Voice For Liberty

Tag: Corporate welfare

  • Kansas and Wichita quick takes: Tuesday December 28, 2010

    Hawker Beechcraft deal breaks new ground. When asked by KAKE Television’s This Week in Kansas host Tim Brown if the Hawker Beechcraft deal was good for Kansas, Wichita State University professor H. Edward Flentje said that while the deal was “great news” in the short term, it raised policy questions in the long term. He said he didn’t think the state has invested in a company that is downsizing, with Hawker shrinking by one-third over the past few years. He added that he believed this is the first time the state has a provision of state law to retain jobs, rather than recruit new jobs. Flentje said that other aircraft companies and other businesses will be looking at this. He didn’t use the word “precedent,” but setting one is what has happened. Flentje has issued similar warnings before when he was interim city manager for Wichita. When Bill Warren, a theater owner, asked the city to make an interest-free loan to him, Flentje warned: “There are in this community much larger businesses with much larger employment who may see this opening as something that will open a door for those businesses to come and say, ‘You’ve done it before, you can do it for us.’”

    TSA as fine literature. He grasped me firmly but gently just above my elbow and guided me into a room, his room. Then he quietly shut the door and we were alone. He approached me soundlessly, from behind, and spoke in a low, reassuring voice close to my ear. “Just relax.” Without warning, he reached down and I felt his strong, callused hands start at my ankles, gently probing, and moving upward along my calves slowly but steadily. My breath caught in my throat. I knew I should be afraid, but somehow I didn’t care. His touch was so experienced, so sure. When his hands moved up onto my thighs, I gave a slight shudder, and partly closed my eyes. My pulse was pounding. I felt his knowing fingers caress my abdomen, my ribcage. And then, as he cupped my firm, full breasts in his hands, I inhaled sharply. Probing, searching, knowing what he wanted, he brought his hands to my shoulders, slid them down my tingling spine and into my private area. … Although I knew nothing about this man, I felt oddly trusting and expectant. This is a man, I thought. A man used to taking charge. A man not used to taking “no” for an answer. A man who would tell me what he wanted. A man who would look into my soul and say … “Okay, ma’am,” said a voice. “All done.” My eyes snapped open and he was standing in front of me, smiling, holding out my purse. “You can board your flight now.” (Source unknown, but obviously a brilliant person.)

    Love, not yet seated in House, moves to Senate. In what must be one of the most rapid political promotions in history, Garrett Love, who just won a position in the Kansas House of Representatives, is selected to fill a vacancy in the Kansas Senate. The Hutchinson News reports. Love defeated incumbent Melvin Neufeld in the August primary election. Neufeld campaigned for the Senate seat, but lost to Love by a vote of 101 to 38. It would have been — unseemly? — for Neufeld to have lost to Love in an election, but yet be promoted instead of Love to what most would consider to be a better position in the legislature. … This action leaves the House position that Love won but never filled vacant. Will Neufeld attempt to win this seat, the one he lost? The precinct committeemen and committeewomen of that district will decide. Kansas House District 115 includes Dodge City and counties to the south and west.

    Wichita historic preservation board. A governmental entity that few may know much about is the Wichita historic preservation board. The agenda for an upcoming meeting is here. On the agenda, there are many items like this: “HPC2010-00350 415 N Poplar Re-roof on commercial. ENV Johnson Drug Store.” In this case someone wants to put a new roof on their building. But, it is located within the “environs” of a property that is listed either on the National Register of Historic Places or the Register of Historic Kansas Places, so they need the permission of this board. For properties within a city, the “environs” is any property within a distance of 500 feet of the listed historic property. If you want to do much of anything to your property, you’ve got to get the permission of this board if it’s within a stone’s throw of a historic property.

    Bureaucrats will do what Congress doesn’t. Promises from Congress mean little when the bureaucratic state simply does what it wishes — or what the President wants it to do. Thomas Sowell explains: “The Constitution of the United States begins with the words ‘We the people.’ But neither the Constitution nor ‘we the people’ will mean anything if politicians and judges can continue to do end runs around both. Bills passed too fast for anyone to read them are blatant examples of these end runs. But last week, another of these end runs appeared in a different institution when the medical ‘end of life consultations’ rejected by Congress were quietly enacted through bureaucratic fiat by administrators of Medicare.” Portland Progressive Examiner has more: “Oregon Representative Earl Blumenauer, Democrat, is celebrating a quiet victory: Under new health regulations recently issued by the Obama administration, Medicare recipients will be offered voluntary end-of-life planning, and an opportunity to issue advance health care directives.” The New York Times is blunt, starting its story this way: “When a proposal to encourage end-of-life planning touched off a political storm over ‘death panels,’ Democrats dropped it from legislation to overhaul the health care system. But the Obama administration will achieve the same goal by regulation, starting Jan. 1.”

