Yesterday, the Wichita Eagle’s Bill Wilson misses the point in his reporting and blogging on business issues.
In his blog post Seed money for downtown’s future, he wrote this: “The Wichita City Council’s decision to approve tax increment financing for the arena neighborhood’s redevelopment was a welcome vote of confidence in the neighborhood’s future.”
In his news story Arena TIF seen as ‘a vote of confidence’, we read the remarks of Jeff Fluhr, the new president of the Wichita Downtown Development Corporation: “It’s most definitely a vote of confidence in the future of the neighborhood.”
Tell me, if real estate developers require an incentive to do something, what does that tell us about their level of confidence?
It tells me that they have no confidence. They’d rather invest their capital elsewhere, and they’re doing that. It’s only when the city votes to give them money — and that’s what TIF districts do, contrary to Mr. Wilson’s misinformation — can they be “incentivized” to do what they won’t do with their own money.
On Tuesday December 2, 2008, the Wichita City Council held a public hearing on the expansion of the Center City South Redevelopment District, commonly known as the downtown Wichita arena TIF district. As someone with an interest in this matter, I watched the city’s website for the appearance of the agenda report for this meeting. This document, also known as the “green sheets” and often several hundred pages in length, contains background information on items appearing on the meeting’s agenda.
At around 11:30 am Monday, the day before the meeting, I saw that the agenda report was available. I download it and printed the few pages of interest to me.
At the meeting Tuesday morning, I was surprised to hear council member Jim Skelton expressed his dismay that a change to the TIF plan wasn’t included in the material he printed and took home to read. This change, an addition of up to $10,000,000 in spending on parking, is material to the project. It’s also controversial, and if the public had known of this plan, I’m sure that many speakers would have attended the public hearing.
But the public didn’t have much notice of this controversial change to the plan. Inspection of the agenda report document — the version that contains the parking proposal — reveals that it was created at 4:30 pm on Monday. I don’t know how much longer after that it took to be placed on the city’s website. But we can conclude that citizens — and at least one city council member — didn’t have much time to discuss and debate the desirability of this parking plan.
The news media didn’t have time, either. Reporting in the Wichita Eagle on Monday and Tuesday didn’t mention the addition of the money for parking.
This last-minute change to the TIF plan tells us a few things. First, it reveals that the downtown arena TIF plan is a work in progress, with major components added on-the-fly just a few days before the meeting. That alone gives us reason to doubt its wisdom. Citizens should demand that the plan be withdrawn until we have sufficient time to discuss and deliberate matters as important as this. What happened on Tuesday doesn’t qualify as a meaningful public hearing on the actual plan. A better description is political bait and switch.
Second, when the business of democracy is conducted like this, citizens lose respect for both the government officials involved and the system itself. Instead of openness and transparency in government, we have citizens and, apparently, even elected officials shut out of the process.
Third, important questions arise: Why was the addition of the parking plan not made public until the eleventh hour? Was this done intentionally, so that opponents would not have time to prepare, or to even make arrangements to attend the meeting? Or was it simple incompetence and lack of care?
The officials involved — council members Jeff Longwell and Lavonta Williams, who negotiated the addition of the parking with county commissioners; Allen Bell, who is Wichita’s director of urban development; and Mayor Carl Brewer — need to answer to the citizens of Wichita as to why this important business was conducted in this haphazard manner that disrespects citizen involvement.
As the City of Wichita moves towards more government subsidy and planning instead of entrepreneurship, we should make sure we know what we’re relying on. An article by Steven Greenhut from the July/August issue of The Freeman: Ideas on Liberty provides some useful background and advice.
The theory is that the city deserves the new tax dollars because its efforts are improving the supposedly blighted area. But the reality is quite different. Cities don’t often use TIF to fix up blight, but to increase their tax base. Often they engage in what is called “growth capture” — city planners wait until a stable or depressed area is starting to bounce back on its own. They then brand the area “blighted” and use that as an excuse to capture the new values and transfer the gain from the old owners, who held onto the properties during the lean years, to new developers who savor the prospect of getting prime property for far-below-market rates.
