Voice For Liberty

Tag: Allen Bell

  • Wichita city council signals possible change in economic development incentive policy

    At today’s meeting of the Wichita City Council, discussion by council members and their vote may signal a change in the city’s stance toward economic development incentives.

    At issue was a request for extension of economic development incentives for a Wichita company. Five years ago the city council approved an economic development package for the company that included a tax abatement. As is the city’s policy, the council revisits the issue in five years to see if the company has meet its goal commitments. In the case of this company, one commitment — the building of a new facility — was met. The other commitment — creation of a certain number of jobs — was met early on during the period of the tax abatement, but employment has been declining in recent years, and employment is currently 100 jobs below the goal.

    Recently the city council adopted new guidelines for companies that are not meeting their goals at the time of review. These guidelines make it easier for companies to qualify for the extension of the abatement. If the WSU Current Conditions Index has declined since the awarding of the incentives, the company will qualify for an extension if a majority of the goals are met. A company will also qualify for extension if their peak job creation numbers exceeded the goal, even if the number has fallen, as is the case with the company under consideration today.

    Based on the new guidelines, city staff recommended to approve the extension of the incentives.

    Council member Lavonta Williams asked if it was possible if, as an company receiving an incentive, could “I hire five people today and fire them by Friday and then meet my criteria?” The answer by city economic development director Allen Bell is that the policy contains no such guideline as to minimum period of employment.

    Wichita city manager Bob Layton interjected that staff’s recommendation to approve the extension is a difficult one to make, as this company is in a declining pattern of employment. Additionally, the newly calculated benefit-to-cost ratios are low, and he said he is uncomfortable with that: “We’re actually subsidizing this business, so to speak, or others are subsidizing or bearing their load for debt service.”

    Council member Sue Schlapp asked a question not covered by policy: if we deny the extension today, and next year the company improves its situation, could they come back and ask for the extension of the tax abatement then? There is no definitive answer to this question at this time, according to Bell and Layton.

    Schlapp added that it seems like we’re “lowering the bar all the time” as to the granting of incentives.

    Council member Paul Gray remarked that the council makes itself look bad in these situations, as it always grants extensions even though the city has created policies that should hold companies accountable to their committed goals. The reason for awarding the incentives, he said, was for the increase in employment, and that employment level has not been kept. “We need to start taking a harder stand on this, as we’re going to run out of money if we keep giving it all away.” Vice mayor Jim Skelton agreed.

    No one from the public was there to speak on this matter.

    Wichita mayor Carl BrewerWichita Mayor Carl Brewer was on the losing end of a 6 to 1 vote.

    Gray made a motion to deny the staff recommendation of approval of the extension. Mayor Carl Brewer said that this vote, if it proceeds in the direction it appears to be going, will change the direction of many things that affect businesses in Wichita. He said that the intent of the council is to start holding individuals accountable, and there’s not been a track record of that. It’s been worse since the economy entered the recession, he said. He urged council members to make sure they know which way they’re going with this action. “This will be the direction that we’ll be going as we start working on policy, and it will be effective for everyone, whether it be large or whether it be small. … Just making sure that when we press that button and we head down this path, that we know what we’re doing.”

    The vote was 6 to 1 in favor of Gray’s motion, with the mayor being the lone “No” vote.

    Analysis

    This action by the Wichita city council, being nearly unanimous, is very much different from its action just one week ago, when it employed one new method plus several existing methods to heap millions in subsidy on a downtown hotel developer.

    Today’s discussion is another illustration of just how difficult it is to pick winners and losers, and how difficult it is to choose which companies the city should invest in. This is why I have recommended that Wichita grant tax abatements on all new capital investment.

    Today’s action is especially cruel to the subject company. In the past, city staff has argued that withdrawing tax abatements when a company is struggling is harmful. In December 2008, economic development director Bell said this regarding a company that had not met its performance commitments: “I don’t think it would be productive at this time to further penalize them — as the market has already penalized them — by putting them back on the tax roles at this time.” This is further evidence that taxes are harmful to business and economic growth.

