The city has agreed to pay $9,286 for the use of each parking space for 15 years during non-business hours. 5 For comparison, recently the city rehabilitated the parking garage at 215 S. Market at a cost of $17,609 per parking space. The city rents 180 of these to a nearby company at the rate of $35 per month, which is $420 per year. 6 In the case of Cargill, the city is paying — effectively — $619 dollars per parking spot per year, and for off-hours use only.

It is not known whether the city will charge fees to the public to use the garage. It is also unknown whether there is much demand for public parking at the Cargill location, but present market conditions would suggest there is not much additional demand.

Expedited plan review, reduced fees, and ombudsman

The city has agreed to cut permit fees and speed response time for approvals. 7

This incentive — the need for it and its value to Cargill — is an explicit admission that City of Wichita regulations are burdensome. If not, why would the city devote time and expense to helping Cargill obtain relief from these regulations?

Consider this aspect of public policy: Cargill is a large company with — presumably — fleets of bureaucrats and lawyers trained to deal with burdensome government regulation. These costs can be spread across a large company, meaning that Cargill can afford to overcome burdensome regulations.

But what about the small companies that don’t have fleets of bureaucrats and lawyers? What about the young or small companies that can’t spread the costs of regulation across a large volume of business? What will the city do for these companies? This is especially important because the spirit of entrepreneurship the city wants to cultivate is most commonly found in small, young, companies — the type of company without fleets of bureaucrats and lawyers.

The city says it would do for any company what it is doing for Cargill. Except: How are companies supposed to know to ask for regulatory relief, streamlining, and a discount on fees?

If the city really wants to help all companies, it would — at its own initiative — cut fees and reduce response time across the board, for everyone. Until then Wichita offers special regulatory treatment for special circumstances, which widens the gulf between the haves and have-nots. 8

Other subsidy programs

The agenda packet for the city council meeting doesn’t mention this, but from the State of Kansas Cargill is likely to receive PEAK benefits. Under this program, the Kansas state withholding tax deducted from Cargill employees’ paychecks will be routed back to Cargill. 9 (Not all; only 95 percent.) Some very rough calculations show that PEAK benefits might be worth some $2 million annually to Cargill. 10

Ironically, with the recent increases in Kansas income taxes, PEAK is even more valuable to Cargill.

Is this needed?

In the past, economic development subsidies of this type were justified by local governments as necessary to recruit new companies to the area. These subsidies, however, are used simply to retain a company that is already located in downtown Wichita.

The city has asked Wichita State University’s Center for Economic Development and Business Research to produce benefit/cost ratios. They show that the costs the city, county, and state incur will generate benefits that exceed these costs. For the school district, costs exactly equal benefits — a remarkable coincidence.

The reasoning and calculation behind these benefit/cost ratios is opaque. The general idea is that spending by a company spawns other spending that results in economic benefit and growth. That’s true. It’s important to know, however, that this benefit also occurs when companies move to Wichita or expand in Wichita, without the benefit of economic development subsidies.

The question, then, becomes are these incentives necessary? Would Cargill have moved to another city if not for these incentives? It’s only if Cargill would have left Wichita that the benefit/cost ratios have any meaning.

The City of Wichita says Cargill received lucrative offers from other cities. But these offers have not been seen, to my knowledge. We’re left to take the word of Cargill that it received offers from other cities, and that it would have moved from Wichita if not for Wichita’s incentives.

Cargill, as we’ve seen, has a multi-million dollar motive. City of Wichita officials also have a large motive, as do officials and politicians at the state level. The politicians and bureaucrats want to — need to — be seen as doing something to improve the economy. It costs none of them one dime to pay these incentives. But the Cargill building will fulfill their ediface complex when they preside at groundbreaking and ribbon-cutting ceremonies.

If Wichita leaders wanted to gain the trust of Wichitans, to have us believe and understand that these incentives are necessary to keep Cargill in Wichita, the city could reveal the other offers Cargill received. Cargill itself could reveal offers it received from other cities. These actions would help Wichitans understand whether these incentives are truly needed. But the world of economic development incentives is a murky swamp.

Finally, Mayor Jeff Longwell, other council members, and city hall bureaucrats tell us that the city has moved beyond cash incentives. Cash will not be paid for jobs, they say.

But forgiving a tax bill is just like paying cash. Discounting the cost of permits is just like paying cash. Paying $6.5 million to use a company’s parking garage during hours the company has no use for it: How is that different from simply paying the company a cash incentive?

Perhaps the mayor and others have a different understanding of the economics of transactions than I.


Notes

  1. City of Wichita. Agenda Packet for July 18, 2017. Approval of Development Agreement with Cargill Meat Solutions Corporation.
  2. Weeks, Bob. Industrial revenue bonds in Kansas. https://wichitaliberty.org/kansas-government/industrial-revenue-bonds-kansas/.
  3. City of Wichita. Council agenda packet for April 18, 2017.
  4. Weeks, Bob. Cargill subsides start forming. Available at https://wichitaliberty.org/wichita-government/cargill-subsides-start-forming/.
  5. $6,500,000 / 700.
  6. Weeks, Bob. Why is this man smiling? Available at https://wichitaliberty.org/wichita-government/man-smiling/.
  7. “Section 4.03. Approvals. The City agrees to provide a 50% reduction in the fees charged by the City for permits and approvals, including plan review, utility and building permitting fees, for all matters related to the Project. The City also agrees to reduce the response time for approval of building plans from the standard 30 days to 15 days for all matters related to the Project.” Also: “The reduction in the permitting fees will be paid from the Economic Development fund.”
  8. Weeks, Bob. Regulation in Wichita, a ‘labyrinth of city processes.’ Available at https://wichitaliberty.org/regulation/regulation-wichita-labyrinth-city-processes/.
  9. Weeks, Bob. In Kansas, PEAK has a leak. https://wichitaliberty.org/kansas-government/kansas-peak-leak/.
  10. For the first year of the agreement, Cargill is expected to have 750 or more employees at an average salary of $66,814. That annual salary / 26 pay periods = $2,570 biweekly. For a family with two children (this is just a guess and could be way off), there are two withholding allowances, so $2,570 – ($86.54 x 2) = $2,397. Using the new withholding tables for married workers (another assumption), bi-weekly withholding is $48.17 + 5.7% x ($2,397 – $1,298) = $48.17 + $62.64 = $110.81. That means $2,881 annual withholding, so Cargill’s 95% share is $2,737. For 750 employees, this is an annual subsidy to Cargill of $2,052,750.

