Voice For Liberty

Tag: Community Improvement Districts

  • Wichita taxing district to expand

    Wichita taxing district to expand

    The City of Wichita plans to expand a special tax district.

    Next week the Wichita City Council will consider expanding an existing CID, or Community Improvement District, in the Delano neighborhood near downtown Wichita. A map provided by the city is nearby.

    Community Improvement Districts are a mechanism whereby extra sales tax is collected within a district. For this CID, the city asks to collect an extra two cents per dollar, which is the maximum allowed in Kansas.

    CIDs are distinguished from STAR bonds, in which incremental sales tax revenue in a district is captured and handled differently from the base sales tax. The sales tax rate remains as before. The ballpark and surrounding area use both CID and STAR bonds, as well as other public funding.

    In its analysis appearing in the agenda packet for the February 11, 2020 meeting, the city provides this:

    The expanded boundaries will permit the collection of additional CID revenues and the application thereof to development opportunities as well as the design and construction of the Stadium, utilities, parking, and other improvements related to the Stadium and river corridor improvements. The expansion further permits the use of funds to support the construction of public auditoriums and convention centers.

    The CID petition included the $83,000,000 stadium project, which includes both the $75,000,000 stadium and $8,000,000 in supporting infrastructure. The amended petition has an estimated project costs of $210,200,000, which includes the additional $127,200,000 in project costs related to the Riverfront Partners project.

    Project costs originally included costs related to the development of a multi-sport stadium, related infrastructure and adjacent commercial, retail residential and parking structures. The amendment has been expanded to include public auditoriums and convention centers as well as the additional commercial construction on the Development Site.

    In this context, “Development Site” refers to the Riverfront Partners site north of the ballpark, southwest of Douglas and McClean Boulevard.

    Of note, the CID includes a portion of the land included in the Riverfront Legacy Master Plan. The city contemplates that CID funds might be used there: “The petition also requests that the uses of CID revenues be expanded to include uses contemplated by the DA to be made on the Development Site, costs for additional parking and costs that may be associated with for potential development on the east side of the Arkansas River that is within the Stadium CID.”

    The item the council will consider also includes a correction, as explained by the city: “The petition also requests removal of certain City-owned property that was inadvertently included in the Stadium CID.”

    The city plans to borrow funds to be repaid by the CID tax collections: “The City anticipates issuing up to $13,000,000 in bonds, based on a pledge of CID revenue.”

    Don’t want to pay? Don’t go there.

    Does the use of CID mean the city has raised taxes? Certainly, the sales tax within the CID is higher (9.5 percent) than outside (7.5 percent). But that extra tax can be avoided. It is common for city council members to advise citizens that if they don’t want to pay the higher sales tax, just don’t go there.

    On the surface, this reasoning is correct. But as explained in city documents, the city is borrowing money to be repaid by CID tax collections. If enough people take this advice and avoid patronizing merchants within the CID, there may be a shortfall of money to make bond payments. Since the city’s policy is that CID bonds are not backed by the full faith and credit of the city, Wichita as a city is not on the hook. 1 But should this happen and the city defaulted on CID bonds, it would be a severe blow to the city’s reputation.

    A similar situation exists for the STAR bonds the city has issued to fund the ballpark and related spending. If the district fails to generate enough incremental sales tax revenue to make bond payments, city taxpayers are not liable. 2 But the failure of these bonds would, again, severely damage the city’s reputation.

    Further, the city expects property tax revenue to pay off tax increment financing (TIF) bonds issued in favor of the project.

    Even more, the city expects the economic activity generated by the ballpark and surrounding development to spin-off associated economic activity that will generate further tax revenue. If this does not happen, and happen in a big way, the project threatens to be a burden on the city budget, and by extension, taxpayers.

    From the agenda for the February 11, 2020 council meeting, showing area to be added and removed from the CID. Click for larger.