    Council member Williams’ question about hiring and then quickly firing employees indicates that she must not be familiar with the costs of hiring and firing. Furthermore, a company’s unemployment insurance premiums are based on its history, and actions like this would certainly raise premiums by a large amount.

    Extension of EDX Tax Exemption (Sharpline Converting, Inc.)

  • With downtown Wichita hotels doing well, why the need for subsidy?

    At a recent presentation by Wichita’s downtown revitalization planning firm Goody Clancy, data was presented that is at odds with the city’s plans.

    Goody Clancy consultants presented data showing that downtown Wichita hotels are doing better than hotels in the entire Wichita market. Data from the charts shows that Wichita market hotels command an average daily rate of about $78. The rate for downtown hotels is about $110.

    Occupancy rates tell a similar story. For all Wichita hotels the occupancy rate is about 65%, while for downtown hotels the rate is 70%.

    According to Goody Clancy consultant Sarah Woodworth, when occupancy rates are at 65% or higher, the area is ready for new hotel rooms. So it seems that more hotels are needed in downtown Wichita, and that new hotels could be profitable.

    But we’re getting a different story from Wichita’s bureaucratic class. According to them, a proposed Fairfield Inn in the downtown WaterWalk development is not feasible unless the city supplies some $3 million in subsidy to the developer.

    This is according to Wichita Urban Development chief Allen Bell, who says there is a “gap” in the business plan for the proposed hotel. Unless the city steps in and fills the gap, the hotel won’t be built, according to Bell.

    The figures that show the gap, however, are provided by someone who has a multi-million dollar motive to create a gap. Bell says his office checks the arithmetic on these figures, but that doesn’t count for due diligence, especially with the city’s recent history of overlooking important facts about proposed projects.

    Here’s the real question: with the city’s planning firm saying the downtown Wichita hotel market is strong with the market clamoring for new rooms, why does the city say a new hotel can’t be built without subsidy?

  • Wichita city council discusses economic development incentives, again

    At this week’s meeting of the Wichita City Council, underperforming companies that have received economic incentives was at issue.

    Wichita grants incentives — usually in the form of an escape from paying property taxes — to companies. Usually there are conditions attached to the incentives, such as a certain amount of capital investment or employment targets. Recently — and in the past two or so years — several companies that received incentives have not met employment goals. Should the city rescind the tax breaks in these cases? Or should there be recognition that there’s a tough economy at the moment, and should the company be excused from meeting the goals it pledged?

    During a period of questions from the bench, council member Sue Schlapp remarked: “We have to be flexible, don’t we? … Especially in today’s economy, we need to be very careful that we’re not too rigid in what we’re doing.”

    Council member Jeff Longwell said he’d like to see something that rewards companies that bring in business from outside our community. Economic development head Allen Bell answered that the policy is limited to companies that bring in wealth from outside. Businesses that are here because their customers are here are not eligible for economic incentives, he said.

    Longwell also expressed concern about companies that use temporary employees. Should that increase in payroll be included as a benefit, even if the employees are only temps? Bell said yes, even though these jobs are not as good as direct hire placements. Wichita City Manager Bob Layton interjected that we shouldn’t count seasonal peak employee ramp-up in benefit calculations.

    Longwell added that we ought to include the fact that some companies drive up hotel occupancy rates due to the nature of their business. Bell said that this is a factor in the WSU analysis.

    Vice-mayor Jim Skelton inquired about details of the model that WSU uses to calculate the economic benefit of incentives. These calculations, Bell said, are required by the Kansas Legislature. The model presently used is unique to WSU. It focuses on the fiscal impact that an economic development project has on cities, counties, school districts, and the state. It takes into account jobs created, capital that is invested, and other factors. It includes such factors as the need for additional police and other government services, additional sales and bed tax, and other revenue sources. It then performs a present value calculation and produces a ratio. A value greater than one means the benefits exceed the costs.

