News of a Sedgwick County Commissioner’s trip to Africa has raised some controversy, and something like this has been tried before.
The Wichita Eagle reported this regarding Sedgwick County Commissioner Lacy Cruse’s visit to the West Africa country Ghana: “She said she focused her efforts on economic opportunities related to aviation and education. She said she talked to Ghana’s minister of aviation about potentially establishing an aviation school and setting up an aviation maintenance shop at the Tamale International Airport in Ghana. She didn’t make any formal deals on behalf of the county or any local companies. She said forming a trade relationship with Ghana isn’t something that can happen overnight.” 1
Something like this has been tried before, and not too long ago. In 2011, Wichita Mayor Carl Brewer and a delegation traveled to Ghana on a trade mission, seeking business opportunities for Wichita companies. The aircraft industry was prominently mentioned.
The host country, however, may have misunderstood the mission of the visitors from Wichita. A news release on the Official Portal of the Government of Ghana published after the visit included this: “[District Chief Executive (DCE) of Lower Manya Krobo District, Mr Isaac Abgo Tetteh] announced that the Mayor has pledged to furnish Nene Sakitey II with an Aircraft for his private use.” 2
I had thought that perhaps this promise of an airplane to the overlord was a case of something being lost or mangled in translation, but then I realized that English is the official language of Ghana.
There was a follow-up visit in 2014. The Wichita Eagle reported the goals of then-Mayor Brewer: “Brewer’s particular interest on the trip is building business relationships overseas that could lead to opportunities for small and midsize aviation businesses in Wichita.” 3
The trips weren’t very successful in stimulating aviation exports. With the exception of 2011, the Census Bureau reports little in the way of aviation-related exports to Ghana. The data includes the entire State of Kansas.
Government of Ghana Official Portal. Wichita City to Partner Manya Krobo For Development. November 25, 2011. “An unprecedented visit by the Mayor of Wichita City, Kansas State USA, Mr Carl Brewer, his Deputy, Mrs Lavonta Williams and the Council of Elders were welcomed by the overlord of Manya Krobo Traditional Area, Nene Sakitey II at the Palace. At a grand durbar organised in honour of the Mayor and his delegation, the District Chief Executive (DCE) of Lower Manya Krobo District, Mr Isaac Abgo Tetteh, urged the people of Manya Krobo to set an initiative in order to get a push from the Mayor for the realisation of the sister city project by the city of Wichita and the Manya Krobo municipality. Mr Tetteh also announced at the gathering that, the sister city concept is to assist Lower Manya to attain the standard of a city by helping in the direction of education and other infrastructural development. He announced that the Mayor has pledged to furnish Nene Sakitey II with an Aircraft for his private use.” Image available here. ↩
A truthful accounting of the finances of Intrust Bank Arena in downtown Wichita shows a large loss. Despite hosting the NCAA basketball tournament, the arena’s “net income” fell.
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 it hides the true economics of the arena. What’s missing is depreciation expense.
Intrust Bank Arena Payments to Sedgwick County. Click for largerThere 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.
This agreement specifies a revenue sharing mechanism between the county and SMG. For 2108, the accounting method used in this agreement produced a profit, or “net building income,” of $647,634 to be split (not equally) between SMG and the county. The county’s share was $123,817. 1
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.” 2
Intrust Bank Arena Payments to Sedgwick County. Click for larger.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 2018 Comprehensive Annual Financial Report for Sedgwick County. 3 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 in 2018, 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 $4.5 million. The loss can be attributed to $4.8 million in depreciation expense.
Financial statements in the same document show that $4,783,229 was charged for depreciation in 2017. If we subtract the SMG payment to the county of $123,817 from depreciation expense, we learn that the Intrust Bank Arena lost $4,659,412 in 2018.
(Of note, 2018 was the year the arena hosted a round of NCAA men’s basketball tournament games. For that year, the payment from SMG to the county was down by 58.8 percent from $300,414 in 2017. Attendance rose by 4.2 percent.)
Depreciation expense is not something that is paid out in cash. That is, Sedgwick County did not write a check for $4,659,412 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 civic leaders recognize this, at least publicly. We — frequently — observe our governmental and civic leaders telling us that we must “run government like a business.” The county’s financial report makes mention of this: “Sedgwick County has one business-type activity, the Arena fund. Net position for fiscal year 2018 decreased by $4.7 million to $151.6 million. Of that $151.6 million, $142.9 million is invested in capital assets. The decrease can be attributed to depreciation, which was $4.8 million.”4 (emphasis added)
At the same time, these leaders avoid frank and realistic discussion of economic facts. As an example, 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.”
The contention — witting or not — 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.
The upshot: We’re evaluating government and making decisions based on incomplete and false information, just to gratify the egos of self-serving politicians and bureaucrats.