    —
    Notes

    1. City Of Wichita Community Improvement District Policy. “While the CID Act permits the issuance of either full-faith and credit general obligation bonds or special obligation bonds, payable solely from the CID revenue, it is the policy of the City of Wichita to issue only special obligation CID bonds.” ↩
    2. $42,140,000 City Of Wichita, Kansas Sales Tax Special Obligation Revenue Bonds (River District Stadium Star Bond Project) Series 2018. “The series 2018 bonds are not general obligations of the city and neither the full faith and credit nor the general taxing power of the city, the state, or any political subdivision thereof is pledged to the payment of the series 2018 bonds. The series 2018 bonds shall not constitute an indebtedness of the city, the state, or any political subdivision thereof within the meaning of any constitutional or statutory debt limitation or restriction.” ↩
  • It may become more expensive in Wichita

    It may become more expensive in Wichita

    The City of Wichita plans to create a large district where extra sales tax will be charged.

    At next Tuesday’s Wichita City Council meeting, the council will consider imposing additional taxes in downtown Wichita and Delano. The new tax district includes the new baseball park and large amounts of surrounding land, some of the land in Waterwalk east of the Arkansas River, and land as far north as First and Waco.

    The new tax is known as a Community Improvement District, or CID. In these districts, merchants charge additional sales tax which is used to benefit the owners of property in the district. In this case, the city is proposing to add two cents per dollar to the existing 7.5 percent sales tax.

    City documents give this for the use of the funds: “CID revenue will be used for the design and construction of the stadium utilities, parking, and other improvements related to the stadium, river corridor improvements and surrounding development on the west bank, within the district.”

    Of note, the city proposes to pass the ordinance on emergency first reading.

    Following, a map of the CID. Click for a larger version.

  • From Pachyderm: Economic development incentives

    From Pachyderm: Economic development incentives

    A look at some of the large economic development programs in Wichita and Kansas.

    Here’s video of a presentation I gave at the Wichita Pachyderm Club this week on economic development incentives. The video was produced by Paul Soutar of Graphic Lens. View below, or click here to view at YouTube.

    Following, articles that address some of the topics I presented:

    • Industrial revenue bonds in Kansas: Industrial Revenue Bonds are a mechanism that Kansas cities and counties use to allow companies to avoid paying property and sales taxes.
    • Wichita TIF projects: some background: Tax increment financing disrupts the usual flow of tax dollars, routing funds away from cash-strapped cities, counties, and schools back to the TIF-financed development. TIF creates distortions in the way cities develop, and researchers find that the use of TIF means lower economic growth.
    • Community improvement districts in Kansas: In Kansas Community Improvement Districts, merchants charge additional sales tax for the benefit of the property owners, instead of the general public.
    • STAR bonds in Kansas: The Kansas STAR bonds program provides a mechanism for spending by autopilot, without specific appropriation by the legislature.
    • PEAK, or Promoting Employment Across Kansas: PEAK, a Kansas economic development incentive program, redirects employee income taxes back to the employing company.
    • Historic preservation tax credits, or developer welfare: A Wichita developer seeks to have taxpayers fund a large portion of his development costs, using a wasteful government program of dubious value.

  • Naftzger Park private use plans unsettled

    Naftzger Park private use plans unsettled

    An important detail regarding Naftzger Park in downtown Wichita is unsettled, and Wichitans have reason to be wary.

    In the developer agreement regarding Naftzger Park passed on December 19, 2017, there was this: “The City and the Board will cooperate with Developers, upon Developers’ request, to create an Annual Master Calendar of private and public events for the Park, with the expectation that the Developers will have the use of the Park for certain private events.” 1 (In this agreement, “Board” refers to the Board of Park Commissioners of the City of Wichita, Kansas.)

    Recently I asked the city if this master calendar had been created, or if there was a framework for determining how many private events can be held. According to the city, decisions are ongoing, and “According to Park & Recreation officials, what can be shared now is that the City will create and maintain a master calendar of events and programming. The developer will share in the programming responsibility and host several events throughout the year. Collaborating will ensure that the park is programmed well and active.”

    Wichitans should not take comfort in learning this. We can easily imagine where the developer will want to have private events often, especially if homeless people continue using the park as a gathering spot, as is their right. “TGIF kickoff, tonight at Naftzger Park! Drinks and hot hors d’oeuvre! $15 to enter, free to residents of Lofts at Spaghetti Works and partners at Martin Pringle.”

    Could this happen? How often could this happen? These are open questions, and we’re being asked to trust that city bureaucrats will negotiate a good deal for the entire city.

    A panoramic view of Naftzger Park at winter’s end. Click for larger.