    City manager Layton said that these incentives represent a contract between the business and the city. The business promises to grow the economy, and the city makes an investment in the company. The council presently is struggling with how to judge the performance of companies that have received incentives in a down economy. The WSU index makes sense, he said. If economic conditions are poor, we now have a tool to judge the performance of the companies that received incentives. There are now extenuating circumstances, he said.

    Mayor Carl Brewer said that we recognize there are challenges, and that in an ideal world we shouldn’t have to provide incentives. But he said we have several options: Be competitive and provide incentives and fight to keep what we have, or don’t provide incentives and see what happens. He said we know what would happen in that case. Businesses will go where they can get these incentives, he said, and we can’t argue that. There will always be incentives, he said, and we have to be competitive.

    The council unanimously approved a revision to the policy that recognizes down periods of economic activity. Then, it approved the extension of tax breaks to three companies that had not met all their performance goals. Passage was not unanimous in two cases, with some council members voting against the extension of the incentives. Dion Lefler’s reporting in the Wichita Eagle is at Wichita City Council eases rules on tax abatements.

    Analysis

    Contrary to the belief of the mayor, council members, and city hall bureaucrats, economic development incentives aren’t all they’re promoted to be. The state of Kansas spent some $1.3 billion on incentives over five years. In a recent report produced by the Kansas Legislative Division of Post Audit, one of the summary points is this: “Most studies of economic development incentives suggest these incentives don’t have a significant impact on economic growth.” See In Wichita, let’s have economic development for all for more on this report and a link to the document.

    There is an interesting academic paper titled The Failures of Economic Development Incentives, published in Journal of the American Planning Association. A few quotes from the study, with emphasis added:

    Given the weak effects of incentives on the location choices of businesses at the interstate level, state governments and their local governments in the aggregate probably lose far more revenue, by cutting taxes to firms that would have located in that state anyway than they gain from the few firms induced to change location.

    On the three major questions — Do economic development incentives create new jobs? Are those jobs taken by targeted populations in targeted places? Are incentives, at worst, only moderately revenue negative? — traditional economic development incentives do not fare well. It is possible that incentives do induce significant new growth, that the beneficiaries of that growth are mainly those who have greatest difficulty in the labor market, and that both states and local governments benefit fiscally from that growth. But after decades of policy experimentation and literally hundreds of scholarly studies, none of these claims is clearly substantiated. Indeed, as we have argued in this article, there is a good chance that all of these claims are false.

    The most fundamental problem is that many public officials appear to believe that they can influence the course of their state or local economies through incentives and subsidies to a degree far beyond anything supported by even the most optimistic evidence. We need to begin by lowering their expectations about their ability to micromanage economic growth and making the case for a more sensible view of the role of government — providing the foundations for growth through sound fiscal practices, quality public infrastructure, and good education systems — and then letting the economy take care of itself.

    On the surface of things, to the average person, it would seem that spending (or granting tax breaks, it’s the same thing) to attract new businesses makes a lot of sense. It’s a win-win deal, backers say. Everyone benefits. This is why it is so appealing to politicians. It lets them trumpet their achievements doing something that no one should reasonably disagree with. After all, who could be against jobs and prosperity? But the evidence that these schemes work is lacking, as this legislative audit and article show.

    I have suggested to the city council that a broad-based tax abatement on new capital investment could propel economic growth in Wichita. See Wichita universal tax exemption could propel growth.

    But a plan like this doesn’t give bureaucrats much to do, and gives politicians little to crow about to their constituents at election time. All it’s good for is the people who want economic growth.

  • Wichita city council discusses economic development incentives

    Last week a Wichita company that’s expanding made an application for industrial revenue bonds and accompanying property tax abatements. The company’s application wasn’t timely, and for that reason is not likely to receive the requested help. The discussion surrounding the item provides insight into city council members’ ideas about the role of the city in economic development.

    Industrial revenue bonds, or IRBs, are not a loan from the city, and the city does not make any guarantee that the bonds will be repaid. The primary benefit to the recipient of IRBs is that the property purchased with the bonds will generally be exempt, in whole or in part, from property taxes for some period. Also, the company may not have to pay sales tax on the property purchased with the bonds.

