Voice For Liberty

Tag: Community Improvement Districts

  • Wichita’s legislative agenda favors government, not citizens

    Wichita’s legislative agenda favors government, not citizens

    city-council-chambers-sign-smallThis week the Wichita City Council will consider its legislative agenda. This document contains many items that are contrary to economic freedom, capitalism, limited government, and individual liberty. Yet, Wichitans pay taxes to have someone in Topeka promote this agenda. I’ve excerpted the document here, and following are some of the most problematic items.

    Agenda: Existing economic development tools are essential for the continued growth and prosperity of our community.

    First. The premise of this item is incorrect. We don’t have growth and prosperity in Wichita. Compared to a broad group of peer metropolitan areas, Wichita performs very poorly. See For Wichita’s economic development machinery, failure for details.

    Second: In general, these incentives don’t work to increase prosperity. Click here for a summary of the peer-reviewed academic research that examines the local impact of targeted tax incentives from an empirical point of view. “Peer-reviewed” means these studies were stripped of identification of authorship and then subjected to critique by other economists, and were able to pass that review.

    Third: Wichita leaders often complain that Wichita doesn’t have enough “tools in the toolbox” to compete effectively in economic development. The city’s document lists the tools the city wants the legislature to protect:

    • GWEDC/GO WICHITA: Support existing statutory records exemptions
    • Industrial Revenue Bond tax abatements (IRBX)
    • Economic Development Exemptions (EDX)
    • Tax Increment Financing (TIF)
    • Sales Tax Revenue (STAR) Bonds
    • Community Improvement Districts (CID)
    • Neighborhood Revitalization Area (NRA) tax rebates
    • Special Assessment financing for neighborhood infrastructure projects, facade improvements and abatement of asbestos and lead-based paint.
    • State Historic Preservation Tax Credits (HPTC)
    • State administration of federal Low Income Housing Tax Credits (LIHTC)
    • High Performance Incentive Program (HPIP) tax credits
    • Investments in Major Projects and Comprehensive Training (IMPACT) grants
    • Promoting Employment Across Kansas (PEAK) program
    • Economic Revitalization and Reinvestment Act bonding for major aviation and wind energy projects
    • Kansas Industrial Training (KIT) and Kansas Industrial Retraining (KIR) grants
    • Network Kansas tax credit funding
    • State support for Innovation Commercialization Centers in Commerce Department budget

    That’s quite a list of incentive programs. Some of these are so valuable that Kansas business leaders told the governor that they value these incentives more than they would value elimination of the state corporate income tax.

    Agenda: GWEDC/GO WICHITA: Support existing statutory records exemptions

    This may refer to the city wanting to prevent these agencies from having to fulfill records requests under the Kansas Open Records Act. (If so, I wonder why the Wichita Downtown Development Corporation was left off.) City leaders say Wichita has an open and transparent government. But Kansas has a weak records law, and Wichita doesn’t want to follow the law, as weak as it is. This is an insult to citizens who are not able to access how their taxes are spent. For more on this issue, see Open Records in Kansas.

    Agenda: The Wichita City Council opposes any legislative attempts to restrict the taxing and spending authority of local governments.

    As Wichita city leaders prepare to ask for a higher sales tax rate in Wichita, we can hope that the legislature will save us from ourselves. At best, we can hope that the legislature requires that all tax rate increases be put to popular vote.

    Agenda: The Wichita City Council opposes any restrictions on the use of state and/or local public monies to provide information to our citizens and to advocate on their behalf.

    This is the taxpayer-funded lobbying issue. As you can see in this document, many of the things that Wichita city leaders believe people want, or believe that will be good for their constituents, are actually harmful. Additionally, many of the methods the city uses to engage citizens to determine their needs are faulty. See In Wichita, there’s no option for dissent for an example. Also, see Wichita survey questions based on false premises.

    Agenda: The Wichita City Council supports the current framework for local elections, continuing the current February/April schedule of local primary and general elections, as well as the local option allowing non-partisan elections.

    The present system of non-partisan elections held in the spring results in low voter turnout that lets special interest groups exercise greater influence than would be likely in fall elections. See my legislative testimony in Kansas spring elections should be moved.

    Agenda: The Wichita City Council supports the development of appropriate state and local incentives to nurture and preserve arts activity throughout the City of Wichita and the State of Kansas.