    We shouldn’t trust the city to get a good deal for the average Wichitan. Even if the city strikes a deal that looks good, we should not trust the city to enforce the deal. Here’s an example to illustrate why.

    In 2012 the city negotiated a deal with a private developer regarding an apartment development. As part of the deal, the city negotiated a provision that requires the apartment developer to pay “Additional Annual Rent” if certain conditions were met. To the casual observer, that might seem like a magnanimous gesture by the apartment developer. It made it look like the city was been a tough negotiator, hammering out a good deal for the city, letting citizens profit along with the apartment developer.

    But the list of costs the developer could deduct before determining “additional annual rent” was broad, including the ability to contribute to reserve funds that would be owned by the developer. At the time, I observed, “We can be sure that if this project was ever in the position where it looked like it might have to remit ‘Additional Annual Rent’ to the city, contributions to these reserve funds would rise. Then, no funds paid to the city.” 2

    As it turns out, the city did not enforce this agreement. It didn’t even ask for the information needed. Last year I became aware that the city did not ask for, and the developers did not produce, annual reports. 3

    So might it happen that the private developments adjacent to Naftzger Park treat the park as their own? Recall that these developers have taken advantage of nearly every available program to fund their private developments. 4 Included in the list of benefits is a new benefit the city has offered only once before, to my knowledge: The city is paying the developer for parking spaces, on the theory they will be available to the public when the development does not need them.

    Many of these benefits to the developer appeared only after the Wichita city manager said the development would not proceed, as the Wichita Eagle reported: “Plans to tear up and rebuild Naftzger Park downtown have been shelved indefinitely, after developers who own neighboring property pulled out of working with the city, Wichita City Manager Robert Layton said Friday [November 17, 2017].” 5 Somehow the deal was quickly revived, with even more taxpayer-funded benefits to the developer.

    Should Wichitans trust the city to negotiate a good deal, and if it does, to enforce it? In my experience, the answer is no.

    —
    Notes

    1. DEVELOPMENT AGREEMENT between the CITY OF WICHITA, KANSAS, BOARD OF PARK COMMISSIONERS OF THE CITY OF WICHITA, KANSAS, SENECA PROPERTY, LLC, and SUNFLOWER WICHITA, LLC Dated as of January 19, 2018. Section 3.12. In the agenda packet for the December 19, 2017 Wichita city council meeting. ↩
    2. Weeks, Bob. Wichita WaterWalk apartment deal not good for citizens. Available at https://wichitaliberty.org/wichita-government/wichita-waterwalk-apartment-deal-not-good-for-citizens/. ↩
    3. Weeks, Bob. Wichita WaterWalk contract not followed, again. Available at https://wichitaliberty.org/wichita-government/wichita-waterwalk-contract-not-followed/. ↩
    4. Weeks, Bob. Naftzger Park project details. Available at https://wichitaliberty.org/wichita-government/naftzger-park-project-details/. ↩
    5. Lefler, Dion. Naftzger Park won’t be torn down, rebuilt after Spaghetti Works developer pulls out. Wichita Eagle, November 17, 2017. Available at http://www.kansas.com/news/politics-government/article185304103.html. ↩
  • In Wichita, three Community Improvement Districts to be considered

    In Wichita, three Community Improvement Districts to be considered

    In Community Improvement Districts (CID), merchants charge additional sales tax for the benefit of the property owners, instead of the general public. Wichita may have an additional three, contributing to the problem of CID sprawl.

    This week the Wichita City Council will hold public hearings considering the formation of three Community Improvement Districts. In Kansas Community Improvement Districts, merchants charge additional sales tax for the benefit of the property owners, instead of the general public. 1

    Each of these CIDs will charge customers additional sales tax, with a cap on the amount that may be raised, and a separate cap on the length of the CID. For the three projects this week, here are the details: 2

    Delano Catalyst CID: 2% additional tax, raising up to $3,000,000, up to 22 years
    Spaghetti Works CID: 2% additional tax, raising up to $3,118,504, up to 22 years
    Chicken N Pickle CID: 1.5% additional tax, raising up to $2,300,000, up to 15 years

    All these CIDs are of the pay-as-you-go type, which means the city is not borrowing money that would be repaid by the CID tax proceeds. Instead, the CID tax proceeds are periodically sent to the landowners as they are collected. The city retains a 5% administrative fee.