    The agenda report for this item is at Request for Letter of Intent for Industrial Revenue Bonds, Michelle Becker, Inc. (District V).

    In introducing the item, the city’s economic development chief Allen Bell said that because the project has already started construction, it falls outside the guidelines for the city’s IRB program. The construction is 85% to 90% complete.

    A question by council member Sue Schlapp established that if the company had made application before the building was started, the application would have been approved as routine.

    She also asked that if we approve this action today, will we have to go back and look at other businesses that are in the same place? Wichita City Manager Bob Layton asked that the council establish guidelines that if a project has already started, a project is not eligible for this type of assistance.

    There was also some discussion about whether this company would move away from Wichita if the tax abatement was not granted. Since the building is already under construction, Bell said this is evidence that the company is intending to stay in Wichita. “It’s difficult to think of an incentive as something that’s given after the fact,” he said.

    A question by council member Paul Gray established that there have not been many cases where companies have asked for tax breaks retroactively, according to Bell’s answer. Bell also said that he didn’t think that approving the current application would spur an avalanche of similar requests.

    Gray also noted that we can create economic disparities between companies by granting incentives, so how do we justify doing this? Bell’s answer was that an important consideration is bringing business from out of state instead of taking business away from other local companies.

    Layton added that an important consideration is whether the project can more forward without public assistance.

    Council member Jeff Longwell remarked that “we really don’t have that many tools in our toolbox for emerging businesses.” Bell agreed.

    In later discussion, Longwell said “I hate to penalize this emerging company … I should have got them in on this process long before we did and we wouldn’t even be having this argument. So I suppose I am at fault in part of this delay.”

    Gray said that because we’re not competing against another community for this company — the normal use of incentives — he can’t support this application.

    Council member Janet Miller said that the appropriate time to look at incentives is, as the manager said, when we think a company can’t move forward without the incentive. She also noted that we’re being asked to approve an action for which we’re going to soon have a policy against.

    Schlapp, indicating a desire to approve the incentive, asked for justification: “We have a company here that doesn’t need an incentive but wants an incentive … can somebody justify that?”

    Longwell said it’s not as simple as a need and a want. He said the applicant is a smart, well-managed company. But we shouldn’t use the qualifier of helping only the companies that couldn’t succeed without the city’s help. “Why not reward some some of those companies that are very well managed and run smart and have the ability to grow even more with our help than without it?” Again he referred to the lack of tools for emerging businesses. “We ought to be helping these types of companies that we think can truly prosper even more with our help … I think they fully warrant our help because they’re successful …”

    Mayor Carl Brewer said that we have a proven track record of trying to help businesses and to get businesses to come to our area. He agreed with Longwell in that we need additional tools to use for economic development, as other communities have been competing successfully. We don’t have the same tools that other communities have, he said.

    Longwell suggested the city visit with the applicant about her financing. He made a motion to defer this item. Council member Williams asked about the impending completion of the project, since it’s scheduled to be completed at the end of December. The answer from the manager was that with regard to IRBs, the project would not be eligible after it’s complete. The motion passed with Council member and Vice-mayor Jim Skelton opposed.

    Analysis

    What’s striking about the discussion are these two things:

    First, many council members and some city staff believe that the city doesn’t have enough “tools in the toolbox” for shoveling incentives on companies for economic development purposes. Evidently the ability to grant exemptions from property taxation — and not only the city’s property tax levy, but also that of the county, school district, and state — along with the ability to make outright gifts of money is not enough.

    Second, many council members and some city staff believe that they can determine which companies are worthy of incentives.

    According to city manager Layton, the city is going to revisit its economic development policies soon. This would be a good time for Wichita to come up with ideas that would benefit all companies, not only those that fall within guidelines that the council or city staff creates. My suggestion, explained in Wichita universal tax exemption could propel growth, is to give all new capital investment a tax abatement for a period of five years.