WichitaLiberty.TV: Being safe online

In this episode of WichitaLiberty.TV: Dave Cunningham of Flint Hills Group joins Bob Weeks and Karl Peterjohn to discuss online threats and how to remain safe. View below, or click here to view at YouTube. Episode 158, broadcast July 16, 2017.

Shownotes

Intrust Bank Arena loss for 2016 is $4,293,901

As in years past, a truthful accounting of the finances of Intrust Bank Arena in downtown Wichita shows a large loss.

The true state of the finances of the Intrust Bank Arena in downtown Wichita are not often a subject of public discussion. Arena boosters cite a revenue-sharing arrangement between the county and the arena operator, referring to this as profit or loss. But this arrangement is not an accurate and complete accounting, and hides the true economics of the arena. What’s missing is depreciation expense.

An example: In February 2015 the Wichita Eagle reported: “The arena’s net income for 2014 came in at $122,853, all of which will go to SMG, the company that operates the facility under contract with the county, Assistant County Manager Ron Holt said Wednesday.” A reading of the minutes for the February 11 meeting of the Sedgwick County Commission finds Holt mentioning depreciation expense not a single time. Neither did the Eagle article.

In December 2014, in a look at the first five years of the arena, its manager told the Wichita Eagle this: “‘We know from a financial standpoint, the building has been successful. Every year, it’s always been in the black, and there are a lot of buildings that don’t have that, so it’s a great achievement,’ said A.J. Boleski, the arena’s general manager.”

The Wichita Eagle opinion page hasn’t been helpful, with Rhonda Holman opining with thoughts like this: “Though great news for taxpayers, that oversize check for $255,678 presented to Sedgwick County last week reflected Intrust Bank Arena’s past, specifically the county’s share of 2013 profits.”

Even our city’s business press — which ought to know better — writes headlines like Intrust Bank Arena tops $1.1M in net income for 2015 without mentioning depreciation expense.

All of these examples are deficient in an important way, and contribute confusion to the search for truthful accounting of the arena’s finances. As shown below, recognizing depreciation expense is vital to understanding profit or loss, and the “net income” referred to above doesn’t include this. In fact, the “net income” cited above isn’t anything that is recognized by standard accounting principles.

The problem with the reporting of Intrust Bank Arena profits

There are at least two ways of looking at the finance of the arena. Nearly all attention is given to the “profit” (or loss) earned by the arena for the county according to an operating agreement between the county and SMG, a company that operates the arena. 1

This agreement specifies a revenue sharing mechanism between the county and SMG. For 2106, the accounting method used in this agreement produced a profit of $680,268 to be split (not equally) between SMG and the county. The county’s share was $140,134. 2

While described as “profit” by many, this payment does not represent any sort of “profit” or “earnings” in the usual sense. In fact, the introductory letter that accompanies these calculations warns readers that these are “not intended to be a complete presentation of INTRUST Bank Arena’s financial position and results of operations in conformity with accounting principles generally accepted in the United States of America.” 3

That bears repeating: This is not a reckoning of profit and loss in any recognized sense. It is simply an agreement between Sedgwick County and SMG as to how SMG is to be paid, and how the county participates.

A much better reckoning of the economics of the Intrust Bank Arena can be found in the 2016 Comprehensive Annual Financial Report for Sedgwick County.4 This document holds additional information about the finances of the Intrust Bank Arena. The CAFR, as described by the county, “… is a review of what occurred financially last year. In that respect, it is a report card of our ability to manage our financial resources.”

Regarding the arena, the CAFR states:

The Arena Fund represents the activity of the INTRUST Bank Arena. The facility is operated by a private company; the County incurs expenses only for certain capital improvements or major repairs and depreciation, and receives as revenue only a share of profits earned by the operator, if any, and naming rights fees. The Arena Fund had an operating loss of $4.6 million. The loss can be attributed to $4.4 million in depreciation expense.

Financial statements in the same document show that $4,434,035 was charged for depreciation in 2016, bringing accumulated depreciation to a total of $35,126,958.

If we subtract SMG payment of $140,134 from depreciation expense, we learn that the Intrust Bank Arena lost $4,293,901 in 2016.

Depreciation expense is not something that is paid out in cash. That is, Sedgwick County did not write a check for $4,434,035 to pay depreciation expense. Instead, depreciation accounting provides a way to recognize and account for the cost of long-lived assets over their lifespan. It provides a way to recognize opportunity costs, that is, what could be done with our resources if not spent on the arena.

But not many of our public leaders recognize this. In years past, Commissioner Dave Unruh made remarks that illustrate the severe misunderstanding under which he and almost everyone labor regarding the nature of spending on the arena: “I want to underscore the fact that the citizens of Sedgwick County voted to pay for this facility in advance. And so not having debt service on it is just a huge benefit to our government and to the citizens, so we can go forward without having to having to worry about making those payments and still show positive cash flow. So it’s still a great benefit to our community and I’m still pleased with this report.”