    Additionally, two of these CIDs earmark 10% of the CID tax collections for public benefits, which are extra park maintenance for the Spaghetti Works CID, and street improvements for the Chicken N Pickle CID. While these earmarks may seem magnanimous gestures, they directly work to the developers’ benefit. For Spaghetti Works, Naftzger Park is, in effect, becoming the front yard to a development. It will be of great benefit for it to be maintained well, especially considering that the developers will be able to close the park for private events. For the Chicken N Pickle CID, the street improvements the CID will fund are usually paid for by special tax assessments on the nearby landowners, which in this case is the Chicken N Pickle. This is a large savings.

    By the way, none of the applications for these economic development incentives pleads economic necessity. They simply want more money, and are willing to let government take the blame when customers notice they’re paying 9% or 9.5% sales tax in these districts.

    Of additional note: The Delano and Spaghetti Works developments are receiving many millions of taxpayer-provided subsidy from other economic development incentive programs. 3 4

    It will be interesting to see how the council’s two new members, Brandon Johnson (district 1, northeast Wichita) and Cindy Claycomb (district 6, north central Wichita), will vote in these matters. As Progressives, we might expect them to be opposed to higher sales taxes, which affect low-income households disproportionally. We also might expect them to be opposed to targeted tax incentives for the “wealthy,” such as the now-defunct exemption on pass-through business income in Kansas. Here, they are asked to vote on a highly targeted tax incentive that will benefit identifiable wealthy parties.

    Issues regarding CID

    Perhaps the most important public policy issue regarding CIDs is this: If merchants feel they need to collect additional revenue from their customers, why don’t they simply raise their prices? But the premise of this question is not accurate, as it is not the merchants who receive CID funds. The more accurate question is why don’t landlords raise their rents? That puts them at a competitive disadvantage with property owners that are not within CIDs. Better for us, they rationalize, that unwitting customers pay higher sales taxes for our benefit.

    Consumer protection
    Customers of merchants in CIDS ought to know in advance that an extra CID tax is charged. Some have recommended warning signage that protects customers from unknowingly shopping in stores, restaurants, and hotels that will be adding extra sales tax to purchases. Developers who want to benefit from CID money say that merchants object to signage, fearing it will drive away customers.

    State law is silent on this. The City of Wichita requires a sign indicating that CID financing made the project possible, with no hint that customers will pay additional tax, or how much extra tax. The city also maintains a website showing CIDs. This form of notification is so weak as to be meaningless. See Wichita community improvement districts should have warning signs and In Wichita, two large community improvement districts proposed. In the latter, future Wichita Mayor Jeff Longwell argued that signs showing different tax rates for different merchants would be confusing. Council Member Sue Schlapp said she supported transparency in government, but informing consumers of extra taxes would make the program “useless.”

    Eligible costs
    One of the follies in government economic development policy is the categorization of costs into eligible and non-eligible costs. The proceeds from programs like CIDs and tax increment financing may be used only for costs in the “eligible” category. I suggest that we stop arbitrarily distinguishing between “eligible costs” and other costs. When city bureaucrats and politicians use a term like “eligible costs” it makes this process seem benign. It makes it seem as though we’re not really supplying corporate welfare and subsidy.

    As long as the developer has to spend money on what we call “eligible costs,” the fact that the city subsidy is restricted to these costs has no economic meaning. Suppose I gave you $10 with the stipulation that you could spend it only on next Monday. Would you deny that I had enriched you by $10? Of course not. As long as you were planning to spend $10 next Monday, or could shift your spending from some other day to Monday, this restriction has no economic meaning.

    Notification and withdrawal
    If a merchant moves into an existing CID, how might they know beforehand that they will have to charge the extra sales tax? It’s a simple matter to learn the property taxes a piece of property must pay. But if a retail store moves into a vacant storefront in a CID, how would this store know that it will have to charge the extra CID sales tax? This is an important matter, as the extra tax could place the store at a competitive disadvantage, and the prospective retailer needs to know of the district’s existence and its terms.

    Then, if a business tires of being in a CID — perhaps because it realizes it has put itself at a competitive disadvantage — how can the district be dissolved?