    At the state level, there has been some discussion about the costs of tax abatements or exemptions. In a recent debate in Wichita, Kansas Secretary of Revenue Joan Wagnon used the term “tax expenditures” to describe these giveaways of the state’s income. The idea is that if the state (or other governmental body) didn’t create tax abatements or exemptions, revenue to the government would be higher. Her debate opponent Alan Cobb said it’s wrong to term these tax giveaways as “expenditures,” as the money belongs to the people first, a position I agree with.

    There is the related issue of these tax abatements or exemptions really being appropriations of money that, if processed through the normal process of legislative hearings, etc., would be noticed for what they are. In Wichita city government we don’t have hearings quite like the Kansas Legislature, but the idea is the same: if this company had asked for a grant from the city for $22,253 (that’s the value of the first year of the requested tax abatement, with a similar figure for the following nine years, less $2,500 a year to the city for administrative fees), citizens — news media too — would quite likely look at this matter differently. Presented as industrial revenue bonds — just what are those anyway? — and a tax abatement, well, it all seems so … so innocent, so municipal.

    A few more observations:

    Council member Jeff Longwell’s confession of being at fault for the lateness of this company’s application should be remembered by voters in the next election, should he decide to seek to retain his current post, or — as some have told me — he seeks the mayorship of the city.

    There’s also Longwell’s use of the term “reward,” in that the city should “reward some some of those companies that are very well managed and run smart.” I’d like to remind him and the rest of the council that the free enterprise system contains a very powerful reward mechanism for companies that do well: profit. That alone is sufficient.

    Coverage from the Wichita Eagle is at Wichita City Council puts off tax breaks for accounting firm.

  • At Wichita city council, special pleading of selfish interests

    At yesterday’s meeting of the the Wichita City Council, a matter was presented to the council that provided an illustration of basic economic principles that are foreign to the council.

    A condominium homeowners association asked for special assessment tax financing to make repairs to the building. My remarks that I delivered at the meeting were based on my post In Wichita, waiving guidelines makes for bad policy.

    David M. Bryan, a Wichita attorney and resident of the building, represented the the homeowners association that is asking for the special assessment financing. He spoke after I did. His wife accompanied him to the podium.

    Bryan’s case for help was based on factors that — besides being irrelevant — show just what a fiasco this matter is. It also illustrates just how selfish these condominium owners are in expecting the city to bail them out of their problem.

    First, he says that he and the other condo owners represent one of the goals of downtown redevelopment. “We all took that leap of faith and bought the lofts” when the building was still under construction.

    He didn’t know what tuckpointing was when he moved in to this building, and he and the other residents didn’t know that this [the need for repair] was going to happen.

    He said that he thinks the building represents a sound and good investment in downtown redevelopment, and that the building is part of what the city council wants to accomplish.

    Conventional financing for these repairs would, Bryan said, require personal guarantees by all residents, and that would prevent the individual units from being sold unless the entire loan was paid off.

    (In my testimony, I made the point that the amount that each condominium owner needs to pay to fix the building is on the order of what it would cost to paint a conventional house of the same value as these units. There’s also a defect in the ownership structure of this building if there is no way to pay for repairs like the present situation, as things like this are foreseeable.)

    Council member Paul Gray, speaking from the bench, expressed concern that approval of this request sets a precedent for other condominium buildings in Wichita to make the same request that this building has made.

    In the end, council member Lavonta Williams made the motion to approve the financing. All members except Gray voted for it. Vice-Mayor Jim Skelton was not present.

    After the council voted, Mrs. Bryan gave Wichita economic development director Allen Bell a pat on the back, and Bell and Mr. Bryan shared a congratulatory handshake. You can see these things by attending the meetings in person.

    It appears that the city’s desire for downtown redevelopment is an unsustainable goal that can’t be maintained without continued subsidy. The message is this: When a downtown development gets in financial trouble, make a beeline to city hall. This was the case last year when the Warren Theater received a no- and low-interest loan from the city, propping up the city’s ill-conceived investment in a TIF district benefiting that theater.

