Category Archives: Wichita city government

Warren Old Town Wichita Theater: Good Money After Bad?

This letter is from my friend Darrell Leffew. Not everyone seems to understand the folly of throwing good money after bad. “Taxpayers are already on the hook” is Wichita city council member Jeff Longwell’s opinion as expressed in a Wichita Eagle article. Mr. Longwell, I realize you weren’t a member of the council when we taxpayers were placed on the hook, but don’t help us on another, please.

Let us not throw more good money after bad. The Wichita City Council has approved a business loan to the Limited Liability Company that owns the Old Town Warren Theater.

That same company was quoted in an Eagle article earlier this month as saying the remodel paid for by the loan would cut the losses. No mention of ending the losses, just reducing. What are the exact estimates? Taxpayers should be fully informed.

An Eagle article of November 2004 talked about revenues related to the TIF, which funded Old Town development, being woefully short. How many millions of taxpayer dollars are already at risk? And if the business goes into foreclosure before the loan is repaid, we the taxpayers have first claim on a failed, debt ridden property.  Our interim City Manager advised against the loan.

Our elected officials are not just offering commercial banking now but BAD commercial banking. And the “Open for Business” sign is bright neon.

Has our City Council overstepped its authority? Voters will decide at the polls.

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.

Testimony on the Wichita New Communities initiative

From John Todd.

City of Wichita Mayor and Council Members
455 N. Main
Wichita, Kansas 67203

Subject: Testimony in Opposition to Funding for the current New Communities Initiative Area (tract known as 67214 Target Area) or New Urban Renewal Target Area.

Dear Mr. Mayor and City Council Members,

My name is John Todd. I am a Wichita area real estate broker and developer, and I am here to speak as a private citizen. I speak in opposition to the city’s $250,000 Funding proposal for the current New Communities Initiative Area, because I believe this program in reality, represents the resurrection of the failed government Urban Renewal housing programs of the 1960-70’s.

Several months ago I attended a public “kick-off” meeting for the New Communities Initiative program at the Hughes Metroplex Center (Wichita State University) presented by Mr. Richard Baron (McCormack Baron Salazar). Mr. Baron delivered a power point presentation touting his firm’s expertise in replacing failed government Urban Renewal “Public Housing” projects of the past like the one shown in the attachment market Exhibit “A”.

Please take a close look at Exhibit “A”. When these types of Government housing projects of the past as shown on Exhibit “A” were built, they no doubt were sold to the taxpaying citizens by well meaning local public officials who saw a future vision (emphasis added) as to how their communities could solve their city’s blight problems, and at the same time provide “affordable housing” for the economically challenged people in their communities, and that the “collective good” (emphasis added) to be gained by projects such as these were worth the sacrifice of the individual property owners who were forced out of their homes or businesses to make way for these projects through the local government’s use of its eminent domain power. I believe the picture of the Public Housing project shown in Exhibit “A” speaks for itself regarding the failure of government in it’s attempt to socially-manipulate peoples lives by believing they knew what was best for people and by then mandating this view. The economic and social costs of these projects both private and public I suspect were staggering.

Please take a close look at Exhibit “B” that is also attached that shows a modern day “Communities” (Urban Renewal?) project that I believe Mr. Baron’s company is developing in another city. The painted rendering of the project is beautiful, but how does a project of this nature fit in with the proposed New Communities Initiative Area known as the “67214 Target Area”? Here is my interpretation of the information that I gathered from Mr. Baron’s presentation at the Wichita State University meeting. Of course I would suggest the need for the City Council to verify this information for them selves before making a decision to endorse a project of this magnitude. I am of the opinion that projects of this nature involve a mixture of privately owned town homes with Section 8 rental subsidized units with a common area owned by some sort of non-profit organization with ties to city government and other groups, but safely outside the control of a policy making City Council. Financing of these types of projects relied heavily on (I suspect tax deductible) private gifts, and other government grants and subsidies (Or money which many groups view as “free money”.). I did not pick up on who paid and how much development fees or management fees would be, if any, or how much financial exposure the city might have since public money would be involved. Mr. Baron suggested that projects of this nature take considerable tract sizes and suggested that tract acquisition many times required the use of eminent domain.

Before you consider promoting any public housing project(s) for the New Communities Initiative Area tract known as the 67214 Target Area, please take time to consider the following.

