Voice For Liberty

Category: Wichita city government

  • Wichita Tax Swap Has Dangers

    The City of Wichita is thinking about raising its sales tax and using the proceeds to lower property taxes (“City starts talks on 1-cent hike in sales tax”, May 14, 2008 Wichita Eagle).

    While some debate the relative merits of sales taxes vs. property taxes, there is one thing I am certain of: if Wichita reduces its property taxes, politicians in overlapping jurisdictions will see this as an opportunity to raise the property taxes they levy.

    Wichita city council member and vice-mayor Sue Schlapp recognizes this threat, as evidenced by reporting in the Wichita Eagle article: “But council member Sue Schlapp said the city must consider that other taxing entities, such as Sedgwick County and the Wichita school district, could see the reduction of the city’s share of taxes as an opening to raise property taxes, which would mean an overall increase for residents.”

    If Wichita goes through with this plan, I would urge all other local governmental bodies to adopt resolutions requiring voter approval of tax increases. As it is, many of the taxes we pay have a built-in escalator. This is the case with sales and property taxes. As prices rise, people spend more, and sales tax receipts rise. As the tax assessor raises the valuations in property, people and businesses pay more property tax.

  • Wichita city manager’s warning is too late

    On Tuesday June 16, 2008, the Wichita City Council agreed to lend the Old Town Warren Theatre’s owners $6 million so they could keep the theater open. (City agrees to loan Warren $6 million June 18, Wichita Eagle).

    Wichita Interim City Manager Ed Flentje issued this warning to the council: “There are in this community much larger businesses with much larger employment who may see this opening as something that will open a door for those businesses to come and say, ‘You’ve done it before, you can do it for us.’”

    Dr. Flentje, I hate to break the news to you, but the door is already wide open. Not so much for loans directly from the city to business entities, but for all sorts of TIF districts and tax abatements. These arrangements generally let developers use the property taxes they pay — taxes that would normally go to fund the operations of the city and other governments — to pay for the development itself. Developers who don’t receive tax favors have to pay property taxes, and also must pay for the types of things that TIF districts funds pay for.

    These special tax favors are now dispensed freely by the Wichita City Council. As I stated at a public hearing before that body not long ago: “It is now apparent that TIF districts and tax abatements are entitlements that developers in politically-favored areas of town can count on receiving, while everyone else pays.” See Tax Abatements in Wichita.

    Whether a developer receives a low-interest loan, or an outright gift, or the privilege of having your property taxes returned right back to you, these special favors serve to distort the free allocation of capital according to what people really want. Instead, capital, in the form of tax dollars, is allocated according to the desires of politicians.

    Bill Warren and the theater’s other owners know very well the benefits that TIF districts can bring to a development. The theater in question benefited from a TIF district established in 1999. That district is, according to the article, the only tax district in Wichita that doesn’t generate enough tax revenue to pay for the bonds issued for it.

    The problems with this TIF district benefiting the Warren Theater are not new. The Wichita Eagle reported on November 14, 2004 (“Old Town tax district misses goals: Plaza falls short”) that “A special tax district set up to pay for millions of dollars of public spending in the Old Town Cinema Plaza is generating less than half the revenue it’s supposed to — and taxpayers citywide will have to pick up the tab.”

    Also see Warren bailout poses dilemma.

  • Tax Abatements in Wichita

    Remarks to Wichita City Council, June 3, 2008.

    A few months ago I spoke before this council asking that you not grant a tax abatement. At that time I was told that granting a property tax abatement doesn’t have any impact on City of Wichita spending.

    I found this quite remarkable, that new homes and buildings can be built but not consume any additional resources that the city and other local governments supply. If this is truly the case, why should a new development of any type at any location have to pay any property tax at all?

    There is a cost to the city and other local governments in granting tax abatements. Actually, the cost is born by the taxpayers who don’t achieve the favored status that these developers are seeking. These non-favored taxpayers — homeowners and businesses alike — have to pay for the services this development will consume but will not pay for because they seek to avoid paying their property tax.

    Mr. Mayor and Members of the Council, if there were no impact on city spending, no cost to the taxpayers of the City of Wichita when a TIF district is created or tax abatements given, why would we not grant these benefits to anyone building anything in any part of town?

    It is now apparent that TIF districts and tax abatements are entitlements that developers in politically-favored areas of town can count on receiving, while everyone else pays.

    The granting of these benefits to developers working in certain parts of Wichita amounts to central government planning. It is government, instead of people trading freely in markets, deciding to direct capital from one part of town to another for political, instead of economic, reasons. In effect, this council says to entrepreneurs who chose to invest their capital somewhere else in Wichita — somewhere that doesn’t qualify for tax abatements — that they made a mistake. And they will pay for that mistake, as they pay the property tax that these developers will escape paying.