    Recently we learned that rehabilitation of a downtown hotel is on hold because historic tax credits — that is, outright gifts to developers — are on hold because the state can’t afford to grant them.

    Now, buildings that need small repairs that can be deemed to be part of the city’s plan for downtown redevelopment are eligible for special assessment financing.

    I don’t think the council is aware of the corrosive effect of these special favors. No news media reported this story. It is a small amount of money that is involved in this case. This matter is emblematic, however, of an activist city council and city staff who believe they can direct economic investment in Wichita better than its citizens can on their own.

    While listening to Bryan make his case, I thought this is an illustration of the lessons Henry Hazlitt taught us in his classic work Economics in One Lesson. The first chapter may be read at One Lesson, which I excerpt here:

    Economics is haunted by more fallacies than any other study known to man. This is no accident. The inherent difficulties of the subject would be great enough in any case, but they are multiplied a thousandfold by a factor that is insignificant in, say, physics, mathematics, or medicine — the special pleading of selfish interests.

    While every group has certain economic interests identical with those of all groups, every group has also, as we shall see, interests antagonistic to those of all other groups. While certain public policies would in the long run benefit everybody, other policies would benefit one group only at the expense of all other groups. …

    In addition to these endless pleadings of self-interest, there is a second main factor that spawns new economic fallacies every day. This is the persistent tendency of men to see only the immediate effects of a given policy, or its effects only on a special group, and to neglect to inquire what the long-run effects of that policy will be not only on that special group but on all groups.

  • At Wichita city council, citizens are frustrated

    Yesterday’s meeting of the Wichita City Council provided a lesson in how frustrating it can be for citizens to interact with city government.

    You might even have to endure a slight insult from our mayor.

    The matter in question involved real estate developer Dave Burk and the city’s economic development office.

    Regarding this matter, I wrote Mr. Burk by email early Monday morning with a question. He didn’t reply. I should have followed-up with a telephone call, but I didn’t have time.

    Monday afternoon I called the city’s economic development office with a few questions. The person I talked to was confused by the questions I asked, and suggested that I make records requests to get what I was asking for. There wasn’t time for that.

    So I wrote by email to Allen Bell the city’s economic development director. He didn’t reply. I don’t necessarily fault him for that, as it was around 3:00 Monday afternoon when I wrote. But he still hasn’t replied, and it’s Wednesday afternoon now.

    In my questions before the council, which you can read by clicking on Wichita facade improvement loan program: questions to answer, I asked if Burk had been investigated through background checks by the city, as the city has pledged to conduct thorough background investigations of its partners. Bell replied that he had been through checks in the past with regard to other deals.

    But we now know, based on events from last December, that the checks the city conducted were cursory, and failed to uncover important facts about a developer. At that meeting, the mayor sternly scolded city staff for their lack of diligence in performing these checks.

    Bell said that Burk is “well known in the community.” It hardly bears mentioning that sitting in the Sedgwick County jail at this moment is another developer who was very well known and very highly regarded in his time. So having a familiar face is not sufficient.

    Bell also revealed that now Burk has equity partners, and the city will be vetting them. That’s too late, however. The ordinance has been passed.

    Bell said that the risk analysis has been performed. That was subject of the inquiry I made in my email to Bell. But there was no mention of that in the agenda materials, and Bell didn’t answer my email.

    Mr. Burk then spoke. He said that the fee being paid to the developer ($39,277) is not being paid to him personally, but is instead “overhead and profit for the contractor doing the work.”

    This is hair-splitting at its finest. If that money wasn’t supplied by this loan, Burk would have to pay it himself.

    He also questioned a figure of 6.5% for an interest rate that I used. That figure is from the agenda material Bell’s office prepared. If citizens can’t rely on that — and remember I contacted Burk and Bell’s office too — what can they rely on?

    Burk said that in today’s market it’s difficult to borrow adequate funds from commercial banks. There’s a reason for that, I would submit.