This concept of “growth capture” is what’s happening in Wichita. Assessed valuations of property surrounding the arena have already risen. The area appears on an upward path on its own. Why the need for a TIF district, then?
“Does the tax abatement method meet with success?” asked Michael LaFaive of the Mackinac Center for Public Policy in a 1999 article. “Not as much as if local officials simply would keep taxes low in the first place. CRC [Citizens Research Council of Michigan] found that economic growth takes place in jurisdictions where taxes are low and which consequently grant fewer abatements.”
Yes, let’s have low taxes overall, instead of just for favored developers working in politically-favored areas. Or, as John Todd said, think of what could happen if there was a TIF district city-wide.
Local economic planning, especially the creation of redevelopment project areas, actually slows down neighborhood improvement. Once an area is deemed a redevelopment area, property owners stop investing in their properties because they are not sure that they will ultimately reap the benefit of the investment. They become subjects of the central planners who will make the main decisions that affect the economic vitality of the area.
This is another important point. Individual projects in the TIF district must be planned in a way that will be able to gain approval of government planners. This happened in Tuesday’s Wichita city council meeting, where the first project in a TIF district known as C.O.R.E was brought before the council for approval. How many developers want to work with city bureaucrats looking over their shoulder?
There’s much more valuable insight in this article.
At the December 2, 2008 meeting of the Wichita City Council, John Todd and I testified against the expansion of the Center City South Redevelopment tax increment financing (TIF) District, commonly known as the downtown Wichita arena TIF district.
You can read John’s remarks here, or watch a video from YouTube here. Bob’s remarks are here, or click here for the YouTube video.
The problem is two-fold: First, when plans change at the last minute, there is no time for any debate or discussion about the changes. Citizens, and even newspaper reporters, don’t have time to prepare. Second, when a major project — one costing many millions and requiring multi-year commitments by local governments — is apparently planned on the fly, it doesn’t inspire much confidence in the people in charge.
Testimony delivered by John Todd before the Wichita City Council on December 2, 2008 in opposition to the proposed Tax Increment Financing (TIF) plan for the Center city South Redevelopment District located generally around the new Intrust Bank Arena.
In 2004, proponents of the new Intrust Arena were assuring voters that their approval of the new arena would provide the “economic boost” and the “synergy” needed for effective downtown redevelopment without the need for increased property taxes. No mention was made at that time of the need for additional taxpayer subsidies for downtown development.
In recent testimony before the City Council, I heard a staff member advise the Mayor and this City Council that county property appraisals in the area adjacent to the new Intrust Area had increased more than 10% in the prior year. Does this proposed TIF District sound like a blighted and declining area headed for economic stagnation? Or is it time for private developers to seize this development opportunity our Mayor envisions, and of course without the need for risking the taxpayer’s wallet that is a common element in private/public partnerships?
Since the parcels of land around the new Intrust Arena appear to be owned by dozens of small private property and business owners, private developers will need to assemble the parcel(s) they need for development through voluntary exchange rather than through government’s involuntary and coercive taking of property by either the threat of eminent domain or the actual use of eminent domain. Street improvements, if needed for the project(s), should be paid for by the private developers or through the use of special assessment financing. Can anyone believe that city and/or county planners failed to plan for the street improvements needed for the new arena and a method of paying for them prior to beginning construction of the arena? (Note: In addition to the nearly $12 million TIF proposal for streets, a last minute change added an additional $10 million the TIF for a parking garage.) Also, I believe the original Arena project the voters approved in 2004 included $14 million dollars for a parking garage.
One doesn’t have to look very far around our city to see and appreciate the success of our many risk-taking private developers who through their knowledge of the market and their problem solving abilities, plus most importantly the investment of their own money, continue to expand our tax base, create jobs, and enhance our quality of life. Perhaps these are the people you need to call on to bid on downtown development work without the need for a massive public subsidy?
At today’s Wichita City Council meeting, Councilmember Jim Skelton revealed that the plan for the downtown Wichita arena TIF district had changed. A provision for up to $10 million in parking was added.
I had looked at the agenda report less than 24 hours before the start of the meeting. The plan for parking spending was not mentioned. I looked right now, and yes, it’s there.