    It may be that this project is not economically viable unless it receives the tax abatement. If so, we should ask why our taxes are so high that they discourage investment and economic activity.

  • Wichita City Manager Search: Look Before You Leap

    By James Barfield

    In the business world, there’s an old adage that says “look before you leap.” So, upon hearing that the Wichita city council was going to hire the only city manager candidate interviewed, I decided to do some looking. What I have seen thus far, has not been all that pretty to me. One of the reasons for the “rush,” we were told, is Pat Salerno is a finalist for the same position in Durham, North Carolina. What we were not told was that he was a finalist in Durham in 2001, and was not selected. Also, this candidate was passed over in recent months by two cities in Florida, Naples and Fort Meyers. Both took a pass after initially interviewing Pat Salerno for a city manager position.

    In talking with people in Sunrise, Florida, I found several people who gave Pat Salerno glowing comments regarding his economic development achievements. However, I could find no one who said they would hire him again. They listed several reasons as to why not. Chief among them were the following:

    • Pat Salerno likes to run a “one man show.”
    • City commissioners in Sunrise were not allowed email privileges.
    • Also not allowed were city issued cell phones.
    • In his 18 years of service, he constantly refused to provide information to city commission members and staff.
    • He refused to hire an assistant city manager, even though there was a line item in the budget authorizing him to do so.
    • He refused to hire a deputy fire chief, or a deputy police chief for 18 years.
    • He has hired not a single minority department head in his 18 years of service.
    • He is not considered by any to be a “people person.”
    • He does not embrace the idea of “open government.”

    And last but certainly not least, Pat Salerno administered a $270,000,000 city fund that was used in part to invest in sub prime real estate, without the knowledge of commission members. Commission members found out about this fund by reading a newspaper article in the Miami Herald newspaper. The fund was later frozen.

    One Sunrise commissioner was quoted as saying “When you’ve got Pat Salerno doing everything, what’s the use in having a commission.” The same commissioner accused Salerno of “acting without the advice and consent of elected leaders.”

    I would like to ask the citizens of Wichita, is this not the same kind of feedback that preceded the hiring of one George Kolb? Furthermore, is this what you want in a new city manager? I certainly don’t.

    I for one, don’t find the need to rush justified. We seem to have a very good interim manager in place. Did we not learn anything from the hiring of George Kolb? As a business man, I like the idea of “look before you leap.”

  • Haze surrounds Wichita smoking ban

    Remarks delivered to Wichita City Council, May 6, 2008. Listen here.

    Smoking ban supporters claim that they have the right to go to bowling alleys, bars, and other such places without having to breath secondhand smoke. That’s false. No one has the right to be on someone else’s property on their own terms. The property owner controls those terms. If the bar owner lets the band play too loud (or maybe not loud enough), or the restaurant is too dimly lit, or the floor of the steakhouse covered with discarded peanut shells, do we want to regulate these things too?

    Some have compared a smoking section in a restaurant to a urinating section in a swimming pool. This comparison is ridiculous. You can’t tell upon entering a swimming pool if someone peed in it. You can tell, however, upon entering a bar or restaurant if there is smoking going on.

    Some make the argument that since we regulate businesses for health reasons already, why not regulate smoking? Without agreeing with the need for these regulations, the answer is this: First, these government regulations don’t necessarily accomplish their goal. People still become ill from food, for example. But there is some merit here. Just by entering a restaurant and inspecting the dining room and the menu, you can’t tell if the food is being stored at the proper temperature in the restaurant’s refrigerators. But you can easily tell if there’s smoking going on.

    A system of absolute respect for private property rights is the best way to handle smoking. The owners of bars and restaurants have, and should continue to have, the absolute right to permit or deny smoking on their property. Markets -– that is, people freely making decisions for themselves -– will let property owners know whether they want smoking or clean air.

    The problem with a smoking ban written into law rather than reliance on markets is that everyone has to live by the same rules. Living by the same rules is good when the purpose is to keep people and their property safe from harm. That’s why we have laws against theft and murder. But it’s different when we pass laws intended to keep people safe from harms that they themselves can easily avoid, just by staying out of those places where people are smoking. For the people who value being in the smoky place more than they dislike the negative effects of the smoke, they can make that decision.

    This is not a middle-ground position, as there really isn’t a middle ground here. Instead, this is a position that respects the individual. It lets each person have what they individually prefer, rather than having a majority — no matter how lop-sided — make the same decision for everyone. Especially when that decision, as someone said, will “tick off everybody.” Who benefits from a law that does that?

  • How to pay for special tax treatment in Wichita

    Remarks delivered to the Wichita City Council, April 15, 2008. Audio is available here.