    He mentioned also that he’d been vetted. Again, this would have been from the time when the vetting process wasn’t rigorous enough to be meaningful.

    Additionally, any vetting process of Burk should take into account his involvement as part of the development team for Waterwalk. This highly-subsidized development in downtown Wichita is recognized as a failure by even the Wichita Eagle editorial board.

    Mayor Carl Brewer thanked Burk for answering questions, because “sometimes information is put out there that’s inaccurate and that’s the way it’s left, as being inaccurate.”

    To the extent that my questions were based on inaccurate information — and that something that’s far from true — some things could have been cleared up if my inquiries the day before had been successful. While it may seem that inquiring the day before a meeting is waiting until the last minute, the agenda and accompanying material for the Tuesday meetings of the council isn’t available until the Thursday or Friday before. So there’s not a lot of time for citizens to act.

    In the end, anything I might have said or questions I might have raised probably would have made little difference in the council’s action. Burk and his wife have made generous campaign contributions to most members of the council, including a total of $2,000 to Janet Miller’s recent successful campaign (that’s the maximum amount it’s possible for two people to contribute). If I’d paid that much, I’d probably feel like I didn’t have to answer questions from pesky citizens.

    A question to raise, and one that needs answering, is if this is a new strategy the city will use in the future: Don’t answer questions from citizens. Provide incomplete or erroneous information in the material you make available. Then, if citizens ask questions, you get to point out all the ways they’re wrong — and on television, too.

  • Wichita City Hall confusion leads to evaporation of confidence

    New procedures and perhaps new personnel are required to regain citizens’ trust.

    Reporting in the Wichita Eagle by Brent Wistrom (City vows to better vet its partners, Sunday December 15, 2008) has revealed a city staff confused as to basic procedures for safeguarding citizens’ taxes, not to mention their trust.

    I won’t go into the details of Mr. Wistrom’s reporting, except to quote him as concluding that “city officials offered confusing and sometimes conflicting versions of how they analyze private business partners who ask for city assistance.” The city officials referred to include interim city manager Scott Moore, Allen Bell, Wichita’s director of urban development, and Van Williams, Wichita’s Public Information Officer and former Wichita Eagle reporter. Also mentioned was the city’s law department, which is headed by Gary Rebenstorf.

    It appears that the city uses Google to gain information about its potential business partners. But there’s a few problems with relying only on free public search engines like Google and its competitors. For example, not everything on the Internet is in Google. Court records and other documents may reside on the “hidden Internet,” websites that require a user account and perhaps a subscription fee. Google and other search engines generally can’t see and index material on these sites.

    But what’s really troubling is that while the city extract guarantees from developers that they will cover any shortfalls in tax revenues that will pay off the TIF bonds, evidently no credit checks are performed. What good does it do to get a guarantee of responsibility for potentially millions of dollars in tax revenue shortfall, when the guarantor person or company has few assets and little ability to make good on their promise?

    It appears that a citizen wanting to finance an automobile or obtain a credit card is scrutinized more closely than are potential city business partners.

    The ownership of the business entities behind the Renaissance Square project in the C.O.R.E. Redevelopment District has been restructured to eliminate the developer whose past problems lead to delay. But there’s still a taint on this project. As reporting in the Wichita Eagle has revealed, there is no money available to borrow for projects like this. Even if the city council were to approve this project this week, it would likely be some time before the project gets moving.

    Time is not of the essence. Let’s wait before proceeding. Given the confusion at Wichita city hall that Mr. Wistrom reported, citizens can have no confidence in proceeding with any projects like this until better procedures are put in place. Then, we’re not going to take Allen Bell’s word that these procedures are in place, as recent events give us little confidence in his capabilities or judgment. We’ll need some independent confirmation that city staff and council members are to be trusted in matters such as these.

  • Wichita TIF Developer’s Ownership Restructuring not Very Reassuring

    Recent reporting by the Wichita Eagle uncovered troubling facts from the past of a developer the city is considering partnering with. (See the Wichita Eagle story 35 suits in developer’s past and my blog post Wichita’s Faulty Due Diligence.)

