Prepare for sales tax-induced job effects now

Collecting the sales tax to pay for the downtown Wichita arena may produce unintended consequences.

A paper titled “An Assessment of the Economic Impact of a Multipurpose Arena” by Ronald John Hy and R. Lawson Veasey, both of the University of Central Arkansas, (Public Administration & Management: An Interactive Journal 5, 2, 2000, pp. 86-98) looked at the effect of jobs and economic activity during the construction of the Alltel Arena in Pulaski County, Arkansas. This arena cost $50 million. It was funded in part by a one percent increase in the county sales tax for one year (1998). The sales tax generated $20 million.

In the net, considering both jobs lost and jobs gained due to sales tax and construction effects, workers in the wholesale and retail trades lost 60 jobs, and service workers lost 52 jobs. There was a net increase of 198 jobs in construction.

The fact that jobs were lost in retail should not be a surprise. When a sales tax makes nearly everything sold at retail more expensive, the supply curve shifts to the left, and less is demanded. It may be difficult to estimate the magnitude of the change in demand, but it is certain that it does change.

Workers in these sectors, should the sales tax increase take effect, may want to reconsider their career plans. How many retail and service workers can make the transition to construction work is unknown. It is certain, however, that when workers lose their jobs it imposes benefits costs on the government — and the taxpayers.

The population of Pulaski County in 2000 was 361,474, while Sedgwick County’s population at the same time was 452,869, so Sedgwick County is a somewhat larger. Our sales tax will last 2.5 times as long, and our proposed arena is about three times as expensive. How these factors will impact the number of jobs is unknown, but I feel that the number of jobs lost in Sedgwick County in retail and services will be larger that what Pulaski County experienced.

It is interesting to note that the authors of this study, while measuring a positive net economic impact for the Alltel Arena, make this conclusion:

“The primary reason for this positive economic impact is that the state of Arkansas contributed $20 million to the construction of the arena. As a result, the economic impact of building the arena in Pulaski County is greater than it would be if the county had funded the arena by itself. A vast majority of the jobs that will be created will be in the service sector that frequently offers lower wages than jobs in other sectors of the economy.”

The proposed downtown Wichita arena does not have the advantage of having 40% of its cost paid for by outsiders. It may be that we feel even more strongly the negative impacts of the sales tax.

One thought on “Prepare for sales tax-induced job effects now”

  1. During the arena campaign in the September-November 2004 time period the claim was repeatedly made that almost 1/4 of this sales tax would be paid for by people who shop but do not live in Sedgwick County.

    In my mind this figure, of $40 million out of $184.5 million, is totally bogus. I can readily accept that perhaps one-to-three percent of the total taxable sales would be made by non county residents but this would be less than six million dollars.

    I think a figure of four to six percent would be debatable, but not likely. Any figures exceeding 10 percent is absurd.

    The arena proponents use of this $40 million figure, which the credulous Wichita news media never even questioned, is utterly absurd. It is sad that this report from Arkansas did not make it into the public debate during the 2004 referendum election campaign.

    It would be very useful if this information was sent to legislators.

    I would also urge Bob to post the data from the arena proponents campaign spending report. It is remarkable to note the substantial amount of taxpayers’ money from the Sports Commission, the Convention and Visitors Bureau, and the Downtown Development Corporation that was directly used to finance the “Vote YEA!” campaign.

    Karl Peterjohn
    Kansas Taxpayers Network
    http://www.kansastaxpayers.com

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