    The nature of taxation
    CIDs allow property owners to establish their own private taxing district for their exclusive benefit. This goes against the grain of the way taxes are usually thought of. Generally, we use taxation as a way to pay for services that everyone benefits from, and from which we can’t exclude people. An example would be police protection. Everyone benefits from being safe, and we can’t exclude people from participating in — and benefiting from — police protection.

    But CIDs allow taxes to be collected for the benefit of one specific entity. This goes against the principle of broad-based taxation to pay for an array of services for everyone. But in this case, the people who benefit from the CID are quite easy to identify: the property owners in the district.

    —
    Notes

    1. Weeks, Bob. Community improvement districts in Kansas. Available at https://wichitaliberty.org/kansas-government/community-improvement-districts-kansas/. ↩
    2. Wichita City Council Agenda Packet for January 9, 2018. Agenda items IV-1, IV-2, and IV-3. ↩
    3. Weeks, Bob. Naftzger Park project details. Available at https://wichitaliberty.org/wichita-government/naftzger-park-project-details/. ↩
    4. Weeks, Bob. Delano catalyst site. https://wichitaliberty.org/wichita-government/delano-catalyst-site/. ↩
  • Naftzger Park project details

    Naftzger Park project details

    The city has finalized a proposal for a development near Naftzger Park. It includes a few new and creative provisions.

    This week the City of Wichita will consider a development agreement for land and buildings near Naftzger Park in downtown Wichita. 1

    Community Improvement District

    The plan includes the formation of a Community Improvement District. In CIDs, merchants charge additional sales tax for the benefit of the property owners, instead of the general public.2 In this CID, the proposed additional sales tax is two cents per dollar, the maximum available under state law, and could generate up to $3.1 million over a period as long as 22 years.3

    This proposed CID contains a “sweetener,” likely designed to reduce public opposition. Ten percent of the CID revenue would be used to maintain Naftzger Park. We’ve seen this before, as in the Cabela’s CID where some of the funds paid for road improvements near the store.4

    The action the city council will consider this week is whether to accept the petitions to form the CID and set January 9, 2018 as the date for the public hearing.

    Industrial Revenue Bonds and tax forgiveness

    This project is also requesting Industrial Revenue Bonds. under this program, the city will not be lending money, nor will it be responsible for repaying any loans. Instead, the program allows the developers to avoid paying sales tax on construction.5 City documents don’t give an amount of tax savings, but it could be over one million dollars. 6

    City documents state that a property tax abatement is not being requested. That isn’t available for this project, as its property taxes are already allocated by TIF.

    Tax Increment Financing (TIF)

    The project has already been approved for of Tax Increment Financing. In this case, future property tax revenues from this project will be rerouted from their normal flow to reconstruct Naftzger Park, something that is seen as a large benefit to the developers.

    Construction administration fee

    The city will pay the developers up to $250,000 for construction administration of the park.

    Parking

    This agreement also contains something I’m sure is considered as creative. We also saw this as an incentive offered to Cargill earlier this year. In this case, the city will pay the developers a fee for using their parking spaces. In this case, the city proposes paying a one-time easement fee of $10,000 per spot for from 80 to 90 parking spots. The total payment would be from $800,000 to $900,000. These parking spots would be available to the public outside of business hours, which are defined as 6:00 a.m. to 6:00 p.m. Monday through Friday.

    Private events

    Buried with the development agreement is a provision that the developers may use the park for private events: “The City and the Board will cooperate with Developers, upon Developers’ request, to create an Annual Master Calendar of private and public events for the Park, with the expectation that the Developers will have the use of the Park for certain private events.”

    Little else is mentioned regarding these private events, such as the maximum number of private events. This seems subject to abuse.

