Voice For Liberty

Tag: Community Improvement Districts

  • More Wichita Community Improvement Districts proposed

    Tomorrow’s meeting of the Wichita City Council will consider starting the process for the approval of three Community Improvement Districts in Wichita.

    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.

    CIDs may work in one of two ways: First, the city might sell special obligation bonds, give the money to the applicant, and pay off the bonds with the extra sales tax that is collected.

    The other way is “pay-as-you-go,” in which the extra sales tax is sent to the applicant as it is collected.

    Tomorrow’s city council meeting will accept petitions by property owners in the proposed CIDs and set dates for public hearings, usually around 30 days in the future.

    The first of the proposed CIDs is the Bowllagio project at Kellogg and Maize Road. This is proposed to be a pay-as-you-go CID, meaning that the city will not issue bonds. The applicant proposes to collect the full two cents per dollar extra tax for up to 22 years.

    The second is a development in the 2600 block of north Maize Road titled Central Park Place Development. The applicant proposes collecting an additional one cent per dollar for up to 22 years on a pay-as-you-go basis.

    The third project is Planeview Grocery Store Project at George Washington Blvd. and Pawnee in southeast Wichita. This applicant proposed to collect two cents per dollar extra sales tax on a pay-as-you-go basis. This applicant also proposes creating a tax increment financing (TIF) district.

    According to city documents, a goal of this project is to provide “affordable access to grocery shopping to the underserved Planeview area.” But if affordability is a goal of this project, we have to question the wisdom of adding two cents per dollar spent to the grocery bills of low income people.

    Community Improvement Districts and public policy

    There are several public policy issues surrounding Community Improvement Districts that deserve consideration.

    First, the extra sales tax collected in these districts needs to be considered from a consumer protection perspective. How will shoppers in these districts learn that they are going to be paying extra sales tax? While some shoppers may not care, certainly low-income shoppers need to stretch their grocery dollars. Asking them to spend two cents extra per dollar doesn’t seem like the city is watching out for the best interests of its citizens.

    Then there’s the “tax our visitors” strategy of council member and Vice Mayor Jeff Longwell and some other council members. Since the extra sales taxes in some CIDs like a hotel will largely be paid by visitors, it’s a wise economic development strategy, they say.

    We need to consider, however, the effect of these high sales tax districts on visitors to Wichita. Will they be happy with their decision to visit Wichita once they learn of the high taxes on their hotel or restaurant bill? Will they mistakenly assume that these high taxes apply to the entire city? When corporate expense accounting sees the high taxes charged in Wichita, will they want to send business here again?

    But perhaps the simplest public policy issue is this: If merchants feel they need to collect additional revenue from their customers, why don’t they simply raise their prices? Why the roundabout process of the state collecting extra sales tax, only to ship it back to the merchants in the CID?

    No one at Wichita city hall has an answer for this question.

  • Community Improvement Districts discussed in Wichita

    At yesterday’s meeting of the Wichita City Council, council members approved the start of the process to create two Community Improvement Districts in Wichita. Yesterday’s action sets August 10 as the date for a public hearing.

    CIDs are a creation of the Kansas Legislature from last year. They allow merchants in a geographic 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. More background may be read in the article Wichita community improvement districts should have warning signs.

    In my remarks to the council, I asked the city to consider consumer protection and education regarding CIDs. I noted that just by crossing a street and shopping within the boundaries of a CID, consumers will have to pay higher sales tax. How would consumers know this in advance?

    Council member Paul Gray noted that by crossing a street, consumers might enter a different municipality and have to pay more sales tax. While this is true — the neighboring city of Andover is considering a one-cent city sales tax — the Wichita city council can’t control what its neighbors do. But it can control what happens within the boundaries of Wichita.

    Gray said that he didn’t want to create community improvement districts and then handicap them with further government regulation. I agree. But the proper way to avoid this extra regulation is to avoid government intervention in the first place by forging the creation of community improvement districts.