Earlier in this article we saw examples of the (then) Sedgwick County Assistant Manager, the Intrust Bank Arena manager, and several Wichita Eagle writers making the same mistake.

Intrust Bank Arena commemorative monument
Intrust Bank Arena commemorative monument
The contention — witting or not — of all these people is that the capital investment of $183,625,241 (not including an operating and maintenance reserve) in the arena is merely a historical artifact, something that happened in the past, something that has no bearing today. There is no opportunity cost, according to this view. This attitude, however, disrespects the sacrifices of the people of Sedgwick County and its visitors to raise those funds. Since Kansas is one of the few states that adds sales tax to food, low-income households paid extra sales tax on their groceries to pay for the arena — an arena where they may not be able to afford tickets.

Any honest accounting or reckoning of the performance of Intrust Bank Arena must take depreciation into account. While Unruh is correct that depreciation expense is not a cash expense that affects cash flow, it is an economic reality that can’t be ignored — except by politicians, apparently. The Wichita Eagle and Wichita Business Journal aid in promoting this deception.

We see our governmental and civic leaders telling us that we must “run government like a business.” Without frank and realistic discussion of numbers like these and the economic facts they represent, we make decisions based on incomplete and false information.


Notes

  1. Management Agreement between Sedgwick County and SMG. August 1, 2007. Available here.
  2. The Operations of INTRUST Bank Arena, as Managed by SMG. December 31, 2016. Available here.
  3. Ibid.
  4. Sedgwick County. Comprehensive Annual Financial Report of the County of Sedgwick, Kansas for the Year ended December 31, 2016. Available here.

Happy Fiscal New Year, Kansas (not)

A Kansas public policy group celebrates tax increases. But it isn’t enough, and more reform is required.

Kansas Center for Economic Growth has promoted higher taxes in Kansas for many years, and this year it got its wish. Here are a few remarks based on its self-congratulatory article titled “Happy Fiscal New Year, Kansas.”

KCEG wrote: “Kansas is now better positioned to provide great schools”
Wait a moment. I thought Kansas already has great schools. That’s what the Kansas public school establishment tells us.

And I think that the author made a mistake here. Instead of writing about “public schools,” the author mentions — simply — “schools.” Usually the Kansas public school establishment is careful to qualify their plea for more school spending with “public.” To them, spending on private schools or charter schools is money wasted, money that should have gone to public schools. Fortunately, and amazingly, the tax credit scholarship program, a program limited to students currently in low-performing schools, was expanded slightly. 1

If KCEG really wanted to promote great schools in Kansas, it would embrace school programs such as charter schools.

KCEG: “vibrant communities”
Here, KCEG believes that taking more money from the private sector through taxation and letting government spend it is “vibrant.” But how does government work? In a democracy, a majority forces its will on the minority. Or, special interest groups intensely lobby for benefits at the expense of everyone else. Or, a form of the precautionary principle tamps down sparks of innovation in government bureaucracies, like public schools. Government is the opposite of “vibrant,” which the dictionary defines as “full of energy and enthusiasm.”

KCEG: “It also phases in the restoration of an important tax credit and three deductions that were eliminated in 2012 to pay for tax breaks for the wealthy.”
In 2012 everyone’s taxes were cut. Aside from that, we don’t pay for tax cuts. We pay for the cost of government.

When someone says we must pay for tax cuts, it presumes that tax cuts have a cost. The only way this makes sense is if we believe that the state has first claim on our incomes. The state takes what it says it needs, and we get to keep the rest. If the government is ever persuaded to reduce its claim on our incomes, that has a cost that must be paid in some way.

But for those who believe in self-ownership, this is nonsense. It’s the people who “give” tax money to the government, not the government who “gives” it back in the form of tax cuts. If the government cuts taxes, the government gives us nothing. It simply takes less of what is ours in the first place.

But the attitude of many government officials is the opposite. In 2006 Kansas cut taxes on business equipment and machinery. At the time, the Wichita Eagle reported: “Gov. Kathleen Sebelius, a Democrat, who first proposed the business machinery tax cut, agreed. ‘We’re not giving away money for the sake of giving it away,’ she said. ‘I’m hoping that the economic growth will actually help fund the school plan that we just passed.'” (emphasis added)

(By the way, this sounds like Sebelius was planning for tax cuts to pay for themselves.)

KCEG: “This means looking beyond income tax reforms and rebalancing Kansas’ ‘three-legged stool’ by addressing problems with the state’s sales tax and property tax.”
The three-legged stool is one of the most inappropriate analogies ever coined. If the state of Kansas were to develop an additional source of tax revenue, say by slapping a tariff on Budweiser imported from Missouri or Coors imported from Colorado, we’d hear spending advocates like KCEG speaking of the virtue of a stable four-legged chair. Many states thrive without one of our three legs, the income tax. And if we’re looking for stability, as Hineman mentions, income taxes are quite volatile compared to the other legs. 2

KCEG: “To pay for the Governor’s irresponsible and steep income tax cuts”
Again, we don’t have to pay for tax cuts. But there was irresponsible behavior, that being to continue to spend and avoid serious attempts at spending reform.

KCEG: “In response to the ongoing budget crisis, the sales tax was increased in 2015 to offset lagging state revenue. This affected every Kansan in every county, but especially hurt low-income residents.”
Here, KCEG is correct. The state should not have raised the sales tax, and the state needs to work on lowering the sales tax rate on groceries. For more on this topic, see Wichita sales tax hike would hit low income families hardest and Kansas sales tax has disproportionate harmful effects.

(Actually, KCEG is not totally correct. The sentence should have ended with “… to continue to pay for wasteful state spending because the governor and legislature would not seriously consider spending reform.”)