    The company that this warehouse is being built for is Cessna. In the end, it is that company that benefits from the property tax relief asked for today.

    Mr. Mayor, members of the city council, I ask that you not vote to approve this request for a tax abatement, and that you cease this practice altogether. Alternatively, I ask that you adopt a practice that will help realize the costs of these actions.

    It is no doubt difficult to compete with other states when they offer huge gifts to companies in order to lure them to their state. That’s a problem that needs to be addressed at a different level of government.

    The matter before you now, however, is not the same. This company is not threatening, to my knowledge, to leave our area if the tax abatement is not granted. It appears they would build this facility even if the tax abatement is not granted.

    The harmful effect of this tax abatement is this: When someone escapes paying taxes, someone else has to make up the difference. While the tax abatement being considered at this moment is relatively small, many are large, and when companies appear before this body week after week asking for tax favors, it adds up.

    This same effect applies to the other governments that are affected: Sedgwick County, the Wichita public school district, and the State of Kansas. When one person does not pay, someone else has to pay more.

    These special tax favors expose an inconsistency: business and government leaders tell us all the time that we must “build up the tax base.” Granting these tax favors destroys that base.

    Now I don’t blame this company for asking for this tax favor. When councils, commissions, and legislatures indicate their willingness to grant these, businesses respond. So this company, of which I am a shareholder, by the way, is simply responding rationally to its environment.

    But some of these companies that are asking for tax favors have problems with consistency. The president of this company has testified in favor of higher taxes to pay for building a facility that his company will benefit from. Now his company asks for relief from paying the taxes he wants others to pay.

    As long as this body is willing to grant tax abatements and other special tax favors, I propose this simple pledge: that when the City of Wichita allows a company to escape paying taxes, that it reduce city spending by the same amount. By following this simple rule, the City can be reminded of the cost of granting special tax favors, and the rest of us won’t have to pay for them.

  • Remarks to Wichita City Council, April 1, 2008

    Following are remarks I delivered to the Wichita City Council, asking them to not approve tax increment financing (TIF) for a project in Wichita. The council approved the financing by a vote of six to one. Thank you to council member Paul Gray for his dissenting vote.

    Mr. Mayor and members of the Wichita City Council, I ask you to not approve this TIF financing request, and to cease this practice in the future.

    We need to allow markets to channel capital and investment to where people value it greatest. The profit and loss system provides that guidance.

    By asking for the TIF financing, developers are sending us a signal that without the special tax favor, their project would not be economically feasible. They evidently have judged that it would not be profitable. They must feel that they will not be able to sell or rent at prices that will cover their costs of developing this project.

    This means that proceeding with the project is investing capital somewhere other than its most-valued use. We know that because developers build other things in Wichita without receiving a subsidy, and they are able to earn a profit.

    Now this project may satisfy the political goals of some people who believe that not enough development is happening in their politically-desired part of town. But these people are not spending their own money to accomplish this goal.

    If these developers want to build something in this area, they need to figure out what will appeal to people, what will fill enough of a need, that the project is profitable on its own. That’s how we will know that this investment is wise. They won’t have to appear before governmental bodies seeking approval for their plans. They can just do it.

    That’s market entrepreneurship. It is the way that wealth is created. These developers, instead, are practicing political entrepreneurship, where they seek to please various governmental bodies, rather than satisfying consumers who express their desires through the mechanism of markets.

    This leads to a corrosive environment where nearly every week someone appears before this council requesting special treatment, that favor paid for by the rest of the the community. This is harmful.

    Supporters of TIF explain them in a way that makes it seem as though there is no cost involved in granting the subsidy. But there is. Why would these developers want them, and why would this council not grant them to everyone if there were no cost?

    I propose a pledge that this council could take that will help our community become aware of the cost of these subsidies, and will also alleviate some of the inequity. When the City of Wichita grants special tax treatment, it must reduce its spending by the same amount. By following this simple rule, the City can be reminded of the cost of granting special tax favors, and the rest of us won’t have to pay for them.

  • It’s not the same as pee in the swimming pool

    In a column in the February 27, 2008 Wichita Eagle (“Smoking ban issue not one to negotiate”), columnist Mark McCormick quotes Charlie Claycomb, co-chair of Tobacco Free Wichita, as equating a smoking section in a restaurant with “a urinating section in a swimming pool.”

    This is a ridiculous comparison. A person can’t tell upon entering a swimming pool if someone has urinated in it. But people can easily tell upon entering a restaurant or bar if people are smoking.

    Besides this, Mr. McCormick’s article seeks to explain how markets aren’t able to solve the smoking problem, and that there is no negotiating room, no middle ground. There must be a smoking ban, he concludes.