Currently, there are approximately 41 homes listed in the South Central Kansas Multiple Listing Service as available for sale in the 67214 Target Area. Exhibit “C” shows pictures of four of those homes. All four homes exhibit pride of ownership signs, and with current financing options, could be purchased with estimated monthly payments ranging from around $250 to just over $500 per month with minimal buyer costs needed to close the transaction. I continually hear government and quasi-government housing connected staff people continually crying out about the need for “Affordable Housing”. Well folks, we have it!!! I hear about the need to clear “Blight”. Item #29 Repair or Removal of Dangerous & Unsafe Structures on today’s City Council Agenda lists several houses that are scheduled for upgrade or demolition some of which appear to be in the Target Area under discussion today. And, with the recent upgrade of the housing code, you have given city officials all the tools they need to deal with blight. The attached Exhibit “D” shows some of the new and newer homes in the 67214 Target Area. Perhaps the money spent upgrading the 21st Street Corridor and the new grocery store on 13th are beginning to pay off. And we absolutely don’t need for the people currently living in their “Affordable Housing” units in the Target Area worrying whether or not they are safe from the hand of eminent domain.

The 67214 Target Area represents opportunity. There are vacant treed lots all over the area. In the early 1990’s I was personally involved in the building and marketing of new “Affordable” homes on approximately 175 vacant “in-fill” lots in Park City. I believe that this privately driven economic activity represents part of what everyone recognizes today as the Park City success story.

I believe that people all across our great city want to participate in the American Dream of home ownership by owning their own home rather than ending up in their retirement years with a handful of rent receipts from a Section 8 program.

Sincerely,

John Todd

In Central-Northeast Wichita, government is cause of problem, not solution

An article in The Wichita Eagle “Plan offers hope for city’s troubled heart” (November 14, 2007) reports on the development of a plan named New Communities Initiative, its goal being the revitalizing of a depressed neighborhood in Wichita. The saddest thing in this article is the realization that there is consideration of a plan for large-scale government intervention to solve problems that are, to a large extent, caused by government itself.

The article laments low high school graduation rates and the low proficiency in math and reading. We should make sure we remember that almost all these children have gone to public schools, that is, schools owned and run by government. Plans to improve public schools almost always call for more spending. While education bureaucrats do not like to admit this, spending on government schools in Kansas has been increasing rapidly in recent years. The results of these huge spending increases are just being learned, but it is unlikely that it will produce the dramatic results that are needed.

There is a simple solution to improving schools that won’t cost more than what is already spent, and should cost even less: school choice. In parts of our country where there is school choice through vouchers — or better, through tax credits — it is low-income parents who are most appreciative of the chance for their children to escape the terrible public schools. Further, there is persuasive evidence that when faced with viable competition, the public schools themselves improve.

In Kansas, however, there is little hope that meaningful school choice will be implemented soon. Although Winston Brooks, superintendent of Wichita schools, says he is open to competition and accountability, it is a false bravado. The political climate in Kansas is such that it is nearly impossible to get even a charter school application approved, much less any form of school choice with real teeth. (See “What’s the Matter With Kansas,” January 3, 2007 Wall Street Journal.) As the government schools consume increasing resources, parents find it even harder to pay taxes and private school tuition. So the government schools, responsible for graduates who can’t read and calculate, extend their monopoly.

A continual problem in depressed areas of cities is low employment. Government again contributes to this problem by creating barriers to employment, most prominently through the minimum wage law. People have jobs because their employers value the work the employees perform more than what they pay them in wages and benefits. When government says you must pay a higher wage than what the potential employees can contribute through their labors, these low-productivity workers won’t be hired. As the minimum wage rises, which it is on the federal level, it becomes even more difficult for the least productive workers to find jobs.

The reason that some young people find it difficult to get jobs is that they don’t have the education, training, or experience to be very productive at a job. While no one likes to work for only, say $3 or $4 per hour, working for that wage is preferable to being unemployed when the minimum wage is $6 per hour. While working for $4 per hour the worker gains experience at a specific job, and experience at holding any job in general. Soon, as workers become more productive, their wages will rise. Sitting on the sidelines not working or wasting time in a government job-training program does the workers no good.

The article mentions the plight of children whose parents are in prison. More generally, this neighborhood is plagued by crime and gangs. While I do not know the proportion of these people that are in prison for crimes related to drugs, it most surely is high. Gangs exist almost solely because of the trade in illegal drugs. The government’s prohibition of drugs, then, plays a huge role in the problem of crime.