KCEG: “And because of the gamble with income tax cuts”
There was no gamble with income tax cuts, the governor’s boastful claims notwithstanding. 3 The tax cuts did what tax cuts should do: Leave more money in the hands of the people it belongs to.

KCEG: “As a result, property taxes shot up as communities struggled to keep up with the demand for basic services.”
If taxation was shifted from the state level to local levels, that in itself is not bad. In fact, it keeps taxing and spending more closely controlled at the local level, without communities having to fight in Topeka for a share of the state budget pie.

KCEG: “If we want to fully recover from the past five years, tax reform must address sales and property tax problems in addition to income tax issues.”
KCEG doesn’t say what are the problems with sales and property taxes. But I think I know what they believe: These two forms of taxation are too low. They don’t raise enough money from the right people.


Notes

  1. “On and after July 1, 2018, the bill amends the definition of “public school” within the TCLISS Program Act to mean a school identified by KSBE as one of the lowest 100 performing schools with respect to student achievement. It also amends the definition of “qualified school” to require accreditation on and after July 1, 2020. Accreditation must be by KSBE or a KSBE-recognized national or regional accrediting agency. Additionally, the bill expands eligibility for the tax credit to individuals and places an annual cap of $500,000 on contributions.” Kansas Legislature. SB 19: Creating the Kansas school equity and enhancement act, summary. Available at http://www.kslegislature.org/li/b2017_18/measures/sb19/.
  2. Federal Reserve Bank of St. Louis, Gary C. Cornia & Ray D. Nelson. State Tax Revenue Growth and Volatility. 6 Regional Economic Development, 23-58 (2010). Available at https://files.stlouisfed.org/files/htdocs/publications/red/2010/01/Cornia.pdf.
  3. Weeks, Bob. The yardstick for the Kansas experiment. Available at https://wichitaliberty.org/kansas-government/yardstick-kansas-experiment/.

Naftzger Park public hearing to be considered

The Wichita City Council may set August 15, 2017 as the date for a public hearing on the future of Naftzger Park in downtown Wichita.

On Tuesday July 11, 2017, the Wichita City Council will consider setting August 15, 2017 as the date for the public hearing for consideration of the plan for the future of Naftzger Park. The relevant pages of the council agenda may be read here.

Much of the document is boilerplate material regarding tax increment financing districts. But there is some additional information.

First, the project is expected to cost $3,000,000: “Park improvements are projected to costs approximately $3,000,000, with $1,500,000 of such costs to be financed from proceeds of the City’s full faith and credit tax increment bonds.”

Second, we see some evidence of the care — or lack of — that the city puts into preparing these documents. The document contains a table called the “Projected Tax Increment Report.” It shows, year by year, the financial projections for the TIF district. Except: The table is subtitled “West Bank Redevelopment District / Delano and Stadium Project.” I think it’s safe to say that is a mistake. A second table titled “Projected Bond Cash Flow Report” has the same mistaken subtitle.

Here we see one of the real reasons for developing Naftzger Park:

“Seneca Property, LLC and Sunflower Wichita, LLC intend to develop the property immediately adjacent to Naftzger Park . The development of the area will consist of renovation the Spaghetti Works building into 41 apartments and the construction of approximately 62,000 square feet of Class A office and retail space. The development is planned to be designed to complement the Naftzger Park redevelopment design and is anticipated to generate a significant portion of the revenue necessary to support the Project.”

A company is developing property adjacent to Naftzger Park, and the company would like to see the park renovated to its liking. It is proposed that the new property taxes the company will pay be used to pay for the renovation.

Normally increased property taxes are used to pay for things like police and fire protection, city council salaries, and schools. But through tax increment financing (TIF), these increased property taxes will be rerouted for the benefit of the private property owner. In the process, a beautiful park will be replaced with an astroturf-covered plain.

For more information on Naftzger Park, including photographs, see Naftzger Park in Downtown Wichita.

A possible plan for Naftzger Park from the City of Wichita

Wichita WaterWalk agreement not followed

Does the City of Wichita enforce its public-private partnership agreements? In some cases the city doesn’t even ask for the information that is needed for enforcement.

A Wichita Eagle article reports on a 2002 public-private partnership that called for the private-sector company to submit an annual report to the city. But the company did not submit the reports, and the city didn’t ask for them. The city did after the Eagle inquired. 1

The deal involves the city leasing land to a private developer for a project now known as WaterWalk. Part of the deal called for the city to possibly receive annual payments in a form of profit-sharing. Annual reports to the city were to provide figures from which the city’s payment would be calculated.

There is an important issue here apart from the wisdom of striking the initial deal in 2002. That is, neither the city nor the company followed the terms of the deal. The annual reports were not supplied by the company, and they were not requested by the city, according to Eagle reporting. As it turns out the annual reports purport to show that the city was owed no money under the profit sharing agreement.

But that’s not the point. The issue is that the city did not enforce a simple aspect of the agreement, and the private-sector company felt it did not need to comply.

Some of the Eagle article is devoted to explaining that the deal was struck some years ago, and: “No city official who played a major role in the 2002 contract is still actively involved in government.”

I’m sure we will hear that excuse from current city council members and bureaucrats, that all this happened before our time. Anyone taking cover using that excuse deserves to be terminated immediately.

We should not accept this or any excuse. This is because in 2012 the city entered into a same or similar agreement in the same WaterWalk development with the same developer, Jack P. Deboer. It also called for the city to potentially earn payments, called “additional annual rent.” It also called for reports to be made, although the exact language used is “provide that calculation.” 2

I wonder: When city staff drafted the new agreement in 2012, and when the council deliberated the agreement, did anyone wonder how the 2002 agreement worked out? Did anyone wonder if the city earned any payments from that deal? The 2012 agreement was controversial, at least to some. I and others spoke to the council expressing our concerns. 3

I also wonder: Has the developer filed the annual reports from the 2012 agreement? I’ve asked the city.