    But perhaps the most important public policy issue is this: If merchants feel they need to collect additional revenue from their customers, why don’t they simply raise their prices? Why the roundabout process of the state collecting extra sales tax, only to ship it back to the merchants in the CID?

    City council members and city staff did not provide an answer to this question.

    Gray did not vote on this measure as a family member is employed by the business seeking this CID. Council member Lavonta Williams was absent. All other council members voted to approve the petition and set a public hearing on August 10.

    Wichita Eagle reporting on this issue is at Public hearings set on sales tax districts at WaterWalk and Central and Oliver. Wichita Business Journal reporting is at City Council moves forward on two CIDs.

  • Wichita should follow Lawrence’s lead in tax warnings

    Is there a point where sales taxes become so high that consumers need to be warned?

    Sales tax is already high in the northeast Kansas college town of Lawrence, home to the University of Kansas Jayhawks. After July 1, the combined sales tax rate — state, county, and city — will be 8.85 percent.

    Lawrence has two districts where an extra one cent per dollar is added to that. Like Wichita, Lawrence is considering creating Community Improvement Districts, where merchants add up to another two cents per dollar in sales tax. The proceeds of that extra sales tax go to the exclusive benefit of the district.

    In Lawrence, therefore, the sales tax in some parts of town could reach 10.85 percent. On in round numbers, eleven cents per dollar spent.

    That has the mayor and some city council members concerned, according to reporting in the Lawrence Journal-World. According to the article: “Commissioners said they have heard multiple concerns from residents who fear they may buy products at locations without knowing they are paying the extra tax.”

    That’s a problem. Most people are generally aware of their state’s sales tax rate, and of that in the city where they live. But shoppers are just starting to realize that different stores in a city may charge different sales tax rates. A Kansas Reporter story has more on this.

    So the issue is this: should high-tax zones be required to post signage warning shoppers that they’ll pay more sales tax by shopping there?

    Some in Lawrence are worried that the signs are bad for business, both within the high-tax districts, but also for the city as a whole. I think they’re right: taxes — and the realization thereof — are bad for business and consumers.

    In Wichita, the only community improvement district approved so far is for a hotel. According to Wichita City Council Member and Vice Mayor Jeff Longwell, the fact that the extra sales tax will be paid almost exclusively by visitors to our city is a wise economic development strategy.

    With or without signs warning of high sales tax districts, local shoppers will eventually learn where these districts exist. Our out-of-town visitors, however, probably won’t learn of the high tax rates until they receive their bill. Then, one of two realizations will set in: They’ll either curse themselves for staying at a hotel in a special high-tax district, or they they may form an impression that sales tax is very high in the entire City of Wichita or State of Kansas.

    Either way, Longwell’s soak-the-visitors tax strategy isn’t likely to make Wichita many friends.

  • Wichita community improvement district questions unanswered

    This week the Wichita city council approved the use of Community Improvement Districts. These districts are a new creation of the Kansas legislature from last year.

    In a CID, merchants may charge additional sales tax, up to an extra two cents per dollar. Sometimes bonds might be sold by the city with the bond proceeds being given to the occupants of the district. Then the bonds are repaid by the extra sales tax collected. Or, the extra sales tax might simply be given to the occupants of the district, after deduction of a small amount for expenses.

    A presentation created by city staff is available here.

    Whether creation of a CID is wise is a matter of debate. The city requires that all property owners in the boundaries of the CID agree to its formation.

    I asked two questions of the city council and staff. First, if a business 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 find out 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 other terms.

    Second, 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?

    These questions were not answered.

    During discussion from the council bench, it became clear that there was an urgent need to pass the CID policy that day. When it was suggested that passage of the policy might be deferred a week in order to provide time to answer a different issue, the mayor noted that the first applicant for a CID (he was seated in the audience) seemed to be getting nervous at the possibility of delay.

    Citizens ought to be concerned that the Wichita city council is willing to bypass thoughtful deliberation of policies in order to placate one particular applicant.