There’s a problem when things change so quickly. Citizens can’t prepare themselves on such short notice. That’s a problem for openness and transparency in government.
This problem is in addition to the apparent uncertainty as to what’s needed for this TIF district to succeed.
The TIF district passed, with all city council members voting in favor.
Say no to expansion of the Center City South Redevelopment tax increment financing (TIF) District.
Remarks to be delivered at the December 2, 2008 meeting of the Wichita City Council. Watch the video here.
Mr. Mayor, Members of the Council:
It is the case the the City of Wichita is proposing to limit this TIF district spending to things like streets, intersections, landscaping, and lighting. But these are still things that developers working outside of TIF districts generally have to pay for themselves.
This is the real function of TIF districts: TIF developers get to use their own property taxes to pay for things that non-TIF developers have to pay for out-of-pocket, or through special tax assessments on top of their regular property taxes. This is accomplished through a confusing arrangement that hides the reality and size of the subsidy given to TIF developers. I’ve come to realize that this confusion serves a useful purpose to this council, because if the people of Wichita knew what was really happening, they’d be outraged.
The proposed TIF district, while smaller than previously proposed, is still large. Very large. Has anyone calculated what share of the retail and restaurant trade in Wichita would have to be captured by this district in order for it to be successful?
Has anyone performed a market study to see if obtaining this market share would be feasible? And if feasible, what effect would this have on existing business and development in Wichita? Specifically, what effect would this have on other development in downtown, such as Old Town and Waterwalk? We’ve seen that when city-subsidized business is in financial trouble, this council is willing to fund a bailout.
We’re at a point, Mr. Mayor, where entrepreneurs may not be willing to work in Wichita without a taxpayer subsidy, or at least not in competition with subsidized development. I am aware of a commercial development in Wichita that has been canceled because of Wichita’s tax environment. Some developers have told me that they are reconsidering whether to do any more business in Wichita simply because of our property tax environment. This situation has recently worsened, as we voted ourselves a large tax increase last month. At the state level, spending cuts or tax increases loom as the state’s budget situation deteriorates.
Then, consider reporting in the Wichita Eagle this summer, which found this: “City and county tax records show that nearly $159 million in public money has been spent on Wichita’s tax increment financing districts, to get roughly $150 million worth of new development.” That’s not a good deal for city taxpayers.
Also, evidence of the effectiveness of TIF districts for cities as a whole is not good. A study from the Institute of Government and Public Affairs at the University of Illinois finds that “cities, towns, and villages that had TIF districts actually grew more slowly than municipalities that did not use TIF.”
Finally, Mr. Mayor, you’ve referred to some people as the “naysayers.” I don’t know if you were talking about me. It would be presumptuous of me to think so. But I don’t say “nay” to development, even to downtown development. What I say “no” to is taxpayer-subsidized development, planned and managed by government.
Saying “no” to that, in turn, lets us say “yes” to the rich diversity of human individuality instead of a collectivist vision driven by government bureaucracy. It means saying “yes” to free people cooperating voluntarily through free markets. That is what is disappearing as more and more of our city’s development is subsidized and managed by government.
On October 7, 2008, the Center for Economic Development and Business Research at Wichita State University released a glowing economic forecast for the near future in Wichita. Events immediately following the release of this report, however, illustrate just how hard it is to forecast economic conditions. When policymakers rely on these reports, bad decisions are the fully predictable result.
It’s hard to forecast the economy, and events the past few months have unfolded at an alarmingly fast pace. But the Center for Economic Development and Business Research has produced other research that is problematic. I’ve written about these reports in posts such as Wichita School District Economic Impact and Stretching Figures Strains Credibility.
Incredibly, as I report in WSU Study on Downtown Wichita Arena Not Complete, the former director of this center was not aware of important new government accounting standards when she and her staff prepared the forecasts that were used to justify the downtown Wichita arena in 2004.
The problem is that Wichita and Sedgwick County policymakers use these studies to plan and justify their actions in intervening with our economy. As a result, we often proceed with plans based on unreliable information.