Reporting on Intrust Bank Arena financial data
In February 2015 the Wichita Eaglereported: “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.” (For some years, the county paid to create a large “check” for publicity purposes.)
That followed her op-ed from a year before, when she wrote: “And, of course, Intrust Bank Arena has the uncommon advantage among public facilities of having already been paid for, via a 30-month, 1 percent sales tax approved by voters in 2004 that actually went away as scheduled.” That thinking, of course, ignores the economic reality of depreciation.
In 2018, the Wichita Eagle reported, based on partial-year results: “Intrust Bank Arena remains profitable but is reporting a 20 percent drop in income this year, despite a bump from the NCAA March Madness basketball tournament. Net income for the first three quarters of this year was about $556,000. That’s down from just shy of $700,000 last year, according to a report to the Sedgwick County Commission.” 5 This use of “profitable” is based only on the special revenue-sharing agreement, not generally accepted accounting principles.
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 or explaining the non-conforming accounting methods used to derive this number.
All of these examples are deficient in an important way: They contribute confusion to the search for truthful accounting of the arena’s finances. Recognizing depreciation expense is vital to understanding profit or loss, we’re not doing that.
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Notes
The Operations of INTRUST Bank Arena, as Managed by SMG. Independent Auditor’s Report and Special-Purpose Financial Statements. December 31, 2018. Available here. ↩
Sedgwick County needs to make sure past issues are known and settled before proceeding with hiring a new county manager, writes former commissioner Richard Ranzau.
While most members of the Sedgwick County Commission are eager to move on from events of the past two years, it’s important to know what really happened. Some important questions:
A majority of commissioners wanted to fire former manager Michael Scholes, with chair David Dennis presenting Scholes with an ultimatum on September 28, 2018. Later, in November, the same commissioners hired an outside law firm to investigate Scholes so that a politically correct reason could be given for his dismissal. We need to know more about the real reason why commissioners wanted to fire Scholes.
What is contained within the report (identified in county documents as “Management study – Stinson, Leonard & Street”) used as the cover for firing Scholes? The county will not supply the document, citing attorney-client privilege and personnel confidentiality. This allows commissioners to make all sorts of claims that we can’t verify. For example: The many high-level employees that purportedly quit because of Scholes — can’t we get even one name?
Some conclusions from the Stinson report has been leaked, and the bad conduct by Scholes was really quite minor.
The Wichita Eagle has reported: “Commission Chairman David Dennis said Wednesday [November 26, 2018] that he’s ready to move forward with a probe examining commissioners’ actions and whether they’ve contributed to low morale and an exodus of top county employees.” As Ranzau writes below, the commission is being asked to cancel this investigation.
County Commission needs to slow down, get things right
By Richard Ranzau
Members of the Sedgwick County Commission have two very important decisions to make, and they need to get them both right.
First, they need to decide if they are going to conduct the badly needed ethics investigation into commissioner misconduct that occurred in 2017 and 2018. Previously, the Commission voted to conduct this investigation but they have yet to follow through. Failed leadership and improper behavior by the some of the commissioners during those years has led to multiple FBI investigations and a soon to be completed KOMA investigation by the District Attorney’s office. The reputation of the Commission has been shattered.
Public faith and confidence in this once highly respected organization can only be restored if the Commission hires an outside entity to investigate unethical and inappropriate commissioner behavior and to make recommendations for policy changes that could deter future misconduct. This must be an honest and sincere effort by the Commissioners to find out the truth, no matter how painful it may be.
All staff members and employees should be allowed to fully participate in the investigation without fear of repercussion. Senior staff members with extensive knowledge of what happened, including the interim county manager, should be supportive of this investigation and provide honest and candid information about what they know.
Citizens may wonder why we need another investigation, given that an expensive effort was recently completed and used to justify the dismissal of the previous county manager. But that investigation was a sham. A majority of commissioners had already decided to fire the manager. They needed an investigation to cover up their real reasons for firing him. This is the behavior that needs to be exposed.
This investigation needs to be completed BEFORE the Commission makes its second important decision: hiring a new county manager.
The current rush to appoint the interim county manager without a nationwide search is imprudent for multiple reasons. First, he has intimate knowledge of what happened over the last two years and the public needs to be assured that he will fully support and participate in the ethics investigation.
Secondly, there is an ongoing effort by four commissioners to put forth a public vote to rescind the decision to proceed with an investigation. Commissioner Howell is being pressed to support this effort, not only by the Chairman, but also the interim county manager and county counselor. In fact, the interim county manager has asked Commissioner Howell to make the motion to end the investigation.
The fact that the interim county manager would try to coordinate a vote to stop an ethics investigation that he would be a key witness in is as surprising as it is troubling. He knows what happened and he shared many of the same concerns as the previous county manager and county counselor. So why would he support and COORDINATE an effort to cancel this badly needed investigation? Is he under pressure by commissioners?