    Translation: The city knows better than you how to provide for your entertainment and cultural edification, and will continue to tax you for your own benefit.

    Agenda: Public support and awareness of the possibility of passenger rail service connecting Oklahoma City and Wichita/Newton has grown over the past two years.

    I’m not sure where the claim of public support and awareness growing comes from, but people are definitely not informed about the economics of passenger rail. In 2010, when the state rolled out several plans for this passenger rail service link, I reported as follows:

    Expansion of rail service in Kansas is controversial, at least to some people, in that any form of rail service requires taxpayer involvement to pay for the service. First, taxpayer funding is required to pay for the start-up costs for the service. There are four alternatives being presented for rail service expansion in Kansas, and the start-up costs range from $156 million up to $479 million.

    After this, taxpayer subsidies will be required every year to pay for the ongoing operational costs of providing passenger rail service. The four alternatives would require an annual operating subsidy ranging from $2.1 million up to $6.1 million. Taking the operating subsidy and dividing by the estimated number of passengers for each alternative, the per-passenger subsidy ranges from $35 up to $97 for every passenger who uses the service.

    It would be one thing if tickets sales and other revenue sources such as sale of food and beverage paid for most of the cost of providing passenger rail service, and taxpayers were being asked to provide a little boost to get the service started and keep it running until it can sustain itself. But that’s not the case. Taxpayers are being asked to fully fund the start-up costs. Then, they’re expected to pay the majority of ongoing expenses, apparently forever.

    Also, in Amtrak, taxpayer burden, should not be expanded in Kansas I reported on the Heartland Flyer route specifically. This is from 2010, but I doubt much has changed since then.

    For the Heartland Flyer route, which runs from Fort Worth to Oklahoma, and is proposed by taxpayer-funded rail supporters to extend into Kansas through Wichita and Kansas City, we find these statistics about the finances of this operation:

    Amtrak reports a profit/loss per passenger mile on this route of $-.02, meaning that each passenger, per mile traveled, resulted in a loss of two cents. Taxpayers pay for that.

    But this number, as bad as it is, is totally misleading. Subsidyscope calculated a different number. This number, unlike the numbers Amrak publishes, includes depreciation, ancillary businesses and overhead costs — the types of costs that private sector businesses bear and report. When these costs are included, the Heartland Flyer route results in a loss of 13 cents per passenger mile, or a loss of $26.76 per passenger for the trip from Fort Worth to Oklahoma City.

    Asking the taxpayers of Wichita to pay subsidies each time someone boards an Amtrak train: This doesn’t sound like economic development, much less a program that people living in a free society should be forced to fund.

  • WichitaLiberty.TV August 11, 2013

    WichitaLiberty.TV logo

    In this episode of WichitaLiberty.TV, host Bob Weeks asks if shoppers have ever paid extra sales tax in Wichita’s Community Improvement Districts, and describes efforts by the city to avoid disclosure of this tax. Then, are there similarities between Wichita and Detroit? Finally, a Sedgwick County Commissioner is worried about agriculture being driven out of the county, but Bob thinks he doesn’t need to worry. Episode 8, broadcast August 11, 2013. View below, or click here to view on YouTube.

  • Warning signs still missing

    Two weeks after the City of Wichita learned that two prominent downtown hotels are not in compliance with city policy regarding signage, the hotels are still in violation.

    Broadview Hotel 2013-07-09 004
    Drury Plaza Hotel Broadview

    The hotels are located in Community Improvement Districts and are able to collect an extra sales tax that is routed back to the two hotels. Merchants located within a CID are supposed to display a sign. These two hotels — Drury Plaza Hotel Broadview and Fairfield Inn at Waterwalk — aren’t displaying the signage.

    For background and photographs, see CID signs missing at some Wichita merchants.

  • CID signs missing at some Wichita merchants

    Not all merchants located in Wichita’s Community Improvement District program are displaying the required signage.

    CIDs are a creation of the Kansas Legislature from the 2009 session. They allow merchants in a district to collect additional sales tax of up to two cents per dollar. At the time CIDs started forming, I and others suggested that the city require signage notifying shoppers that they would be paying an additional sales tax, and at what rate.