The solution is to legalize drugs. Legalize all drugs, without exception. This should not be interpreted as an endorsement of drug use, as drug abuse is a serious health problem for many people. The health problems that drug abuse causes might even increase after legalization. But the crime problem would cease to exist. No longer would people be in prison simply because they are drug addicts. With legalization, the price of drugs would rapidly decline to perhaps the cost of a pack of cigarettes or a few cocktails each day. No longer would drug addicts have to raise several hundred dollars per day through crime. No longer would gangs find selling drugs profitable, and they would likely disappear. Do the owners of liquor stores shoot each other over turf wars, and do their customers engage in crime each day to pay for their fix of cheap alcohol?

The alternative to legalization of drugs is more law enforcement aimed at decreasing the supply of illegal drugs. This government action, if successful, has this consequence: by reducing the supply of drugs, it increases their price, thereby making it even more lucrative to deal in illegal drugs.

Then there is the government’s war on poverty. The economist Walter Williams recently wrote this:

Since President Johnson’s War on Poverty, controlling for inflation, the nation has spent $9 trillion on about 80 anti-poverty programs. To put that figure in perspective, last year’s U.S. GDP was $11 trillion; $9 trillion exceeds the GDP of any nation except the U.S. Hurricanes Katrina and Rita uncovered the result of the War on Poverty — dependency and self-destructive behavior.

In the same article:

There’s one segment of the black population that suffers only a 9.9 percent poverty rate, and only 13.7 percent of its under-5-year-olds are poor. There’s another segment that suffers a 39.5 percent poverty rate, and 58.1 percent of its under-5-year-olds are poor. Among whites, one segment suffers a 6 percent poverty rate, and only 9.9 percent of its under-5-year-olds are poor. The other segment suffers a 26.4 percent poverty rate, and 52 percent of its under-5-year-olds are poor. What do you think distinguishes the high and low poverty populations among blacks? … The only distinction between both the black and white populations is marriage — lower poverty in married-couple families.

In 1960, only 28 percent of black females ages 15 to 44 were never married and illegitimacy among blacks was 22 percent. Today, the never-married rate is 56 percent and illegitimacy stands at 70 percent. If today’s black family structure were what it was in 1960, the overall black poverty rate would be in or near single digits. The weakening of the black family structure, and its devastating consequences, have nothing to do with the history of slavery or racial discrimination.

Williams and Thomas Sowell, who have studied the issue extensively, conclude that it is government anti-poverty programs that are the cause of a permanent underclass. These programs should be canceled.

We see that government — through its poor schools, the raising of barriers to employment through minimum wage laws, the prohibition of drugs, and the culture of dependency and family disintegration supported by welfare — has been a contributing factor, probably the most important factor, in the decline of this neighborhood. It is foolhardy to believe that more government programs can reverse the damage already done by past and present government programs. While I’m sure that the intent of the New Communities Initiative and its coordinating members is noble, the reality is that government intervention is dangerous to the future of Wichita and to this neighborhood.

Let property rights rule Wichita smoking decisions

A system of absolute respect for private property rights is the best way to handle smoking, as it is with all issues. The owners of bars and restaurants have, and should continue to have, the absolute right to permit or deny smoking on their property.

Not everyone agrees with this simple truth. Charlie Claycomb, co-chair of the Tobacco Free Wichita coalition, asks in The Wichita Eagle why clean air is not a right when smoking is a right. The answer is that both clean air and smoking are rights that people may enjoy, as they wish, on their own property. When on the property of others, you may enjoy the rights that the property owner has decided on.

It’s not like the supposed right to breathe clean air while dining or drinking on someone else’s property is being violated surreptitiously. Most people can quickly sense upon entering a bar or restaurant whether people are smoking. If you do not want to be around cigarette smoke, all you have to do is leave. That’s what I do. It is that simple. No government regulation is needed: just leave. If you wish, tell the manager or owner why you are leaving. That may persuade the owner of the property to make a decision in your favor.

Employees may make the same decision. There are plenty of smoke-free places for people to work if they don’t want to be around smoke.

Some think that if they leave a restaurant or bar because it is smoky, then they have lost their “right” to be in that establishment. But no one has an absolute right to be on someone else’s private property, much less to be on that property under conditions that they — not the property owner — dictate.