    Other Naftzger Park material

    1. City of Wichita Agenda Packet for December 19, 2017, Item IV-6. Available at http://wichitaks.granicus.com/AgendaViewer.php?view_id=2&clip_id=3699. ↩
    2. Weeks, Bob. Community improvement districts in Kansas. Available at https://wichitaliberty.org/kansas-government/community-improvement-districts-kansas/. ↩
    3. Council Agenda: “The Developer and Park Board control the land within the proposed CID. The requested CID would provide pay-as-you-go financing for qualified project costs through the imposition of a 2% special retail sales tax on all taxable retail sales within the district for a maximum of 22 years. The eligible project costs identified in the CID petition include costs of renovating the building at 691 E. William and construction of the Class A commercial building. The City will receive 10% of the CID revenue to fund Naftzger Park maintenance and or ROW repairs and improvements, in addition to the 5% administrative fee. The revenue is estimated to be $310,000. The maximum amount of project costs that can be reimbursed is $3,118,504 based on the projected revenue of the project, exclusive of the City’s administrative fee and Naftzger Park maintenance.” ↩
    4. Weeks, Bob. Cabela’s CID should not be approved in Wichita. Available at https://wichitaliberty.org/wichita-government/cabelas-cid-should-not-be-approved-in-wichita/. ↩
    5. Weeks, Bob. Industrial revenue bonds in Kansas. Available at https://wichitaliberty.org/kansas-government/industrial-revenue-bonds-kansas/. ↩
    6. “The Developer is also requesting the issuance of a letter of intent to issue Industrial Revenue Bonds (IRBs), valid through December 31, 2022, in an amount not-to-exceed $26,000,000 to achieve a sales tax exemption on items purchased for the redevelopment project. No property tax abatement is being requested.” ↩
  • CID and other incentives approved in downtown Wichita

    CID and other incentives approved in downtown Wichita

    The Wichita City Council approves economic development incentives, but citizens should not be proud of the discussion and deliberation.

    Today’s meeting of the Wichita City Council saw the council discuss and approve economic development incentives for a project in downtown Wichita.

    The item contemplated economic development incentives for redevelopment of an empty building in downtown Wichita to become a Hilton Garden Inn Hotel. The incentives being considered were a Community Improvement District (CID), Industrial Revenue Bonds (IRB), a parking agreement, and a skywalk easement. The discussion by the council was useful for revealing two members who are opposed to some targeted economic development incentives, but it also showed a troubling lack of knowledge and consideration by others.

    Property tax

    The hotel is requesting industrial revenue bonds. These bonds do not mean the city is lending any money. Instead, IRBs in Kansas are a mechanism to convey property tax abatements and sales tax exemptions.

    The agenda packet for this item states: “[Hotel developer] WDH is not requesting abatement of property taxes in conjunction with the IRBs.”1 This is presented as a magnanimous gesture, as something the hotel developers (WDH) could have requested, but did not, presumably out of some sort of civic duty.

    But: Property tax abatements may not be granted within the boundaries of a TIF district, which this hotel is located within.2 3 So the developers did not request something that they are not entitled to request. This is not news. Nonetheless, several council members were grateful.

    As to property taxes, Wichita City Council Member James Clendenin (district 3, southeast and south Wichita) asked what would be the increase in value in the building, once finished. Later Wichita City Council Member Jeff Blubaugh (district 4, south and southwest Wichita) praised the property taxes that will be paid. He also mentioned the “nearly-empty parking garage.” When the city built this garage and accompanying retail space it was to be a showpiece, but has been suffering from blight and lack of tenants paying market rates for rent.4

    Asking about tax abatements, Wichita City Council Member Pete Meitzner (district 2, east Wichita) asked “They didn’t apply for other …” His voice trailed off before finishing the question, but the “other” tax abatement that could be applied for is the property tax abatement. Except, the law does not allow for a property tax abatement for this project.

    All these questions alluded to the increased property taxes the renovated building will pay. Except, being within a TIF district, property taxes may not be abated. So where will the hotel’s property taxes go?

    First, the property tax generated by the present value of the property (the “base”) will be distributed as before. But the increment — which will be substantial — will go to the TIF district, not the city, county, and school district. Except: This is an unusual TIF district, in that an agreement between the city and county provides that only 70 percent of the incremental property taxes will go to the TIF district, with the remainder being distributed as usual. This was not mentioned during today’s discussion.

    There was talk about a “gap.” Some economic development incentives require documenting of a “financing gap” that makes the project not economically feasible. But that is not required for the incentives considered for this hotel.

    Sales tax

    Regarding the sales tax exemption: City document do not state how much sales tax will be forgiven, so we’re left to speculate. Previous city documents5 indicate spending $3,000,000 on furniture and fixtures, which is taxable. Sales tax on this is $225,000.