    Brownback to focus on core. Incoming Kansas Governor Sam Brownback says his budget priorities the “core functions of state government,” specifically “Medicaid, K-12 education, higher education and public safety at the top, in that order.” In an interview with Kansas Reporter’s Gene Meyer and Rachel Whitten, Brownback also said consolidation of agencies may be in order, and that repeal of the one cent sales tax that started this year is “not an option.” He also said he wants to defend the school finance lawsuit more aggressively than the last suit.

    Schools sue again, and again. Parents in Johnson County have sued the state asking that the local option budget cap be lifted. Essentially, the plaintiffs are asking for permission to raise their local property taxes so that more money can be raised for schools. But now Schools for Fair Funding, the coalition of school districts that are suing the state for more money, has intervened in that suit, saying it wouldn’t be fair to let the wealthy school districts raise this tax money. Kansas Reporter has coverage.

  • Hawker Beechcraft deal not proud moment for Kansas

    This week the State of Kansas, City of Wichita, and Sedgwick County struck a deal with Hawker Beechcraft that allows Hawker to stay in Wichita rather than moving to another state.

    While outgoing Governor Mark Parkinson and other leaders praise the deal, it was not a good day for Kansas.

    It’s difficult to blame Hawker. That company saw similar Wichita-based companies receive corporate welfare, most recently Bombardier Learjet. Who can blame Hawker for wanting the same? In fact, when the state and local governments are willing to readily hand out corporate welfare, you can make a case that Hawker has a fiduciary duty to its shareholders to seek the same.

    Therein lies the problem: Kansas’ approach to economic development is piecemeal. We respond to problems, as in the case of Hawker. But the state’s response gives more companies the incentive to come up with their own “problems” that require state intervention.

    When recruiting or retaining companies, the state and its local governments presume they have the ability to select which companies are deserving of public subsidy.

    What we have is a situation where a relatively small number of companies receive help from the state and its taxpayers, which only serves to increase the cost of business for everyone else.

    Nonetheless, politicians and bureaucrats call this making an investment in, say, Hawker Beechcraft or whatever company is asking for handouts or tax breaks. The problem is that we don’t know if investing in these companies is the right investment, if government should be making these investments at all. (In the case of Hawker Beechcraft, there is some evidence that this company may need to shrink substantially in order to survive, handouts notwithstanding. See Report: Hawker should divest all but King Air.)

    We need economic development policies that nurture all companies. Somewhere in Wichita or Kansas there is a small unknown company that has half a dozen or so employees — maybe more, maybe less — that is working on some innovation. If we’re lucky, we have many such companies. These companies could be working on a new technology, manufacturing process, computer software, video game, internet site, food processing technology, retail concept, chemical process, restaurant idea, engineering methodology, agricultural process, airplane wing — we just don’t know. Many will fail. But some will succeed, and few will, hopefully, succeed in a big way.

    But these small startup companies may not fit in to the economic development programs the city and state have. Any of these now-small companies could become the next Cessna, LearJet, Beechcraft, or Pizza Hut. We just don’t know — we can’t know — which small companies will succeed. But these companies, when in small startup stage, struggle to pay the taxes that large companies are able to escape. Being small, they may also be disproportionally impacted by regulation. It’s not necessarily the case that a small startup aviation company is competing directly with Hawker Beechcraft and is handicapped by the larger company’s tax advantages and handouts. But these two companies could be competing for the same employees, for example, and that puts the smaller company at a disadvantage.

    How can we identify which companies are deserving of government subsidy? Which companies should have their tax burden softened at the expense of others? Allocating resources — deciding what to do — in the face of uncertainty is the crux of entrepreneurship. It’s something that government is not equipped to do, as its incentives and motivations are all wrong.

    In order to succeed, Kansas needs to embrace dynamism in its approach to economic development. For more on this see Kansas economic growth policy should embrace dynamism and Embracing Dynamism: The Next Phase in Kansas Economic Development Policy.

