Yesterday’s opening of a Cabela’s store in Wichita was celebrated as a great success, but the circumstances of the store’s birth should remind us of the failure of Wichita’s economic development strategies and efforts.
We have to ask why Wichita is not able to attract retailers like Cabela’s without offering some sort of subsidy. In the current example, we are allowing Cabela’s to add 1.2 cents per dollar extra sales tax. Cabela’s keeps one cent, and 0.2 cents will be used to build a new highway exit ramp — one not seriously contemplated until Cabela’s wanted it.
This turnover of public taxation to private interests through the community improvement district (CID) program is contrary to good public policy. The power to tax is one of the most important — and harmful — functions of government. It ought to be used to pay for public goods, instead of being turned over to private benefit, as it has for Cabela’s.
At the opening ceremony, I spoke with Kansas Governor Sam Brownback and reminded him that just two weeks ago Wichita voters spoke out against special tax deals similar to the deal Cabela’s received. What is the future of these special tax deals? “I think the better approach is broad tax reduction,” he said.
While the governor was referring primarily to income taxes, there is strong evidence that Kansas needs to reduce all forms of business tax costs. The release of a report from the Tax Foundation ranking the states in business tax costs brought that into sharp focus two weeks ago. The news for Kansas is worse than merely bad, as our state couldn’t have performed much worse: Kansas ranks 47th among the states for tax costs for mature business firms, and 48th for new firms.
This raises the question: Was the CID tax giveaway truly necessary for Cabela’s to open, or is Cabela’s business model so flimsy that it requires corporate welfare to survive, or is Cabela’s simply an opportunistic company, willing to feed off taxpayers as another source of profit?
Community Improvement Districts
CIDs allow merchants to apply a higher sales tax rate to sales. The money from shoppers is collected under the pretense of government authority, but it is earmarked for the exclusive benefit of the owners of property in the CID. This is perhaps the worst aspect of CIDs. Landlord and merchants already have a way to generate revenue from their customers under free exchange: through the prices posted or advertised for their products, plus consumers’ awareness of the sales tax rates that prevail in a state, county, and city.
But most consumers may never be aware that they paid an extra tax for the exclusive benefit of the CID. If they happen to calculate the sales tax they paid, they may conclude that the high CID rate is charged all across Wichita — thereby staining our reputation.
The Wichita city council had a chance to provide transparency to shoppers by requiring merchants in CIDs to post signs informing shoppers of the amount of extra tax to be changed in the store. But CID advocates got the city council to back down from that requirement. CID advocates know how powerful information is, and they along with their allies on the city council realized that signage with disclosure would harm CID merchants. Council Member Sue Schlapp succinctly summarized the subterfuge that must accompany the CID tax when she said: “This is very simple: If you vote to have the tool, and then you vote to put something in it that makes the tool useless, it’s not even any point in having the vote, in my opinion.” She voted against the signage requirement.
Jeff Longwell (district 5, west and northwest Wichita), in explaining his vote against the signage requirement with the tax rate displayed, said he thought this information would be confusing to shoppers.
Are incentives necessary?
The age-old question is whether economic activity will occur without economic development incentives. Governor Brownback said it is a “legitimate question” as to whether Cabela’s would be here anyway.
In the case of Cabela’s, the store might not be in Wichita without incentives, as the company has shown itself to be especially eager and adept at gathering corporate welfare paid for by taxpayers. One writer concluded “For its part, Cabela’s is unabashed about its dependence on corporate socialism, even declaring in its annual report that grabbing public money is key to its business plan.”
We see elected officials and economic development bureaucracies eager to create jobs, so much so that they offer incentives that are not necessary. This leads to a cycle of dependency on city hall for economic development. That’s good for politicians and bureaucrats, but bad for everyone else.
It would be one thing if our economic development activities were working. But there’s evidence that they’re not. Recently we learned that the job-creating activities of Greater Wichita Economic Development Coalition last year resulted in a number of jobs barely more than one-half of one percent of the labor force.
That’s not a very good job. But keeping a website up to date ought to be easy. The GWEDC site, however, is terribly out of date. On a page titled Recent Relocations Highlights, the most recent item is from 2009. Have we not had any relocations since then, or does GWEDC simply not care to update and maintain its website?
A recent Wichita Eagle article, (Why isn’t Wichita winning projects?, January 22, 2012 Wichita Eagle), after listing four items economic development professionals say Wichita needs but lacks, reported “The missing pieces have been obvious for years, but haven’t materialized for one reason or another.”
If these pieces are truly needed and have been obviously missing for years: Isn’t that a startling assessment of failure of Wichita’s economic development regime?