    The same city document mentioned spending of $6,250,000 on construction of the hotel, and of $1,000,000 for construction of retail space. Sales tax on this combined total is $543,750. Based on material from the Kansas Department of Revenue, these amounts would be due if not for the action of the city council.6

    In total, the development of this hotel will escape paying $768,750 in sales tax. It should be noted that Kansas is one of the few states that charges sales tax on groceries at the same rate as other purchases, making Kansas food sales tax among the highest in the nation.7

    Curiously, council members Clendenin and Williams, who represent low-income districts where families may be struggling to buy groceries — and the sales tax on them — did not object to this special sales tax treatment for a commercial developer.

    No more cash?

    In his remarks, the mayor talked about how we can continue with economic development “without handing cash to corporations.” But when a project is going to buy materials and services on which $768,750 in sales tax is normally due, and the city council takes action to extinguish that liability, well, that’s better than cash to the receiver.

    Good news

    Kudos to Wichita City Council Member Bryan Frye (district 5, west and northwest Wichita), who actually cited the United States Constitution in his statement from the bench. He said that the issues surrounding this project are a far cry from what our Founding Fathers envisioned as the role of government, saying “I struggle with using city resources to collect and distribute sales tax for the sole benefit of one commercial entity.” He offered a substitute motion which would have approved all the parts of the agreement except for the CID tax. His motion failed, with only he and Wichita Mayor Jeff Longwell voting in favor.

    On the original motion, which was to approve all parts of the incentive agreement, Longwell and Frye voted in opposition, with everyone else voting in favor.

    —
    Notes

    1. City of Wichita. Agenda packet for September 6, 2016. Available here. ↩
    2. “Certain property, even though funded by industrial revenue bonds, does not qualify for exemption: … property located in a redevelopment project area established under K.S.A. 12-1770 et seq. cannot be exempt from taxation.” Kansas Department of Revenue. Property Tax Abatements. Available at www.ksrevenue.org/taxincent-proptaxabate.html. Also, Kansas Department of Commerce. Industrial Revenue Bond Exemptions. Available at www.kansascommerce.com/DocumentCenter/Home/View/1082. ↩
    3. Gilmore & Bell PC. Economic Development tools. Available here. ↩
    4. Weeks, Bob. As landlord, Wichita has a few issues. Available at http://wichitaliberty.org/wichita-government/landlord-wichita-issues/. ↩
    5. Wichita City Council Agenda packet for August 16, 2016. Available at wichita.gov/Government/Council/Agendas/08-16-2016%20City%20Council%20Agenda%20Packet.pdf. ↩
    6. “General rule: Materials are taxable.” (p. 4) Also: “Taxable labor services in Kansas are the services of installing, applying, servicing, repairing, altering, or maintaining tangible personal property performed on real property projects in the general category of commercial remodel work.” (p. 8) Kansas Department of Revenue. Sales & Use Tax for Contractors, Subcontractors, and Repairmen. Available at www.ksrevenue.org/pdf/pub1525.pdf. ↩
    7. Food sales tax a point of shame for Kansas. Wichita Eagle. January 25, 2016. Available at http://www.kansas.com/opinion/editorials/article56532903.html. ↩
  • CID and other incentives proposed in downtown Wichita

    CID and other incentives proposed in downtown Wichita

    A proposal for a community improvement district in downtown Wichita includes a public hearing, but much information the public needs is missing.

    This week the Wichita City Council will consider starting the process of creating a community improvement district and other economic development incentives. The action the council will consider Tuesday is to accept the petition of the property owners and set September 6 as the date for the public hearing. Also, on September 6, “a development agreement defining the City and Developer’s responsibilities will be presented to the City Council.”1

    A community improvement district, or CID, is a geographical district in which merchants add extra sales tax, known as the CID tax. This extra tax is then routed to the property owners. CIDs may be of two types. In one, the city borrows money to give to the developers, and the CID tax repays the bonds. In the second, no money is borrowed. Instead, the CID tax is periodically remitted to the developers as it is collected. The proposed CID is of the latter type. It is proposed to collect a CID tax of 1.5 percent for up to ten years, with a limit of $930,000. (For more information about how CIDs work, see Community improvement districts in Kansas.)