    Unfortunately, the Hawker Beechcraft deal, along with most of the policies of the state and the City of Wichita move in the opposite direction: towards more state-controlled economic development.

  • Wichita Old Town TIF district illustrates cost and harm of subsidy

    At this week’s meeting of the Wichita City Council there was an item of good news: the closing of the Old Town tax increment financing, or TIF, district. But the expressed attitude of city council members towards TIF districts indicates that citizens must be concerned that the council will attempt to use this harmful form of developer and corporate welfare in the future.

    Citizens need to be made aware of the uninformed and misinformed views of council members, particularly Janet Miller, who was the primary speaker on this item Tuesday. Most of the other city council members, however, also share these views, even those who consider themselves conservative and opposed to intervention in the economy.

    While Miller expressed a correct view of the mechanics of TIF districts, she — and the other council members too — always miss the economic meaning of these districts.

    In her remarks, Miller disagreed with a citizen who said that the TIF district “helped out” the property owners in the district. Miller said: “In tax increment financing districts, it is the property owners’ taxes that they pay, that pay the cost of the public improvements in that area. … The taxes that they paid in on their increased valuations in property have paid for the improvements.”

    She also said that with careful planning the community benefits from TIF districts, and that we should look forward to “future great things that are going to come from this kind of initiative and creativity.”

    It’s quite easy to see the mistakes and fallacies in Miller’s remarks. Do TIF districts help out the favored developers? Of course they do. Why else would the city create them?

    A typical scenario is that a developer has an idea to build something, but claims a “gap” between the financial resources at their disposal and what the project costs. City staff checks the developer’s arithmetic and agrees. So the city creates a TIF district, and the project is able to proceed.

    So the TIF financing filled the gap. How can this be interpreted as doing anything but helping the developer?

    The city and council members like Jeff Longwell regularly claim that TIF districts don’t cost the city anything. We can easily see the errors in this thinking. Over the past 17 years, did Old Town require any attention from the police department? Of course it did. Old Town consumes vast police resources. In 2008 Wichita Police Chief Norman Williams was quoted in the pages of the Wichita Eagle: “Williams said that as Old Town changed from a warehouse district to an entertainment district, it has presented a ‘tremendous challenge’ to public safety.”

    As was brought forth in Tuesday’s city council meeting, Old Town does pay some property taxes that go into the city’s general fund and can be used to pay for the police protection that Old Town requires. The valuation before the TIF district was formed was said to be $1 million dollars. Now it’s $9 million. So the city’s general fund has received taxes on $1 million in property valuation to pay for all the services Old Town requires. The property taxes paid on the other $8 million in valuation are directed back to the district for the benefit of the property owners.

    So yes, TIF districts like Old Town do cost the city. Someone has to pay for the cost of police protection and other government services in Old Town. Its property taxes don’t even come close.

    That’s what the city council doesn’t understand (or maybe it does, see below): The entire purpose of TIF districts is to benefit the property in the district.

    How TIF districts benefit recipients

    Here’s how it works. When using tax increment financing, a geographic district is formed. The property taxes being paid by a property in the district at the time of formation is noted and called the base. Usually this property is not very valuable, so this base is a low value. In the case of Old Town, it was $1 million.

    Then a development plan is created. Based on that plan and the property taxes that the completed project will likely pay, the city will borrow money and give it to the developers. While cities like to say that TIF funds can be used only for things with a public purpose like infrastructure, this doesn’t make any difference. (If the expenditures had a truly public purpose, why wouldn’t the city pay for them without a TIF district?)

    After the project is completed, the tax appraiser notices that there’s something new and valuable where there wasn’t before, and he levies a higher tax bill on the property. The difference between the original taxes — the base — and the new taxes is called the increment.

    Under normal conditions when new property comes on the tax rolls, the tax revenue is used to provide public services such as police and fire protection. The school district is usually a recipient of a large portion of the new tax revenue, which might be used to pay for the schooling of residents of the new housing in the district, for example.

    But in a TIF district, what happens to this new tax revenue — the increment?

    Recall that the city borrowed money and gave it to the developers. The new property taxes — the increment — is used to pay off these bonds.

    So council member Miller is correct, in a way. Old Town property owners paid increased property taxes.

    But when these increased taxes are used to pay off bonds that exclusively benefit Old Town, how is this any different from not paying?