    As way of argument, McCormick claims, I think, that restaurants prepare food in sanitary kitchens only because of government regulation, not because of markets. We see, however, that food is still being prepared in unsanitary kitchens, and food recalls, even in meat processing plants where government inspectors are present every day, still manage to happen. So government regulation itself is not a failsafe measure.

    Markets — that is, consumers — do exert powerful forces on businesses. If a restaurant like McDonald’s serves food that makes people ill, which do you think the restaurant management fears most: a government fine, or the negative publicity? Even small local restaurants live and die by word of mouth. Those that serve poor quality food or food that makes people ill will suffer losses, not as much from government regulation as from the workings of markets.

    But I will grant that Mr. McCormick does have a small point here. Just by looking at food, you probably can’t tell if it’s going to make you ill to eat it. Someone’s probably going to need to get sick before the word gets out. But you easily can tell if someone’s smoking in the bar or restaurant you just entered. Or, if people are smoking but you can’t detect it, I would image that the danger to health from breathing secondhand smoke is either nonexistent or very small.

    The problem with a smoking ban written into law rather than reliance on markets, is that everyone has to live by the same rules. Living by the same rules is good when the purpose is to keep people and their property safe from harm, as is the case with laws against theft and murder. But it’s different when we pass laws intended to keep people safe from harms that they themselves can easily avoid, just by staying out of those places where people are smoking. For the people who value being in the smoky place more than they dislike the negative effects of the smoke, they can make that decision.

    This is not a middle-ground position. It is a position that respects the individual. It lets each person have what they individually prefer, rather than having a majority — no matter how lop-sided — make the same decision for everyone. Especially when that decision, as Mr. Claycomb stated in another Wichita Eagle article, will “tick off everybody.” Who benefits from a law that does that?

    Other articles on this topic:

    Property Rights Should Control Kansas Smoking Decisions

    Testimony Opposing Kansas Smoking Ban

  • The harmful effects of Wichita’s special tax favors

    In the past few weeks a handful of companies in Wichita have asked to be exempted from paying property taxes on investments they have made. This week Wichita may decide to grant special tax treatment to a large development in downtown Wichita.

    Is it wise for the City of Wichita to grant these special tax favors?

    Because capital for investment is in short supply, it is important that our economy allocate it where it does the most good, where it is valued most. Markets do a very good job of this when they operate free of government meddling. When government intervenes, however, decisions about how to allocate investment capital will be made for all sorts of non-economic reasons.

    Here in Wichita, for example, there are some who believe that downtown Wichita suffers from underinvestment when compared to some of the city’s outlying areas. These people — many of them holding political office or a quasi-governmental position — seek to use government and its ability to tax (or not to tax) to achieve their goals. They have passed measures like the sales tax to fund the downtown Wichita arena. Downtown developers and businesses are given tax breaks, tax abatements, and they may obtain low-interest loans backed by the credit of the City of Wichita. A special tax district overlays downtown, with the proceeds being used to promote downtown’s interest in receiving more governmental largesse. Downtown is also filled with special tax increment financing or TIF districts, where property tax revenues that would normally be used to fund the general operations of government are instead diverted to enhance the profitability of the developer’s project.

    All this favorable treatment means that projects that would not be feasible on their own merits are undertaken because they satisfy a political agenda. This results in misallocation of scare capital. It’s also not fair to those who risk their own capital without receiving special government favor, meaning that we may have less investment overall in Wichita because of reluctance to compete with tax-favored investors.

    This interventionism is also harmful in that it creates a special class of firms: those firms who have asked for and received government favor. They gain a competitive advantage over their direct competitors. As Karl Peterjohn of the Kansas Taxpayers Network has taught me, these firms also have a competitive advantage over other firms of all types in Wichita. That’s because firms of all types that don’t receive special tax favors have higher overhead, and therefore may not be able to compete with the tax-favored firms in paying attractive wages to obtain employees.

    This interventionism is harmful again because it creates a class of political entrepreneurs rather than market entrepreneurs. Instead of seeking to create products and services that please customers, they seek to please politicians and bureaucrats. This behavior, called rent-seeking, produces nothing of value to the economy as a whole.

    Furthermore, if what those who seek special tax treatment say is true, that is, that the projects they propose would not be feasible if they had to pay their taxes, we have a serious problem: we have taxes that are so high that they inhibit private investment.

    Finally, when government reduces someone’s tax and doesn’t reduce its own spending, the rest of the taxpayers have to make up the difference.

    I propose a partial solution to this problem that will help our leaders become aware of the cost of this problem, and will also alleviate some of the inequity. When the City of Wichita (or any other taxing authority) grants special tax treatment, it must reduce its spending by the same amount. By following this simple rule, the City can be reminded of the cost of granting special tax favors, and the rest of us won’t have to pay for them.