Here is the article I filed in 2012: Wichita WaterWalk apartment deal not good for citizens.


Notes

  1. Lefler, Dion. WaterWalk profit-sharing: 15 years, zero dollars for Wichita. Wichita Eagle, July 8, 2017. Available at http://www.kansas.com/news/politics-government/article160147944.html.
  2. “As Additional Annual Rent Tenant shall pay a sum equal to twenty-five percent (25%) of the Adjusted Net Cash Flow commencing with the first day the Tenant Improvements open for business. The Tenant shall calculate Adjusted Net Cash Flow for each Current Year within forty-five (45) days after the end of the Current Year (or portion thereof) and provide that calculation, and pay to the Landlord the Additional Annual Rent, within sixty (60) days after the end of the Current Year. Additional Annual Rent shall continue until this Lease expires. Adjusted Net Cash Flow is Gross Revenues less Total Expenses, less the total amount of capital expenses for furniture, fixtures, and equipment for the Tenant Improvements in excess of the aggregate amount expended from any reserve during such year.” Amendments to WaterWalk Developer Agreements. August 21, 2012. Available at https://drive.google.com/file/d/0B97azj3TSm9Mdm1tWjlQbVAzemM/view?usp=sharing.
  3. Wichita City Council. Minutes of August 21, 2012 meeting. Available at http://wichitaks.granicus.com/MinutesViewer.php?view_id=2&clip_id=1843.

WichitaLiberty.TV: John Todd and Wichita issues

In this episode of WichitaLiberty.TV: John Todd joins Bob Weeks and Karl Peterjohn to discuss issues involving the City of Wichita, including the future of Naftzger Park and economic development. View below, or click here to view at YouTube. Episode 157, broadcast July 9, 2017.

Shownotes

  • Wichita Pachyderm Club on Facebook
  • Article link: An information resource regarding the future of Naftzger Park in downtown Wichita
  • Article link: 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?
  • Article link: 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.
  • Article link: Wichita economic dashboards

Deconstructing Don Hineman

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

Many members of the Kansas Legislature are writing pieces defending their decision to vote for higher taxes. Don Hineman is one. His explanation merits more than average attention, as he is the Majority Leader of the Kansas House of Representatives. This week the Topeka Capital-Journal published his op-ed Rep. Don Hineman: Why tax reform was necessary. It deserves comment.

Hineman wrote: “This return to common sense tax policy resulted from legislators listening to their constituents and fulfilling the promises they made during 2016 campaigns.”
There may have been some candidates who campaigned on a platform of higher taxes. But most used more subtle language, such as Hineman’s use of the phrase “common-sense tax policy.” Does anyone know what that means? Does it mean the same thing to everyone? Besides, raising taxes was just one issue for most candidates and campaigns. And, voters must vote for candidates, not specific policies. As Justice Antonin Scalia told us, “Campaign promises are, by long democratic tradition, the least binding form of human commitment.” An example comes from Hineman’s web page, which states one of his four core values is “Respect for private property rights.” He has respect for your property, unless that property happens to be your money. Then he wants more.

Hineman: “… restore our state to firmer fiscal ground.”
This could have been done with spending cuts, too.

Hineman: “… a group of 88 representatives and 27 senators from across the political spectrum voted to override the governor’s veto.”
Here, Hineman refers to the coalition of Republicans and Democrats that passed the tax bill notwithstanding the governor’s veto. Because members of both major parties voted the same way, it’s described as nonpartisan. It’s meant as a good thing. But most of the Republicans who voted for higher taxes qualify as Democrats in many ways. They dismiss the Republican Party platform and embrace most aspects of the Democratic Party and progressive goals. There is no “spectrum.” Regarding taxation and the size of government, they’re pretty much the same color. Kansas Policy Institute confirms: “The Freedom Index published by Kansas Policy Institute has repeatedly shown the legislative political division to not be about Democrats and Republicans but about legislators’ view of the role of government, and the above June 2 update of 2017 Freedom Index certainly bears that out. With a score of 50 percent being considered neutral, there are 13 Senators at the top of the list with positive scores and 13 Senators at the bottom of the list — and every one of them is a Republican.” 1

Hineman: “Brownback’s tax plan abandoned the ‘three-legged stool’ approach to funding government, which had served Kansas well for decades by relying on a stable balance of income, sales and property.”
The three-legged stool is one of the most inappropriate analogies ever coined. If the state of Kansas were to develop an additional source of tax revenue, say by slapping a tariff on Budweiser imported from Missouri or Coors from Colorado, we’d hear spenders like Hineman speaking of the virtue of a stable four-legged chair. Many states thrive without one of our three legs, the income tax. And if we’re looking for stability, as Hineman mentions, income taxes are quite volatile compared to the other legs. 2

As far as serving Kansas well: There are a variety of ways to look at the progress of Kansas compared to the nation, but here’s a startling fact: For the 73rd Congress (1933 to 1935) Kansas had seven members in the U.S. House of Representatives. (It had eight in the previous session.) Until 1992 Kansas had five. Today Kansas has four members, and may be on the verge of losing one after the next census. This is an indication of the growth of Kansas in comparison to the nation.

” … sweep from the highway fund … rejected the governor’s short-term fixes as being neither responsible nor conservative …”
In this (heavily edited) sentence, Hineman complains about sweeping money from the state’s highway fund. But: Even after raising taxes, the budget just passed by the legislature continues sweeps from the highway fund in the amount of $288,297,663 in fiscal year 2018. For fiscal year 2018, the total of the quarterly sweeps is $293,126,335. 3

Hineman: “The fiscal strain created by the 2012 tax cuts caused public schools to suffer, increasing class sizes and reducing program offerings.”