Property rights, then, are the way to solve disputes over smoking vs. clean air in a way that respects individual freedom and liberty. Under property rights, owners will decide to allow or prohibit smoking as they best see fit, to meet the needs of their current customers, or the customers they want to attract.

A property rights-based system is greatly preferable to government mandate. Without property rights, decisions are made for spurious reasons. For example, debate often includes statements such as “I’m a non-smoker and I think that …” or “I’m a smoker and …” These statements presuppose that the personal habits or preferences of the speaker make their argument persuasive.

Decision-making based on personal characteristics, preferences, or group-membership happens often in politics. Wichita City Council member Jim Skelton, evidently once a smoker and opposed to smoking bans, is now receptive to bans since he quit smoking. Mr. Skelton, I ask you for this courtesy: would you please publish a list of the things you now take pleasure in, so that if you decide to quit them in the future, I shall have time to prepare myself for their banning?

Lack of respect for property rights allows decisions to be made by people other than the owners of the property. In the case of a smoking ban, the decision can severely harm the value of property like bars or restaurants that caters to smokers. This matters little to smoking ban supporters like Wichita Vice Mayor Sharon Fearey. But we should not be surprised, as her record indicates she has little respect for private property.

By respecting property rights, we can have smoking and non-smoking establishments. Property owners will decide what is in their own and their customers’ interests. Both groups, smokers and nonsmokers, can have what they want. With a government mandate, one group wins at the expense of the rights of many others.

City of Wichita acknowledges taxes are not good for business

On November 6, 2007, the Wichita City Council considered and approved a request by Learjet for industrial revenue bonds. One of the benefits of IRBs such as these is that the property purchased with the proceeds is usually exempt from property tax. In this case, the period of tax abatement is ten years.

In the minutes of the meeting, under the heading “Economic Vitality and Affordable Living” we can read: “Granting an ad valorem property tax exemption and sales tax exemption will encourage the business to create new job opportunities and stimulate economic growth for the City of Wichita and Sedgwick County.”

Wow! Someone in city hall realizes that a reduction in taxes is good for business, and is reducing taxes in response to that revelation.

Now if all businesses and individuals could have lower taxes — instead of only those who lobby government for special favor — think how nice that would be. The economic benefit that this tax reduction will bring to Learjet could be felt across our entire city.

Consider the alternative to a public library in Wichita

Listen to this article in audio by clicking here.

As Wichita considers the need for a new public library, a more central and fundamental question goes unconsidered: what is the role of the public library today, and do we really want one?

Consider the difference between public and private institutions. The public institution has to satisfy only a small group of people, namely the politicians that fund it. Yes, once in a while voters get to select the politicians, but issues such as a library are usually far down the list of important topics, notwithstanding a recent Wichita Eagle editorial promoting a public library as “one of the most important cultural institutions in a community. It’s an investment in our future, a symbol of our values and aspirations.”

Private institutions, or businesses, on the other hand, are voted on every day by customers, who choose one over the other for their own personal reasons. This is the idea of “consumer sovereignty.”

Public institutions, open to all, appeal to few in the end. The problem caused by unwanted “customers” at the central library is well known, and must serve to decrease its usage by some large amount.

Reading the 2006 annual report of the library, it appears that 34% of the loans made at the central branch were art, music, and video. (Due to the way the library presented the figures, I couldn’t determine this number for the branches.) Disregarding the presumably small number of artworks loaned (in comparison to the number of DVDs), the library is competing with services provided by the free market, namely video rental stores.

Even the loaning of books competes with bookstores. The library reports tells us that the value of the books the library circulated — that is, what it would cost if each person who borrowed a book had bought the book instead — is $29,068,288. I am tempted to ask what the City of Wichita has against local bookstore owners. But the reality is that the library competes rather poorly with bookstores. It has been many years since I relied on the library for timely books in my field, computers and software engineering. I found the shelves filled with titles referring to software and computers long out of date.

Today, if you want to borrow a recently-released book, especially a bestseller, you are likely to find yourself waiting in line behind dozens of borrowers, each with up to two weeks to use the book. This makes buying the book an attractive alternative, which is often what I do.

If you want to read a classic, good luck to you. I wanted to read Capitalism and Freedom, one of Time Magazine’s 100 most important books published since World War II. But, the library didn’t own it.

Could a privately-owned library be what Wichita needs? Could it do a better job? How would such a library work?