The timing of this effort to stop the ethics investigation coupled with the rush to hire a potentially key witness as the new county manager, certainly raises the question as to whether or not there is a quid pro quo going on. I certainly hope this is not the case, but the optics are horrible. The commission does not need another scandal or coverup.
The Sedgwick County Commission and interim county manager need to take a step back and reconsider what they are doing. Everyone involved needs to demonstrate the courage to do what is right for the community. It is imperative they demonstrate a commitment to open, transparent, and ethical government.
The citizens need to have confidence that the shenanigans of the past, are in fact, in the past. We can’t afford to have the Commission get this wrong.
The praise for retired Sedgwick County Commissioner Dave Unruh can’t be based on our region’s accomplishments under his guidance. That is, if people are informed and truthful.
He easily won re-election because his constituents and the rest of us knew he was dedicated to strengthening our community, region and the state.
…
In economic development Commissioner Unruh was chairman in 2006 when the board voted to build a world-class technical-education facility to ensure we remained competitive for new jobs. The National Center for Aviation Training is home to the growing WSU Tech. He also championed smart economic development programs that generated additional tax dollars and regional cooperation through REAP and other efforts.
…
In his perseverance to get things done and his belief in our future, he’s made a difference.
On Sunday, the Wichita Eagle published a drawing by cartoonist Richard Crowson which lauded Unruh’s championing of the Intrust Bank Arena, Sedgwick County Zoo, Exploration Place, and mental health services. Responding on his Facebook profile, Commissioner Michael O’Donnell wrote this for public consumption:
“A society grows great when old men plant trees whose shade they know they will never sit in” I believe this Greek proverb sums up the leadership of Dave Unruh as much as this stupendous Wichita Eagle cartoon. Our community has been blessed by the selfless and indelible leadership of Dave Unruh. I believe he was the most consequential local leader in our region for the last 2 decades and those of us fortunate enough to live in Sedgwick County are able to sit under the countless trees which Dave planted for us and our families for generations to come.
There’s another way to look at the Dave Unruh legacy in Sedgwick County, and that is through the lens of data. A shiny downtown area is nice, but not as nice as a prospering economy. Here are some figures.
In 2001, the year when Unruh assumed office in its first month, the median household income in Sedgwick County was higher than that of both Kansas and the United States. By 2017, Unruh’s last full year on the commission, Sedgwick County had fallen behind both, and by significant margins.
In 2001, the poverty rate in Sedgwick County was lower than that for the nation. By 2017, the situation was reversed: The Sedgwick County poverty rate is now higher, and significantly higher.
Looking at other measures of prosperity, we see Sedgwick County falling behind during the time Unruh was in office. Gross domestic product, personal income, per capita personal income, population, total employment, wage and salary employment, and manufacturing employment: In all these measures Sedgwick County underperformed the nation, and usually the State of Kansas. (GDP is available only for the Wichita metropolitan area, which is dominated by Sedgwick County.)
By himself, Dave Unruh isn’t responsible for this economic performance. Many others contributed at Wichita City Hall and the Kansas Capitol, as well as some of Unruh’s colleagues on the Sedgwick County Commission. Unruh and they supported the interventionist, corporatist model of economic development, and it hasn’t worked. That’s why it’s surprising to see so much praise for Unruh. It’s sad, too, because if business leaders and politicians really believe the “Unruh way” is the way that works, the outlook for our region is bleak.
A former Sedgwick County Commissioner disputes the narrative told by a retiring commissioner.
By Karl Peterjohn
A version of this appeared in the Wichita Eagle.
Lame duck county commissioner Dave Unruh’s recent commentary (“It’s time to set the record straight.” December 14, 2018 Wichita Eagle.) is an attempt to re-write county commission history. Senator Daniel Patrick Moynihan said, “You are entitled to your own opinion, but you are not entitled to your own facts.” Here are county commission facts correcting the commentary fiction:
Commissioner Unruh was deeply involved in both the hiring, and recent firing, of county manager Scholes by Commissioner Unruh. I know because I was involved in Scholes’ hiring, but as a citizen, publicly opposed the firing of General Scholes, as well as county counselor, Judge Eric Yost in 2018.
The group of county manager candidates were evaluated by all five county commissioners three years ago. Three county commissioners ranked General Scholes as the best candidate. Commissioner Unruh was one of these three commissioners.
I wasn’t one of these three. While I ranked General Scholes highly, I ranked one other candidate as slightly better in our final candidate evaluations. I readily admit that I was very comfortable in agreeing with my three colleagues in hiring General Scholes. This was followed by all five commissioners: Unruh, Tim Norton, Jim Howell, Richard Ranzau, and myself voting to hire General Scholes.