Kansas school spending. See article for notes about 2015. Click for larger.
The nearby chart shows Kansas school spending, per pupil, adjusted for inflation. It’s easy to see that since 2011, spending has been remarkable level. There was a change in 2015 that shifted the way some school funding was credited, but in total, not much changed.

Kansas school employment. Click for larger.

Kansas school employment ratios. Click for larger.
Some people will dismiss spending figures for a variety of reasons. They may say that inflation affects schools differently from everything else, or that these figures don’t include KPERS, or that they do include the cost of facilities. So let’s look at something else: The number of employees compared to the number of students. When we do this, we find that igures released by the Kansas State Department of Education show the number of certified employees rose slightly for the 2016-2017 school year.

The number of Pre-K through grade 12 teachers rose to 30,431 from 30,413, an increase of 0.06 percent. Certified employees rose to 41,459 from 41,405, or by 0.13 percent.4 These are not the only employees of school districts.5

Enrollment fell from 463,504 to 460,491, or 0.61 percent. As a result, the ratios of teachers to students and certified employees to students fell. The pupil-teacher ratio fell from 15.2 pupils per teacher to 15.1. The certified employee-pupil ratio fell from 11.2 to 11.1.

If we look at these ratios over time, we see they are remarkably consistent since 2012. These figures, at least on a state-wide basis, are contrary to the usual narrative, which is that school employment has been slashed, and class sizes are rising rapidly. The pupil-teacher ratios published by KSDE are not the same statistic as class sizes. But if the data shows that the ratio of pupils to teachers is largely unchanged for the past five years and class sizes are rising at the same time, we’re left to wonder what school districts are doing with teachers. And, why are programs being eliminated?

(The relative change in enrollment and employment is not the same in every district. To help Kansas learn about employment trends in individual school districts, I’ve gathered the numbers from the Kansas State Department of Education and present them in an interactive visualization. 6 7)

Hineman: “Though raising taxes is never easy …”
No. Spenders love to raise taxes. In fact, some legislators warned that the tax hikes are not enough, and that they’ll be back for more. Indeed, projections show spending outpacing revenue in just a few years.

Hineman: “… it was unfortunately the only responsible option available. State government has been cut to the point where there is no reasonable way to reduce spending enough to balance the budget.”
No. One example: The efficiency study commissioned by the legislature recommended savings in the method of acquiring health insurance for public school employees. This was not adopted. Therefore, $47,200,000 in general fund spending is added over what the governor recommended. 8 9 This was not cutting services or benefits. It was asking school employees to do something differently in order to save money. But, it didn’t happen.

Can Kansas cut spending? There are many states that spend less than Kansas on a per capita basis. 10

Hineman: “Those who parrot the phrase ‘we have a spending problem, not a revenue problem’ have repeatedly failed to offer realistic suggestions for further cuts.”
Hineman is correct in a small way. To balance the budget this year with cuts alone was probably impossible. The lust for spending other people’s money is just too great. But there have been proposals that should have been followed. First, the legislature should have commissioned the efficiency study in 2012 when taxes were cut. That didn’t happen. Then, the legislature should take the efficiency study seriously. But even simple things — like the recommendation of savings through school employee health insurance acquisition reform — are difficult to accomplish, because the spenders don’t want these reforms.

And, in the past there have been responsible plans for reforming spending and the budget. But these plans were not wanted, nor were they realized. 11

Hineman’s criticism shows that it is difficult to cut spending. People become accustomed to other people paying for their stuff. Legislators want to appear to be doing more for their constituents, providing seemingly free stuff while pushing aside the idea of paying for it. And so government grows, at the expense of our liberty and what might have been had the money been left in the productive private sector.