    Not everyone thought that would be wise, according to discussion at a Wichita city council meeting. Informing shoppers as to the actual rate of extra tax would be, according to Council Member Jeff Longwell (district 5, west and northwest Wichita) confusing.

    Council Member Sue Schlapp said that transparency is vital for government, but evidently not always, she argued: “This is very simple: If you vote to have the tool, and then you vote to put something in it that makes the tool useless, it’s not even any point in having the vote, in my opinion.”

    A representative of a group wanting to establish a CID told the council that developers do not “have any interest in hiding something from the public, or keeping citizens from having full knowledge about these community improvement districts.”

    But he added that the retailers they are trying to bring to Wichita would be discouraged by full disclosure of the extra sales tax that citizens would pay in their stores. “We want to make sure that anything that we do, or anything that we implement within a policy is appropriate and will not counteract the very tool we’re creating here.”

    The compromise that emerged is a small sign that states “THIS PROJECT MADE POSSIBLE BY COMMUNITY IMPROVEMENT DISTRICT FINANCING” along with a reference to the city’s website to learn more, as explained in the city CID policy document.

    That website, www.wichita.gov/CID/?, has information and maps of CIDs, but there’s no way to learn the names of stores in the CID, except for a few cases where the district is named after a merchant. (The city’s site also has broken links, dating from the redesign of the city’s website.)

    Broadview Hotel 2013-07-09 004
    Drury Plaza Hotel Broadview

    Examination of merchants in Wichita’s CIDs found two examples of merchants not displaying the signs. Drury Plaza Hotel Broadview and Fairfield Inn at Waterwalk display no signs. Cabela’s displays the signs and is in compliance, but the design of these signs makes them difficult to see.

    The city’s policy document regarding these signs doesn’t specify penalties for non-compliance, but that continued failure to comply would result in nonpayment. When asked about the missing signs, city staff said they will investigate and take corrective action.

    Curiously, the new CVS drugstore in east Wichita displays the CID signage, but based on purchases made, the store isn’t collecting the CID tax it is entitled to collect.

    Slideshow: Wichita CID signs.

  • Developer welfare expanded in Kansas

    Money Grabber

    This week the Kansas House of Representatives considered a bill that would expand the application of tax increment financing (TIF) and community improvement district taxes. The bill, HB 2086, is not a major expansion, but is still harmful.

    On Monday the bill failed to pass, with 61 members voting in favor, and 60 against. (63 votes are needed to pass a bill.)

    On the following day, Rep. Scott Schwab made a motion to reconsider. If agreed to, Schwab’s motion would force another vote on the passage of the bill. The motion passed, and when the vote on the bill was tallied, it had passed with 81 votes.

    Democrats who changed their votes from No to Yes are Barbara Ballard, Brandon Whipple, Ed Trimmer, Jerry Henry, Julie Menghini, Nancy Lusk, Patricia Sloop, Paul Davis, Stan Frownfelter, Tom Burroughs and Valdenia Winn.

    Republicans who changed their votes from No to Yes are Dennis Hedke, James Todd, Kelly Meigs, Kevin Jones, Marty Read, Ramon Gonzalez, Scott Schwab, and Vern Swanson.

    One Republican, Marc Rhoades, changed his vote from Yes to No.

    The original coalition of votes that defeated the bill on Monday was a mix of free-market Republicans and Democrats. The free-market members vote against this bill because it is contrary to the principals of capitalism. Many Democrats vote against bills like this because they see it as welfare for greedy developers or other business interests. An example of the latter is Rep. Ed Trimmer, who on the Kansas Economic Freedom Index for last year scored very near the bottom in terms of voting for economic freedom.

    But somehow, he and the other Democrats listed above were persuaded to change their votes.

    (Click here to open spreadsheet in new window.)

  • Economic development incentives questioned

    When the New York Times is concerned about the cost of government spending programs, it’s a safe bet that things are really out of control. Its recent feature As Companies Seek Tax Deals, Governments Pay High Price reports on economic development incentive programs that are costly and produce questionable benefits.

    Do we know the cost of economic development incentives? No, reports the Times: “A full accounting, The Times discovered, is not possible because the incentives are granted by thousands of government agencies and officials, and many do not know the value of all their awards. Nor do they know if the money was worth it because they rarely track how many jobs are created. Even where officials do track incentives, they acknowledge that it is impossible to know whether the jobs would have been created without the aid.”