Commissioner Unruh’s inaccurate commentary is part of an effort to provide an excuse for the scandalous mess that has engulfed the current county commission majority resulting in a variety of FBI and state investigations after Commissioner Michael O’Donnell’s criminal indictments. However, only Commissioner Unruh was part of the current commission majority (Unruh, O’Donnell, and David Dennis) involved in both this hiring, and supporting the firing of both General Scholes, and the county counselor, Judge Eric Yost.
This is important because there also seems to be some confusion by Commissioner Dennis about the powers of former Sedgwick County Commissioners like myself. In December, Commissioner Dennis publicly claimed that I was in some way responsible for this personnel debacle and the financial mess created by the current progressive-moderate commission majority in firing first Judge Yost, and then General Scholes.
I reject this ludicrous claim. My impact on Sedgwick County finances ended the day I left the commission in January, 2017. Anyone on the county commission who claims otherwise is trying to hide their own malfeasance. I believe that Commissioner Dennis should apologize to me for his fabulist statement. Sedgwick County citizens also deserve an apology for this commission majority’s misconduct in mishandling county staff, and finances. I have asked Commissioner Dennis for an apology for his statement attacking me, and publicly do so again with this letter.
When a county commissioner’s questions produce a reversal of the county manager’s spending plans, you know we have good representation.
That’s what happened in 2013 when the county manager wanted to spend $47,000 to clear some trees. Commissioner Richard Ranzau thought the expense should be the responsibility of the neighborhood that would benefit from what he thought was a thinly-veiled request to shove off spending to the county.
What did the county manager say after Ranzau’s questions?
“We got out in front of ourselves without doing much critical thinking, and I take full responsibility for that,” Sedgwick County Manager Bill Buchanan said.
Good job, Richard Ranzau. You will be missed as a member of the Board of Sedgwick County Commissioners.
Sedgwick County has spent $434,663 in costs relating to the separations of two members of top management.
Through December 21, 2018, Sedgwick County had spent $434,663 on matters relating to former County Counselor Eric Yost and former County Manager Michael Scholes. The bulk of the costs were severance payments to both. There was also $89,375 for a study of matters related to county management. Additionally, there were attorney fees for Yost, Scholes, and all county commissioners except Michael O’Donnell.
Click here to view the report prepared by county financial staff.
Unlike the City of Wichita, Sedgwick County has kept track of its tax exemptions.
As part of an effort to increase efficiency and management of Sedgwick County government, former county manager Michael Scholes implemented numerous changes, as detailed in the document Efficiencies in Sedgwick County government. One management accomplishment was described as this:
Developed a tax system and business intelligence query to identify Industrial Revenue Bonds (IRB) & Economic Development (EDX) tax exemptions and report foregone property tax revenues for Governmental Accounting Standards Board (GASB) 77 reporting. The report provides the ability to report by tax authority, company, and real or personal property for one (1) or up to four (4) years. Prior reporting was time consuming and error prone; requiring manual data entry into Excel spreadsheets.
The county has not made this report available on its website. To access this report in an alternative manner, click here
The City of Wichita, to my knowledge, does not provide information like this, except as a total amount in the city’s Comprehensive Annual Financial Report (CAFR). (The city and county numbers are not in agreement, and by a large amount.)
Of note, the mayor’s page on the Wichita city government website holds this: “Mayor Longwell has championed many issues related to improving the community including government accountability, accessibility and transparency …” So far, the mayor’s leadership and stewardship has not produced this level of information.
Of further note, a majority of the Sedgwick County Commission decided to fire Michael Scholes.
A document that hasn’t been made public details savings achieved in Sedgwick County over a recent period of nearly three years.
A document prepared within the Sedgwick County Division of Finance details savings of $6,308,097 over a period of almost three years, starting in November 2015. That is the month when Michael Scholes joined Sedgwick County as County Manger. His last day as manager was November 30, 2018, after being dismissed by the county commission. This document is dated August 29, 2018.
An example of a savings is: “Eliminated 6.0 FTEs and associated funding due to the outsourcing of EMS Billing ($304,027).”
The document contains a summary:
Priority 1 – Safe & Secure Communities had a total savings listed of $3,959,137, where the categories of efficiencies included technology changes, process improvements, consolidation, training, grants to offset costs, and staffing changes.
Priority 2 – Human Services & Cultural Experiences had a total savings listed of $1,931,447, where the categories of efficiencies included technology changes, process improvements, staffing changes, consolidation, training, and collaboration with other entities.
Priority 3 – Communications & Engagement had efficiencies in transparency and elections process with the purchase of new voting equipment.
Priority 4 – Effective Government Organization had a total savings listed of $417,513, where the categories of efficiencies included technology changes, process improvements, and staffing changes.
To the best of my knowledge, this document has not been shared with the public, and is not found on the county’s website. I make it available here.