Notes

  1. Trabert, Dave. “Freedom index: Political division is citizens vs. government, not party lines.* Available at https://kansaspolicy.org/freedom-index-political-division-citizens-vs-government-not-party-lines/.
  2. Federal Reserve Bank of St. Louis, Gary C. Cornia & Ray D. Nelson. State Tax Revenue Growth and Volatility. 6 Regional Economic Development, 23-58 (2010). Available at https://files.stlouisfed.org/files/htdocs/publications/red/2010/01/Cornia.pdf.
  3. Weeks, Bob. In Kansas, sweeps to continue. Available at https://wichitaliberty.org/kansas-government/kansas-sweeps-continue/.
  4. According to KSDE, certified employees include Superintendent, Assoc./Asst. Superintendents, Administrative Assistants, Principals, Assistant Principals, Directors/Supervisors Spec. Ed., Directors/Supervisors of Health, Directors/Supervisors Career/Tech Ed, Instructional Coordinators/Supervisors, All Other Directors/Supervisors, Other Curriculum Specialists, Practical Arts/Career/Tech Ed Teachers, Special Ed. Teachers, Prekindergarten Teachers, Kindergarten Teachers, All Other Teachers, Library Media Specialists, School Counselors, Clinical or School Psychologists, Nurses (RN or NP only), Speech Pathologists, Audiologists, School Social Work Services, and Reading Specialists/Teachers. Teachers include Practical Arts/Vocational Education Teachers, Special Education Teachers, Pre-Kindergarten Teachers, Kindergarten Teachers, Other Teachers, and Reading Specialists/Teachers. See Kansas State Department of Education. Certified Personnel. http://www.ksde.org/Portals/0/School%20Finance/reports_and_publications/Personnel/Certified%20Personnel%20Cover_State%20Totals.pdf.
  5. There are also, according to KSDE, non-certified employees, which are Assistant Superintendents, Business Managers, Business Directors/Coordinators/Supervisors, Other Business Personnel, Maintenance and Operation Directors/Coordinators/Supervisors, Other Maintenance and Operation Personnel, Food Service Directors/Coordinators/Supervisors, Other Food Service Personnel, Transportation Directors/Coordinators/Supervisors, Other Transportation Personnel, Technology Director, Other Technology Personnel, Other Directors/Coordinators/Supervisors, Attendance Services Staff, Library Media Aides, LPN Nurses, Security Officers, Social Services Staff, Regular Education Teacher Aides, Coaching Assistant, Central Administration Clerical Staff, School Administration Clerical Staff, Student Services Clerical Staff, Special Education Paraprofessionals, Parents as Teachers, School Resource Officer, and Others. See Kansas State Department of Education. Non-Certified Personnel Report. http://www.ksde.org/Portals/0/School%20Finance/reports_and_publications/Personnel/NonCertPer%20Cov_St%20Totals.pdf.
  6. Weeks, Bob. Kansas school spending, an interactive visualization. Available at https://wichitaliberty.org/wichita-kansas-schools/kansas-school-spending-interactive-visualization/.
  7. Weeks, Bob. Kansas school employment. Available at https://wichitaliberty.org/politics/kansas-school-employment-2/.
  8. “The FY 2018 budget assumes savings of $47.2 million from implementation of Alvarez & Marsal efficiency recommendations to include K-12 health benefit consolidation and sourcing select benefit categories on a statewide basis.” Budget Report, p. 17
  9. “Add $47.2 million, all from the State General Fund, for removing savings associated with A&M recommendations for health insurance and procurement for FY 2018.” Bill Explanation For 2017 Senate Sub. For House Bill 2002, p. 10.
  10. Weeks, Bob. Spending in the states, per capita. https://wichitaliberty.org/economics/spending-states-per-capita-2/.
  11. Kansas Policy Institute. A Five-Year Budget Plan for the State of Kansas: How to balance the budget and have healthy ending balances without tax increases or service reductions. Available at https://kansaspolicy.org/kpi-analysis-5-year-kansas-budget-plan/.

From Pachyderm: Wichita city council candidates

From the Wichita Pachyderm Club this week: Wichita City Council Primary and General Election Candidates. This audio presentation was recorded June 30, 2017.

District 1 voters will vote in a primary election on August 1. Two candidates will advance to the general election on November 7. For districts 3 and 6, there will be no primary election, and the candidates will compete in the general election. Maps of city council districts are here. Or, to find who represents you in the city council and other offices, use Kansas Voter View, specifically this form.

The candidates are, in order of first speaking:

From District 1
District 3
District 6
  • Cindy Claycomb (Facebook: Cindy Claycomb)
  • Sybil Strum (Did not attend)

WichitaLiberty.TV: Kansas Representative Susan Humphries

In this episode of WichitaLiberty.TV: Kansas Representative Susan Humphries joins Bob Weeks and Karl Peterjohn to discuss issues in the Kansas Legislature. Humphries represents District 99 in far east Wichita and Andover, and just completed her first term. View below, or click here to view at YouTube. Episode 156, broadcast July 2, 2017.

Shownotes

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.

In a look back at the Kansas Legislature this year, former state budget director Duane Goossen has a few opinions. Here are a few, as appeared in the Wichita Eagle, and some counter arguments.

“Kansans, we are done being kicked around.”
No, Kansans are just starting to be kicked around even harder. That’s what higher taxes represent.

“We became famous, the poster state for bad tax policy.”
No, Kansas became the poster state for bad spending policy. Our legislature and governor had several years to find ways to reform spending, but there was not the will to do so. One example: The budget for next year contains $47.2 million in spending because the legislature did not adopt a recommended plan to save money on purchasing health insurance for school employees. That number rises to $89.0 million the following year.

“Kansans wanted their government to work, and wanted public education adequately funded.”
But spending on schools, adjusted for inflation, on a per-student basis, varied very little the past six years. 1 Kansas school employment rose slightly for the current school year, and ratios of employees to pupils fell, also slightly. The ratios of teachers to pupils and certified employees to pupils has been nearly constant in recent years. 2

Another constant refrain is that the state was not spending on highway maintenance. But spending on actual road maintenance programs has risen, with a few ups and downs. (This is spending apart from the sweeps of highway funds.) Additionally, while groups claimed that the state could maintain only 200 miles of roads a year, data from KDOT show that the number of miles maintained has risen for three years, and is well above 2,000 miles per year. 3

“…a discredited ‘trickle down’ tax cut ideology.”
“Trickle down” is not a term that economists use. It has no meaning in economics.

“Certainly, kudos should go to the courageous legislators and legislative leaders who voted to override.”
It is not courageous to raise taxes on anyone, wealthy or not. Courage would have been starting to reform spending five years ago.

“Most citizens prefer not to spend their time thinking about budget and tax policy issues.”
Goossen is correct. Politicians and bureaucrats prefer to work out of the spotlight, especially when raising taxes while showing no resolve to reform spending.

“An even higher percentage of voters expressed concern that the state was not investing enough in education.”
The spending establishment does a very good job convincing people that spending on nearly everything, especially schools, is lower than the reality. As a result, surveys of people across the county, and in Kansas, repeatedly show that the average person has little knowledge of the level of spending in schools and whether spending is rising or falling. 4 This reinforces the previous point.