    City documents also state the developers will request industrial bond financing. In this case, according to city documents, the purpose of the IRBs is to avoid paying sales tax on property purchased. The developers are also requesting use of the nearby state office building parking garage, but no details are given.

    A public hearing?

    The September 6th meeting will include a public hearing regarding the CID, industrial revenue bonds, parking agreement, and development agreement. As of today, we have information about the CID. But we have little or no information about the other items to be considered that day, which is billed as a public hearing.

    If a public hearing is to include meaningful input from the public, the city needs to provide citizens with information about these items, and soon.

    Rationale

    What is the need for these economic development incentives? No reason is given. Some incentive programs require that the applicant demonstrate financial necessity. In other words, if the incentive is not given, it is impossible to proceed. No such argument has been advanced for this project. And if such an argument were to be made, we have to ask why are incentives needed to develop in downtown Wichita?

    Since these incentives are proposed for a hotel, supporters argue that the cost of the incentives — at least the CID — will be borne by visitors to Wichita. This development, however, will contain a rooftop bar and ground floor commercial space. To the extent that Wichitans patronize these business firms, they will pay the CID tax. Even considering only the hotel, there are many Wichita-based companies whose employees travel to Wichita, staying in hotels at their companies’ expense. Wichita companies will be paying the CID tax in these cases. They will also pay the tourism fee, even though their employees are not tourists.

    Besides, we shouldn’t view visitors to Wichita as a cash cow. Visitors staying in this hotel will pay these taxes:

    State of Kansas sales tax, 6.5%
    Sedgwick County sales tax, 1.0%
    Wichita hotel tax, 6%
    City tourism fee, 2.75%2
    CID tax, 1.5%

    The total of these taxes is 17.75%. (Yes, Wichita does charge visitors a “tourism fee.” If Wichita voters had followed the recommendation of the city, its bureaucrats, and the political class, there would be an additional tax of one percent.3)

    Finally: As with all CIDs, why don’t the merchants simply raise their prices? Part of the answer is that the CID tax goes to benefit the landowners, which may not be the same party as the merchants who collect the tax.

    Other than that, it’s convenient to have someone to blame higher prices on.

    —
    Notes

    1. Wichita City Council Agenda packet for August 16, 2016. Available at wichita.gov/Government/Council/Agendas/08-16-2016%20City%20Council%20Agenda%20Packet.pdf. ↩
    2. Weeks, Bob. Wichita seeks to add more tax to hotel bills. Available at wichitaliberty.org/wichita-government/wichita-seeks-add-tax-hotel-bills/. ↩
    3. Ballotpedia. City of Wichita Sales Tax Measure (November 2014). Available at ballotpedia.org/City_of_Wichita_Sales_Tax_Measure_(November_2014). ↩
  • Kansas economic development programs

    Kansas economic development programs

    Explaining common economic development programs in Kansas.

    TIF projects: Some background
    Tax increment financing disrupts the usual flow of tax dollars, routing funds away from cash-strapped cities, counties, and schools back to the TIF-financed development. TIF creates distortions in the way cities develop, and researchers find that the use of TIF means lower economic growth. Click here.

    Tax increment financing (TIF) resources
    Resources on tax increment financing (TIF) districts. Click here.

    STAR bonds in Kansas
    The Kansas STAR bonds program provides a mechanism for spending by autopilot, without specific appropriation by the legislature. Click here.

    Industrial Revenue Bonds in Kansas
    Industrial Revenue Bonds are a mechanism that Kansas cities and counties use to allow companies to avoid paying property and sales taxes. Click here.

    Community Improvement Districts in Kansas
    In Kansas Community Improvement Districts, merchants charge additional sales tax for the benefit of the property owners, instead of the general public. Click here.

    In Kansas, PEAK has a leak
    A Kansas economic development incentive program is pitched as being self-funded, but is probably a drain on the state treasure nonetheless. Click here.

    Government intervention may produce unwanted incentives
    A Kansas economic development incentive program has the potential to alter hiring practices for reasons not related to applicants’ job qualifications. Click here.

    City of Wichita
    City of Wichita’s economic development page is here. The Sedgwick County/City of Wichita Economic Development Policy is here.

    State of Kansas
    A page at the Kansas Department of Commerce with incentive programs is here.