    Kansas Governor Sam Brownback appears in a video that accompanies the story.

    A concern of the newspaper is that the money spent on incentives could be spent on other government programs, primarily schools. My concern is that government spending on incentives is harmful to the economy. It redirects capital from productive to unproductive uses. Charles Koch recently explained:

    Today, many governments give special treatment to a favored few businesses that eagerly accept those favors. This is the essence of cronyism.

    Many businesses with unpopular products or inefficient production find it much easier to curry the favor of a few influential politicians or a government agency than to compete in the open market.

    After all, the government can literally guarantee customers and profitability by mandating the use of certain products, subsidizing production or providing protection from more efficient competitors.

    Cronyism enables favored companies to reap huge financial rewards, leaving the rest of us — customers and competitors alike — worse off.

    In another article Koch wrote: “Instead of protecting our liberty and property, government officials are determining where to send resources based on the political influence of their cronies. In the process, government gains even more power and the ranks of bureaucrats continue to swell.”

    We must distinguish between business and capitalism and hold business groups accountable when they fail to promote economic freedom and capitalism. An example is the Wichita Metro Chamber of Commerce. Its legislative platform reads “The Wichita Metro Chamber believes the State should practice fiscal discipline.”

    But the Chamber recommends retaining several business welfare programs that are harmful to capitalism and economic freedom.

    Next week the agenda for the meeting of the Wichita City Council contains six items that dish out business welfare and promote cronyism. Another item recommends approval of the city’s legislative agenda, which contains this:

    ISSUE: Existing economic development tools are essential for the continued growth and prosperity of our community.

    RECOMMEND: The Wichita City Council supports continuation of its 2012 legislative agenda item, calling for protection of existing economic development tools for local public-private partnerships. Among those are Tax Increment Financing (TIF) districts, Community Improvement Districts (CIDs), Industrial Revenue Bonds (IRBs) and Sales Tax Revenue (STAR) bonds.

    The premise is false twice: These economic development tools are not “essential,” and Wichita is not growing and prospering, compared to other cities: “The inflation-adjusted gross domestic product for the Wichita metro area declined 0.4 percent in 2010, according to initial estimates from the federal Bureau of Economic Analysis. The decline slowed from the year before, when this measure of economic growth plummeted by 7.7 percent. … Wichita’s decline came even as GDP grew by 2.5 percent nationwide in 2010. GDP increased in 304 of 366 metro areas nationwide.” (Wichita Business Journal, Wichita’s real GDP declined in 2010 amid national recovery, database shows.)

  • Cabela’s opening a reminder of failure in Wichita

    Yesterday’s opening of a Cabela’s store in Wichita was celebrated as a great success, but the circumstances of the store’s birth should remind us of the failure of Wichita’s economic development strategies and efforts.

    We have to ask why Wichita is not able to attract retailers like Cabela’s without offering some sort of subsidy. In the current example, we are allowing Cabela’s to add 1.2 cents per dollar extra sales tax. Cabela’s keeps one cent, and 0.2 cents will be used to build a new highway exit ramp — one not seriously contemplated until Cabela’s wanted it.

    This turnover of public taxation to private interests through the community improvement district (CID) program is contrary to good public policy. The power to tax is one of the most important — and harmful — functions of government. It ought to be used to pay for public goods, instead of being turned over to private benefit, as it has for Cabela’s.

    At the opening ceremony, I spoke with Kansas Governor Sam Brownback and reminded him that just two weeks ago Wichita voters spoke out against special tax deals similar to the deal Cabela’s received. What is the future of these special tax deals? “I think the better approach is broad tax reduction,” he said.

    While the governor was referring primarily to income taxes, there is strong evidence that Kansas needs to reduce all forms of business tax costs. The release of a report from the Tax Foundation ranking the states in business tax costs brought that into sharp focus two weeks ago. The news for Kansas is worse than merely bad, as our state couldn’t have performed much worse: Kansas ranks 47th among the states for tax costs for mature business firms, and 48th for new firms.

    This raises the question: Was the CID tax giveaway truly necessary for Cabela’s to open, or is Cabela’s business model so flimsy that it requires corporate welfare to survive, or is Cabela’s simply an opportunistic company, willing to feed off taxpayers as another source of profit?