“Kansas will be climbing out of the Brownback experiment for years.”
Here, Goossen is probably referring to delayed KPERS payments and borrowing from the highway fund. Well. When Goossen was state budget director, the KPERS funding ratio fell year after year. 5 The general fund swept from the highway fund during those years, too. That’s at the same time KDOT was also issuing long-term debt, including some bonds that were interest-only payments for many years. 6 (The state still does this.) To top it off, the budget just passed by the legislature continues sweeps from the highway fund in the amount of $288,297,663 in fiscal year 2018. For fiscal year 2018, the total of the quarterly sweeps is $293,126,335. 7


Notes

  1. Weeks, Bob. Kansas school spending, an interactive visualization. Available at https://wichitaliberty.org/wichita-kansas-schools/kansas-school-spending-interactive-visualization/.
  2. Weeks, Bob. Kansas school employment. Available at https://wichitaliberty.org/politics/kansas-school-employment-2/.
  3. Weeks, Bob. Highway budget cuts and sweeps in Kansas. Available at https://wichitaliberty.org/kansas-government/highway-budget-cuts-sweeps-kansas/.
  4. Weeks, Bob. Kansans still uninformed on school spending. Available at https://wichitaliberty.org/wichita-kansas-schools/kansas-uninformed-school-spending/.
  5. Weeks, Bob. This is why we must eliminate defined-benefit public pensions. Available at https://wichitaliberty.org/kansas-government/we-must-eliminate-defined-benefit-public-pensions/.
  6. Weeks, Bob. Kansas transportation bonds economics worse than told. Available at https://wichitaliberty.org/kansas-government/kansas-transportation-bonds-economics-worse-than-told/.
  7. Weeks, Bob. In Kansas, sweeps to continue. Available at https://wichitaliberty.org/kansas-government/kansas-sweeps-continue/.

Naftzger Park in Downtown Wichita

An information resource regarding the future of Naftzger Park in downtown Wichita.

A possible plan for Naftzger Park
The City of Wichita is proposing to spend $1,500,000 to transform Naftzger Park from its present form to something else. Here are information resources:

Update: The city council will consider setting the date for a public hearing. See Naftzger Park public hearing to be considered.

Airport traffic statistics, 2016

Airport traffic data presented in an interactive visualization, updated through 2016.

Example from the visualization, showing Wichita compared to all airports. Click for larger.
A few observations regarding Wichita airport traffic as compared to the nation:

  • Since 2014, passenger traffic at the Wichita airport has been level, while increasing for the nation.
  • The number of departures has been declining in Wichita, while level and increasing for the nation.
  • The number of available seats on departing flights from Wichita has been mostly level while rising for the nation.

To view and use the interactive visualization, click here.

WichitaLiberty.TV: Kansas Representative Leo Delperdang

In this episode of WichitaLiberty.TV: Kansas Representative Leo Delperdang joins Bob Weeks and Karl Peterjohn to discuss issues in the Kansas Legislature. Delperdang represents District 94 in west Wichita, and just completed his first term. View below, or click here to view at YouTube. Episode 155, broadcast June 25, 2017.

Shownotes

Voting to raise taxes in Kansas

Printable tables of voting on legislation that raised taxes in Kansas.

The legislation that implemented tax increases in Kansas in 2017 is SB 30, titled “Concerning taxation; income tax, determination of Kansas adjusted gross income, modifications, rates, itemized deductions and credits; sales and compensating use tax, collection and distribution thereof, STAR bonds.” 1

Important action on this bill took place on June 5 and 6. On the first day, each legislative chamber passed a conference committee report. That’s a version of the bill that’s produced by a committee of three members of each chamber. It resolves differences between the bills passed by each chamber. The report is then sent to each chamber for a vote where no amendments are allowed. This report passed both chambers and was sent to the governor.

The governor vetoed the bill, so each chamber then had a chance to override the governor’s veto with a vote of two-thirds of its members. The override was successful, and SB 30 became law.

For the first vote in the House, which passed with a fairly narrow margin of six votes over what is required, a number of Democrats voted Nay, presumably because they thought the tax increase was not large enough. On the vote to override, all Democrats except one voted in favor of higher taxes, and quite a few Republicans switched their votes from opposition to higher taxes to voting in favor of higher taxes.

In the Senate the vote was more consistent. The first vote passed with 26 votes. The second vote, which required 27 votes to be successful, achieved exactly that number, as one Republican senator switched to vote in favor of higher taxes.

In the downloadable and printable pdf tables, notable votes are indicated. For vote 2, the override vote which passed the bill into law, Republican votes are indicated. Additionally, those members who changed their support of higher taxes from vote 1 to vote 2 are indicated. For House of Representatives votes, click here. For an abridged version that prints on one page, click here.

For Senate votes, click here.

To find who represents you in the Kansas Legislature and other offices, use Kansas Voter View, specifically this form.

Of note, the two votes mentioned above are not the only votes on SB 30. The bill started its legislative journey as a bill titled “An act concerning sales taxation; relating to the Kansas retailers’ sales tax act.” Later all language in the bill was deleted and an entirely new bill was created, although it retained the designation SB 30. Votes taken before that time are not relevant to the final purpose of the bill.


Notes

  1. Kansas Legislature, SB 30. Available at http://www.kslegislature.org/li/b2017_18/measures/sb30/.

From Pachyderm: Wichita school board candidates

From the Wichita Pachyderm Club: A forum of candidates for Wichita school board. Recorded June 16, 2017.

At the lectern is Pachyderm Board Member Todd Johnson who moderated the forum.

Wichita school board candidates. Click for larger.
The eight candidates in attendance were from left to right, Betty Arnold and Ben Blankley for District 1; Julie Hedrick and Trish Hileman for District 2; Mike Rodee for District 5; and Walt Chappell, Shirley Jefferson, and Ron Rosales for District 6.

All of these candidates plus two candidates who could not attend today’s forum will move forward to the November 7, 2017, General Election.

In school district elections, all qualified voters district-wide in the Wichita Public School District have the opportunity to vote for the candidate of their choice from all four Board of Education Districts in the November election.

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

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