As it turns out, I can’t find an example of a city with a private library. That alone doesn’t mean a private library couldn’t work. It is, I believe, more a symptom of our increasing reliance on government instead of private solutions.

There are many ways a private library could work. Patrons might be charged a small admission fee. Patrons might buy monthly or annual memberships for unlimited use. There might be a fee for checking out items, perhaps based on the newness or popularity of the item and the length of the loan period. Items might carry advertising. Meeting rooms and other services could carry rental fees.

The point is that the library would be directly accountable to its customers who use the library, instead of a governing board, the city council, and the “public,” whoever that is. The library, wishing to earn a profit for its owners, would have strong motivation to provide services that people are willing to actually pay for. It would be free to act on its own to raise capital and provide these services, instead of complaining about the lack of funding, which is the case with the current library, as with nearly all other cultural institutions, too.

Plans for new libraries call for coffee shops in the mode of Starbucks. Will the refreshments served be free? Of course not. So charging for some services is okay, it seems.

What about people who can’t afford even the small fees a private library might charge? We are all already paying these fees now in the form of taxes. We are already paying for a library, both those who use it and those who don’t. Spreading out the costs over everyone doesn’t make it more affordable for the town as a whole. As Thomas Sowell recently wrote: “This was all before politicians gave us the idea that the things we could not afford individually we could somehow afford collectively through the magic of government.”

I wish that the Wichta Eagle editorial board would consider the alternative to government provision of things like libraries, entertainment facilities, airports, arts and culture, schools, and many other aspects of life. Relying on coercive government action over individual and voluntary group initiative makes us less free as a country and city.

Wichita’s payday lenders

Payday loans are expensive, a recent Wichita Eagle articles tells us. If someone needs to borrow money and has access to a loan from almost any other source, they should avoid payday lenders. But the reality is that there are people who have poor credit and are not able to obtain credit through the usual channels such as banks, credit unions, credit cards, and family and friends. These people may have but one source for loans: the maligned payday lenders.

Why can’t these people borrow from traditional, “legitimate” lenders? The answer is that making small loans to people who have a history of credit problems is expensive. Wishing it weren’t so and imposing government regulation won’t change this fact.

Community activists call for existing banks and financial institutions to offer small loans at reasonable interest rates. One institution in Wichita, Communities United Credit Union, did just that. But earlier this year it failed after suffering losses from bad loans, providing more evidence that it is costly to offer small loans to credit-challenged customers.

If existing financial institutions are to make small loans to credit-challenged borrowers, they should do so only with the reasonable expectation of earning profits from these loans. To do otherwise is to abandon their responsibility to their investors, and, should I learn that my bank or a bank I had invested in was making risky loans without being compensated for the risk, I would withdraw my investment in that bank.

An irony is that existing government regulation may be a contributing factor as to why payday loans are so prevalent. In an Wichita Eagle article from earlier this year, we read “Some bankers are reluctant to offer them [small loans] because their industry is so tightly regulated …” These regulations either prohibit or add to the cost of making small loans, bankers say.

Furthermore, usury laws, which limit the interest that banks and other traditional lenders may charge, are perhaps too restrictive. If traditional banks and credit unions could charge, say 25%, 40%, or even 50% for small loans, they might find it profitable to do so. An interest rate of 50%, while high, is certainly preferable to the several hundred percent rates that payday loan borrowers who roll over their loans pay.

Those who call for a limit on the interest rate that payday lenders can charge may very well drive these lenders out of business. I suspect that is their unstated goal. If they are successful, where will credit-challenged borrowers go for loans? As shown above, traditional lenders are not serving these borrowers.

A group named Sunflower Community Action says that payday lenders prey on poor people who have few financial options. I believe this group is misinformed on two points. First, the transaction between the borrower and lender is voluntary. Neither party is coerced, so there is no “preying.” Second, it is true that poor people have few options. Eliminating payday loans removes one more option, an option that evidently some people use. To its credit, this group promotes financial education and literacy, which is the best weapon to fight the cycle of poverty that some find themselves stuck in.

Everyone’s Right in AirTran Affair

The Wichita Eagle reports that Mayor Carl Brewer and City Manager George Kolb received free upgrades to business class seats on a recent AirTran flight. The two are indignant over being questioned about the propriety of accepting the gift. The Eagle described Kolb as “peeved.” The Mayor was moved to write a letter to the Eagle describing its reporting as a “cheap shot” with its “lapse in basic journalistic standards” a risk to “harming reputations.”