    Community Improvement Districts

    CIDs allow merchants to apply a higher sales tax rate to sales. The money from shoppers is collected under the pretense of government authority, but it is earmarked for the exclusive benefit of the owners of property in the CID. This is perhaps the worst aspect of CIDs. Landlord and merchants already have a way to generate revenue from their customers under free exchange: through the prices posted or advertised for their products, plus consumers’ awareness of the sales tax rates that prevail in a state, county, and city.

    But most consumers may never be aware that they paid an extra tax for the exclusive benefit of the CID. If they happen to calculate the sales tax they paid, they may conclude that the high CID rate is charged all across Wichita — thereby staining our reputation.

    The Wichita city council had a chance to provide transparency to shoppers by requiring merchants in CIDs to post signs informing shoppers of the amount of extra tax to be changed in the store. But CID advocates got the city council to back down from that requirement. CID advocates know how powerful information is, and they along with their allies on the city council realized that signage with disclosure would harm CID merchants. Council Member Sue Schlapp succinctly summarized the subterfuge that must accompany the CID tax when she said: “This is very simple: If you vote to have the tool, and then you vote to put something in it that makes the tool useless, it’s not even any point in having the vote, in my opinion.” She voted against the signage requirement.

    Jeff Longwell (district 5, west and northwest Wichita), in explaining his vote against the signage requirement with the tax rate displayed, said he thought this information would be confusing to shoppers.

    Are incentives necessary?

    The age-old question is whether economic activity will occur without economic development incentives. Governor Brownback said it is a “legitimate question” as to whether Cabela’s would be here anyway.

    In the case of Cabela’s, the store might not be in Wichita without incentives, as the company has shown itself to be especially eager and adept at gathering corporate welfare paid for by taxpayers. One writer concluded “For its part, Cabela’s is unabashed about its dependence on corporate socialism, even declaring in its annual report that grabbing public money is key to its business plan.”

    We see elected officials and economic development bureaucracies eager to create jobs, so much so that they offer incentives that are not necessary. This leads to a cycle of dependency on city hall for economic development. That’s good for politicians and bureaucrats, but bad for everyone else.

    It would be one thing if our economic development activities were working. But there’s evidence that they’re not. Recently we learned that the job-creating activities of Greater Wichita Economic Development Coalition last year resulted in a number of jobs barely more than one-half of one percent of the labor force.

    That’s not a very good job. But keeping a website up to date ought to be easy. The GWEDC site, however, is terribly out of date. On a page titled Recent Relocations Highlights, the most recent item is from 2009. Have we not had any relocations since then, or does GWEDC simply not care to update and maintain its website?

    A recent Wichita Eagle article, (Why isn’t Wichita winning projects?, January 22, 2012 Wichita Eagle), after listing four items economic development professionals say Wichita needs but lacks, reported “The missing pieces have been obvious for years, but haven’t materialized for one reason or another.”

    If these pieces are truly needed and have been obviously missing for years: Isn’t that a startling assessment of failure of Wichita’s economic development regime?

  • Wichita’s high tax hotels

    One of the strategies that two downtown Wichita hotels have pursued is to form a Community Improvement District (CID) to benefit their hotel.

    CIDs are a creation of the Kansas Legislature from the 2009 session. They allow merchants in a district to collect additional sales tax of up to two cents per dollar. The extra sales tax is used for the exclusive benefit of the CID. In the case of the two hotels in downtown Wichita — Fairfield Inn & Suites Wichita Downtown and Drury Plaza Hotel Broadview — both elected to go for the full two cents of taxpayer welfare.

    Now Douglas Place, a proposed hotel in Wichita, wants the same deal for itself.

    To stay in these hotels, guests must now pay 15.3 percent in taxes. That’s 7.3 percent regular sales tax, 6 percent regular guest tax, and now 2 percent in CID tax. That places these hotels in a pretty high tax bracket. By way of comparison, guests staying in New Orleans hotels pay just 13.5 percent in tax. New York City hotels charge 15.4 percent, almost exactly the same as these Wichita hotels. In Las Vegas it’s 12 percent, and Overland Park tops the chart of the cities I looked at with tax of 17.6 percent added to hotel bills.

