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Intrust Bank Arena economic impact holds mistake

A report on the economic impact of the first ten years of operation of the Intrust Bank Arena in downtown Wichita incorrectly reported tax revenue.

Recently Intrust Bank Arena in downtown Wichita promoted the results of an analysis of the economic impact of the arena through its first ten years of operation. 1 The arena partnered with the Center for Economic Development and Business Research at Wichita State University to conduct the study. 2

In all, the report claims $2.7 million over ten years in Sedgwick County guest tax revenue paid by out-of-town arena visitors who stayed in local hotels. But while the county has a guest tax, it does not raise nearly the dollars shown in the report.

The transient guest tax, sometimes called a guest tax or bed tax, is a tax on a hotel bill. It is collected in addition to retail sales tax. In the City of Wichita, hotel guests pay 7.5 percent retail sales tax, an additional six percent guest tax, and an additional 2.75 percent city tourism fee. If the hotel is located within a Community Improvement District, an additional tax of up to two percent is collected.

The guest tax for Sedgwick County was last revised in 2006. 3 The rate is five percent. The ordinance says that the tax “… shall be levied in the unincorporated area of Sedgwick County, Kansas …”

The term unincorporated area is key, meaning the portions of the county that are not within an incorporated town or city. Reports from the Kansas Department of Revenue show there is just one establishment in Sedgwick County that files a guest tax report. 4 For comparison, 108 establishments in the City of Wichita file guest tax reports. These are located in the city limits and are not in the unincorporated area of the county, and therefore not subject to the county guest tax.

How much does Sedgwick County collect in guest tax? The reports from the Kansas Department of Revenue don’t say. The value is suppressed to protect confidentiality, given that there is just one filing establishment in the unincorporated area of the county.

We do know, according to the economic impact report, that the one hotel in unincorporated Sedgwick County collects $351,656 per year in guest tax (annualized over the period 2015 to 2019.) Since the guest tax rate is five percent, that implies $7 million in annual sales, which would be collected by a hotel selling 191 rooms per day at a rate of $100 per day, 365 days per year.

Is there such a hotel in unincorporated Sedgwick County? It’s unlikely. Consider this one hotel with $351,656 in guest tax collections by arena visitors compared to the $421,987 reported for all hotels in the City of Wichita, again for arena visitors. (The Wichita guest tax rate is slightly higher at six percent, so the comparison is not strictly equal.)

Remember: According to the analysis, this level of activity is generated just by visitors attending events at Intrust Bank Arena.

I think it’s safe to say there is a mistake. Correspondence with CEDBR, the organization that prepared the analysis, confirms that county guest tax was incorrectly estimated, and a new version reports $0 in county guest tax. 5 CEDBR says no numbers were changed other than the county guest tax and totals that included it.

While it is unfortunate that CEDBR made this mistake, the use of the analysis by downstream consumers teaches us something about economic development, the data supporting it, and its practitioners.

As an example, the management of Intrust Bank Arena issued a press release touting the analysis and its findings. Regarding tax collections, the announcement reports, “The fiscal impact of visitors to the area for INTRUST Bank Arena events that occurred in 2010-2019 was approximately $12 million in tax revenue generated.”

What’s interesting is that the release cites only the retail sales tax revenue. It omits the guest tax revenue, which is — according to the analysis that was available at the time of the press release — about $6 million. That’s half as much as the retail sales tax, but it was not included in a press release touting economic impact.

An excerpt from the first page of the CEDBR analysis. Click for larger.

Why didn’t the arena use the guest tax collections, thereby reporting $18 million in tax revenue collected from visitors rather than $12 million? It wasn’t due to concern over the accuracy of the guest tax collections, as arena management told me they were not aware of CEDBR’s error. But because the press release did not mention the erroneous guest tax, arena management says there is no need to correct the press release. This is correct, and it reveals the mistake in not including guest tax revenue.

Adding to our learning about the use of data in economic development is this: Of the sales tax collected by hotels in Wichita, about 87 percent belongs to the State of Kansas, with the remainder shared by Wichita and Sedgwick County. For guest tax, however, all is returned to the city, except for a small administrative fee of two percent. So of the $12 million in retail sales tax revenue promoted by arena management, about $1.5 million was shared by the city and county. 6 For the purported $6 million in guest tax revenue, all went to the city and county, except for the administrative fee.

We also learn about the diligence of Sedgwick County Commissioner Pete Meitzner (district 1) in examining this data. He is quoted in the arena’s press release. But it’s quite easy to see that the analysis erroneously reports county guest tax revenue.

Besides this mistake, there are other areas of concern regarding this analysis of the economic impact of the arena. One is that this report mentions revenue but not costs. 7

The second is that before Intrust Bank Arena opened in downtown, the county owned another arena. That former arena generated economic activity and economic impact, too, including NCAA men’s basketball tournament games. A thorough analysis should look at the marginal activity created by the new arena.


Notes

  1. INTRUST Bank Arena Reports Economic Impact Study Results Through First 10 Years. February 14, 2020. Available at https://www.intrustbankarena.com/release/366/intrust-bank-arena-reports-economic-impact-study-results-through-first-10-years/.
  2. Analysis by CEDBR, version 2, dated 1/6/2020. The document does not seem to be available online at either the arena website or Sedgwick County, but it has been preserved. Available at https://drive.google.com/file/d/11LZfbEXxYPfjLs02zE2fdUaWrQYJiUzm/view.
  3. Sedgwick County. A charter resolution exempting Sedgwick County, Kansas, from the provisions of k.S.A. 12-1692, 12-1693, 12-1694, 12-1694a, 12-1695, and providing substitute and additional provisions on the same subject relating to the levy of a transient guest tax in the unincorporated area of Sedgwick County and providing for purposes of expenditure of such funds; and repealing charter resolution #32. Available at https://library.municode.com/ks/sedgwick_county/codes/code_of_ordinances?nodeId=SECOKACO_APXACHRE_NO._59.
  4. Kansas Department of Revenue. Transient Guest Tax Rate and Filer Report. Available at https://www.ksrevenue.org/pdf/tgratesfilers.pdf.
  5. Analysis by CEDBR, version 3, dated 2/26/2020. Available at https://drive.google.com/file/d/1uhLJBr5PXJ_Y6RaiP13bHNRAK08fEVg4/view.
  6. Specifically, the analysis reports $983,449 in sales tax to the city and $703,714 to the county, for a total of $1,687,163.
  7. It’s common for officials to talk as though there is no cost or expense in owning the arena, because a sales tax was used to pre-fund the arena. After the funds were in place, the arena was built. But, see Weeks, Bob. The finances of Intrust Bank Arena in Wichita. Available at https://wichitaliberty.org/sedgwick-county-government/the-finances-of-intrust-bank-arena-in-wichita/. For annual expenses, in a presentation to Sedgwick County Commissioners in February, county staff reported $1,991,471.99 in expenses charged to the arena’s reserve fund. This was offset by $722,933.65 in revenue, mostly from a revenue-sharing agreement with the arena’s operator and from the sale of naming rights. The declining balance in the arena’s reserve fund led Commissioner David Dennis to wonder if a special tax district could be established to provide more revenue to cover these expenses. See https://drive.google.com/file/d/1UbAfjQaIWQOzrYzIWqKdBIbrqFMDlfX-/view
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