The AirTran station manager who granted the free upgrade was quoted as saying “Do I expect something from those people? No!”

Wichita civic and business leaders who also traveled on the flight were bothered by the incident, according to Eagle reporting.

Who’s right in this story? The answer is: everyone!

The Eagle is right to report this story. It happened; therefore it’s news.

The AirTran station manager was correct in giving the upgrades to the politicians. She clearly knows who butters her bread. I presume she was being discreet when she denied expecting something from those people — something other than the up to $7 million annual subsidy provided by the City, Sedgwick County, and the State of Kansas, that is.

The Wichita civic and business leaders are right to be miffed, as they are the ones who buy a lot of AirTran tickets, and if anyone deserves to receive a free upgrade, it’s them.

The two politicians are right to be peeved about the reporting of the appearance of a conflict of interest. That’s because there is a conflict of interest, since the city and other local governments give up to $7 million of taxpayer money each year to AirTran. Any relations between the airline and these governments must be analyzed in the light of the subsidy. This is symptomatic of the problems that arise when government intervenes in areas properly left to markets.

When I receive the occasional free upgrade to first class, I say “Thank you, American Airlines!” and accept it gladly, with clean conscience, knowing that I have done nothing wrong. The fact that Mayor Carl Brewer and City Manager George Kolb weren’t able to do this, coupled with how their acceptance of a business courtesy caused such a stir, tells us a great deal about the problems of government interventionism.

Economic fallacy supports arts in Wichita

Recently two editorials appeared in The Wichita Eagle promoting government spending on the arts because it does wonderful things for the local economy. The writers are Rhonda Holman and Joan Cole, who is chairwoman of the Arts Council.

I read the study that these local writers relied on. The single greatest defect in this study is that it selectively ignores the secondary effects of government spending on the arts.

As an example, the writers in the Eagle promote the study’s conclusion that the return on dollars spent on the arts is “a spectacular 7-to-1 that would even thrill Wall Street veterans.” It hardly merits mention that there aren’t legitimate investments that generate this type of return in any short timeframe.

So were do these fabulous returns come from? Here’s a passage from the study that the Eagle writers relied on:

A theater company purchases a gallon of paint from the local hardware store for $20, generating the direct economic impact of the expenditure. The hardware store then uses a portion of the aforementioned $20 to pay the sales clerk’s salary; the sales clerk respends some of the money for groceries; the grocery store uses some of the money to pay its cashier; the cashier then spends some for the utility bill; and so on. The subsequent rounds of spending are the indirect economic impacts.

Thus, the initial expenditure by the theater company was followed by four additional rounds of spending (by the hardware store, sales clerk, grocery store, and the cashier). The effect of the theater company’s initial expenditure is the direct economic impact. The subsequent rounds of spending are all of the indirect impacts. The total impact is the sum of the direct and indirect impacts.

Relying on this reasoning illustrates the problem with the Eagle editorials: they ignore the secondary effects of economic action, except when it suits their case. The fabulous returns erroneously attributed to spending on the arts derive from this chain of spending starting at the hardware store. But what the authors of this study and the Eagle editorial writers must fail to see is that anyone who buys a gallon of paint for any reason sets off the same chain of economic activity. There is no difference — except that a homeowner buying the paint is doing so voluntarily, while an arts organization using taxpayer-supplied money to buy the paint is using someone else’s money.

The study also pumps up the return on government investment in the arts by noting all the other spending that arts patrons do on things like dinner before and desert after arts events. But if people kept their own money instead of being taxed to support the arts, they would spend this money on other things, and those things might include restaurant meals, too.

The fact that these editorials have been printed might lead me to suspect that government-supported arts organizations and Eagle editorial writers might feel a little guilty about using taxpayer funds. They should. To take money from one group of people by government coercion and give it to other people, especially when that purpose is to stage arts events, is wrong. It’s even more so when the justification for doing this is so transparently incorrect.

Arts organizations need to survive on their own merits. They need to produce a product or service that satisfies their customers and patrons just as any other business must.

It may turn out that what people really want for arts and culture, as expressed by their own selections made freely, might be different from what government bureaucrats and commissions decide we should have. That freedom to choose, it seems to me, is something that our Wichita City Council, Arts Council, and Wichita Eagle editorial writers believe the public isn’t informed or responsible enough to enjoy.