    Referring to the C.O.R.E. Redevelopment District project, Wichita Eagle reporter Dion Lefler said this on the KPTS television public affairs program Kansas Week yesterday: “This is a project the city has been working on for years, and it was absolutely astonishing to me that in a relatively short period of time I was able to come up with something — I mean, they have a development department, they have a legal department, they have a police department, they have two ex-investigative reporters on staff. So why this came to light literally on the day of the vote was just astonishing to me.”

    So now that it’s been reported that this potential city business partner has some problems in his past. What to do? Here’s some material from the agenda report for the December 16, 2008 Wichita city council meeting:

    “ICDC, LLC was formed by Grant Gaudreau and Joel Associates, LLC several years ago to undertake real estate development projects. Joel Associates, LLC is wholly owned by Joseph L. Cramer and Len Marotte. Due to recent developments, ICDC has been reorganized to vest sole ownership of ICDC in Joel Associates. To eliminate any possibility that former ownership interests could adversely impact the viability of the development project, Joseph L. Cramer and Len Marotte have formed a new entity to act as developer of the project. The new entity is Renaissance Square, LLC (the “Developer”), whose sole member is Joel Associates, LLC.”

    So in less than two weeks, the person that Wichita economic development director Allen Bell referred to as “principal developer” is now thrown under the bus so that the project can proceed. I would submit, however, that a little shuffling of the ownership structure of the project is hardly assurance to Wichitans that this project is on the up-and-up.

    (There’s some confusion as to the spelling of the name “Cramer.” On the document he is to sign, his name is spelled “Kramer.”)

    Here’s some unanswered questions:

    • Did Allen Bell and city staff know everything about the background of Grant Gaudreau that the Wichita Eagle was able to uncover in a day and a half of reporting? If no, then why not, given the resources the city has at its disposal?
    • If they knew these things, what should we make of Allen Bell and city staff’s judgment, in that they thought these things weren’t a problem?
    • How much did Joel Associates, LLC pay Grant Gaudreau for his ownership interest in ICDC, LLC?
    • And finally, the most important question: when did Wichita Mayor Carl Brewer and city council members learn of these problems?

    Until we get some definitive answers to these questions, approval of this TIF development should be not be considered.

  • No Diligence in Wichita City Hall

    Rhonda Holman’s Wichita Eagle editorial today (Need vetting of City Hall partners) correctly states that city staff “missed the mark in vetting negotiator Grant Gaudreau.” Or is the proper title “principal developer,” as stated by Wichita’s director of urban development Allen Bell? (See Wichita’s Faulty Due Diligence for video.)

    There’s a lot of confusion over this matter, and times like this let us get a closer look at what’s going on in city hall. We can also learn a lot about the attitudes of government officials and city staff. For example, a Wichita Eagle news story reported this:

    “Grant was never a big money player in this,” Fearey said. “He’s always just been the person who had time to come to the city and work through things and also knew a lot about who to go to in the city and how to work the system.”

    First, note the disparity between Allen Bell’s “principal developer” and Wichita city council member Sharon Fearey’s “never a big money player.” But what’s really troubling is that Fearey acknowledges that there’s a “system” at city hall that someone knows “how to work.” This doesn’t say a lot for openness and transparency in Wichita city government. It also perpetuates the realization that there’s a network of insiders who know how to milk the halls of government power for their own benefit.

    Then, the Eagle news story contains this: “[Wichita Mayor Carl] Brewer said he wants to ensure that developers can complete the project in a reasonable time and that there are no other problems.” If our mayor can figure out some way to eliminate the risks that entrepreneurs take, more power to him. If successful, I might consider voting for him, should he decide to run for re-election.

    The fact is, however, that real estate development is a tremendously risky endeavor. Entrepreneurs — people with their own money at stake, with their ears to the ground every day and the experience, power, and discretion to alter plans as the situation dictates — are the people best suited to assume and negotiate this risk. Politicians operate in a different environment with a different set of incentives.