    The rise of CIDs is an example of the city working at cross-purposes with itself, as many of the CIDs are for the benefit of hotels and other tourist attractions. Now we have the situation where we spend millions every year subsidizing airlines so that airfares to Wichita are low. Then we turn around and add extra tax to visitors’ hotel bills and perhaps the shops and restaurants they visit. Wichita City Council Member Jeff Longwell and others approve this as a wise strategy.

    Defenders of the CID tax say it is a voluntary tax that the hotels or merchants place upon themselves. That’s true, although in some cases, such as retail stores, customers will probably not be aware of the tax until after they make their purchases, because the city decided against notifying customers of the extra CID tax in a meaningful way. Lawrence, however, has decided to require strong warning signage to inform customers about the special CID taxes they’ll pay.

    Hotel guests are likely to be better informed than retail store customers about the taxes they’ll pay, as for both Wichita hotels, their reservation systems accurately reported the 15.3 percent tax as part of the total cost of staying at the hotel.

    The problem is that the extra tax that CIDs collect risks giving Wichita a reputation as a high tax place to live or conduct business. We don’t have mountains, oceans, or even casinos to attract visitors and business. We do have a relatively low cost of living, which could translate into a low cost place to hold a convention or business meeting.

    But the CID tax — a tax that is often targeted at visitors under the Longwell strategy — works against this advantage.

  • Job creation at young firms declines

    A new report by the Kauffman Foundation holds unsettling information for the future of job growth in the United States. Kauffman has been at the forefront of research regarding entrepreneurship and job formation.

    Previous Kauffman research has emphasized the importance of young firms in productivity growth. Research by Art Hall found that for the period 2000 to 2005, young firms created nearly all the net job growth in Kansas.

    So young firms — these are new firms, and while usually small, the category is not the same as small businesses in general — are important drivers of productivity and job growth. That’s why the recent conclusion from Kauffman in its report Starting Smaller; Staying Smaller: America’s Slow Leak in Job Creation is troubling: “The United States appears to be suffering from a long-term leak in job creation that pre-dates the recession and has the potential to persist for an unknown time. The heart of the problem is a pullback by newly created businesses, the economy’s most critical source of job creation, which are generating substantially fewer jobs than one would expect based on past experience. … This trend has only worsened since the onset of the most recent recession. The cohort of firms started in 2009, for example, is on track to contribute close to a million jobs less in its first five to ten years than historical averages.”

    The report mentions two assumptions that are commonly made regarding employment that the authors believe are incorrect:

    First, policymakers’ focus on big changes in employment because of events such as a new manufacturing plant or the recruitment of a business to a community ignore the more important fact that our jobs outlook will be driven more by the collective decisions of the millions of young and small businesses whose changing employment patterns are not as easy to see or influence. Second, it is just as easy to be deluded into thinking that the jobs problem will be solved by growth in the number of the self-employed.

    The importance of young firms is vital to formulating Kansas economic development policy. Kansas Governor Sam Brownback has incorporated some of the ideas of economic dynamism in his economic plan released in February. The idea of dynamism, as developed by Dr. Art Hall, is that economic development is best pursued by creating a level playing field where as much business experimentation as possible can take place. The marketplace will sort out the best firms. The idea that government economic development agencies can select which firms should receive special treatment is sure to fail. It is failing.

    While the governor’s plan promotes the idea of economic dynamism, some of his actual policies, such as retaining a multi-million dollar slush fund for economic development, are contrary to the free marketplace of business experimentation and letting markets pick winning firms.

    At the City of Wichita, economic development policy is tracking on an even worse direction. Among city hall bureaucrats and city council members, there is not a single person who appears to understand the importance of free markets and capitalism except for one: council member Michael O’Donnell, who represents district 4 (south and southwest Wichita).

    The policy of Wichita is that of explicit crony capitalism, with city leaders believing they have the wisdom to develop policies that recognize which firms are worthy of taxpayer support. And if they want to grant subsidies to firms that don’t meet policies, they find exceptions or write new policies. Elected officials like Wichita Mayor Carl Brewer and city council member Jeff Longwell lust for more tools in the economic development toolbox.

    At the Sedgwick County Commission, two of the five members — Karl Peterjohn and Richard Ranzau understand the importance of free markets for economic development. But the city has a much larger role in targeted incentives for economic development, as it is the source of tax increment financing districts, industrial revenue bonds, economic development exemptions, community improvement districts, and other harmful forms on economic interventionism.