A downtown Wichita urban renewal success story … not

This history lesson from Karl Peterjohn of the Kansas Taxpayers Network tells the story of what might have been for downtown Wichita, and shows how close Wichita came to losing a company very important to our local economy, even if they’re not located downtown.

In the 1960’s the urban renewal redevelopment project that became Century II used eminent domain and forced a medium sized, private company in the petroleum business out of their office building and corporate headquarters on the south side of W. Douglas just east of the river.

This business was in transition with the founder handing off control to a young relative who had been living and working out-of-state. This firm’s two major business assets were outside of Kansas so the firm’s geographic ties to Wichita were not strong either. At that time, I’ve been told that this business had gross sales around $250 million a year and possessed their own multi-story office building downtown. That sales figure is understated and would be a lot more if measured in the inflated 2007 dollars.

Local leaders in Wichita had decided that they knew what was best for downtown and using the urban renewal redevelopment program’s eminent domain powers, acquired a large chunk of downtown (as well as many other parcels across this community — see Wichita Business Journal’s most recent list of biggest local taxpayers that still prominently includes the City of Wichita).

The medium sized petroleum company left Wichita after losing their building. This company relocated a couple of miles north of the Wichita city limits back then (they were eventually annexed back into the city many years later) but could have easily relocated elsewhere. Conversely, imagine what downtown Wichita would be like if this firm had remained there. You may have guessed that I’m referring to Koch Industries and their 1,800 local employees.

Bill Davitt on blight

Bill Davitt makes some excellent points about the dangers of giving politicians power to control blight through eminent domain. He also explains why it is best to vote for Carlos Mayans for mayor of Wichita.

Bill warns us that your home or business may be declared blighted even though it is in good and desirable condition. He is referring to cases all over the country where local officials abuse their power to declare property blighted so that it can be taken from its owners. The Castle Coalition has examples of property that is being declared blighted. You be the judge as to the condition of these properties:
www.castlecoalition.org/CastleWatch/bogusblight
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Testimony of William T. Davitt before Senate Judiciary Committee of Kansas Legislature at 9:00 A.M. on Thursday, March 1, 2007 AGAINST amending BLIGHT into Kansas Statutes as an excuse for EMINENT DOMAIN.

My name is William T. Davitt from Wichita. Everything I say is my opinion, belief and understanding.

Last August I went to a meeting called by Wichita City Manager. 250 people in the room. Fancy buffet with salmon sandwiches along the wall.

Up on the stage two members of Wichita City Council show color slides on large screen. “Oh, look at the beautiful swimming pool, manicured lawn, attractive apartments! It is so wonderful that we are going to have all this in Wichita REDEVELOPMENT!”

Standing at the microphone, big developer from St. Louis explains that he will continue owning these new apartments and collecting the rent. Says he is going to KNIT together churches and schools, city and county government, taxpayers and philanthropists.

Question from audience: “What if we don’t want to sell our land to you?” Answer of developer: “We’ll TAKE IT with EMINENT DOMAIN … clean up Wichita’s BLIGHT!”

And BLIGHT is why we are here today. They want the legislature to nail BLIGHT in Kansas Statutes so they can use BLIGHT as an excuse to destroy our homes and places of business with a bulldozer, take our land away from us, turn our land over to big developer from St. Louis so he can build rental apartments and scoop in millions of dollars in profits for himself.

Well, you say your home is so beautiful that they can never declare your home BLIGHTED. Don’t kid yourself.

BLIGHT is going to be whatever the Kansas Supreme Court says it is following the argument of BIG LAW FIRMS representing BIG DEVELOPERS . . . because every judge on Kansas Supreme Court owes his job to a handful of BIG LAW FIRMS.

That is why we desperately need an amendment to our Kansas Constitution taking selection of these judges away from BIG LAW FIRMS and requiring these judges to be confirmed by Kansas Senate as is done in the federal.

We also desperately need an amendment to our Kansas Constitution that will protect our homes and places of business from EMINENT DOMAIN.

What more can I say?

LIBERABUS DOMINE.

William T. Davitt
Wichita, Kansas

Note that Wichita City Council member Carl Brewer IS in favor of creating a REDEVELOPMENT AUTHORITY.

Wichita Mayor Carlos Mayans IS NOT in favor of creating a REDEVELOPMENT AUTHORITY.