    Consider development not in a TIF district. Developers may borrow money to build something. Then they have to make loan payments and higher tax payments.

    But TIF developers pay only higher taxes. There are no loan payments, as their increased property tax payments are used to pay off the loan.

    Public choice in action

    I wrote earlier that the city council doesn’t understand this. It may be possible that council member Miller, the mayor, and others do understand this, but they decide to go ahead and create TIF districts and other forms of developer subsidy and welfare nonetheless.

    That’s entirely possible, as TIF districts and other corporate welfare illustrate the worst aspects of public choice theory in action. In this case, we have a situation where a small group of people — the subsidized developers — have a huge and powerful motive to obtain TIF financing and other forms of subsidy. Politicians and bureaucrats want to see these things happen too, as they feel a need to justify themselves and increase their spheres of influence and power.

    Average citizens may realize that these things cost them, but it’s a relatively small amount of money — certainly in contrast to the millions that subsidized developers received — so their motive to oppose them is small. This is a reason why many people don’t bother to vote.

    Don’t forget that politicians want to receive campaign contributions, too. Developers who seek subsidy from city hall generally contribute to all city council members. It’s difficult to see how someone who has a political ideology — say fiscal conservatism — could contribute to all city council members. But they do.

    Miller has received large amounts of campaign contributions from those who have benefited from TIF financing and other corporate welfare in the past, and who plan to benefit again in the future. She’s not alone in this regard.

  • Wichita Community Improvement District policy to be decided

    Tomorrow the Wichita City Council is scheduled to decided the city’s policy on Community Improvement Districts (CID).

    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.

    One of the main issues to be decided is the issue of warning signage. Some have recommended that consumers be protected 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. Imagine that: people don’t want to pay any more tax than necessary!

    City staff has recommended that a website be used to notify customers of CIDs. This form of notification is so weak as to be meaningless.

    One of the follies in Wichita 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.

    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. Vice Mayor Jeff Longwell approves this as a wise strategy.

    Developers say that Wichita will lose deals if businesses don’t have the ability to charge extra sales tax without the prior knowledge of customers. I would suggest we lose deals because of another reason: our high business property taxes. According to the Minnesota Taxpayers Association, commercial property in Wichita is taxed an an effective rate of 2.801 percent per year. The national average is about 1.9 percent, meaning the rate in Wichita is 47 percent greater.

    These high commercial property taxes have driven developers such as Colby Sandlian and others out of Wichita. They continue to develop properties outside of Wichita and Kansas — in Sandlian’s case, over $100 million in commercial development outside of Kansas since 1989.

    These high business taxes mean that the state and cities must concoct schemes like CIDs and other economic development giveaways in order to attract business to Wichita. This places governmental bodies like the Wichita City Council in the position of selecting which business firms it will invest in, when there’s no way the Council has the knowledge and incentive structure needed to make these decisions.

    If we will lose deals because a special class of merchants can’t charge extra sales tax, then we have a big problem.

    If we will lose deals because we’re afraid to notify consumers — in advance — of the taxes they will pay, we have a big problem.

    Finally 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?

  • Kansas and Wichita quick takes: Sunday October 31, 2010

    Wichita city council this week. The agenda for November 2 includes two instances of corporate welfare in the name of economic development (Approval of Forgivable Loan Agreement, Nex-Tech Processing and Approval of Economic Development Incentives, TECT Power, Inc.), an ordinance that cancels the Save-A-Lot TIF district, and revisions to Wichita’s Community Improvement District policy. I’m told that the last item may be deferred at the request of some developers, which — if I were a cynic — might cause me to wonder who is really running things at city hall. When the city had a meeting to discuss the CID policy, the meeting was stacked almost exclusively with those who have an interest in extracting as much economic subsidy as possible from the city.

    Mayor Brewer speaking on Save-A-Lot. On the October 24 edition of the KNSS Radio program Issues 2010, Wichita Mayor Carl Brewer spoke about the Save-A-Lot TIF district and what happened at the Sedgwick County Commission. Brewer said “The city said, okay, you can charge an additional two cents, if that’s what you want to do … But what ended up happening is the county voted against it and said no, we don’t want to let them charge themselves another two cents, and so it was voted down.” The “two cents” the mayor is referring to comes from the Community Improvement District that the city passed to benefit the Save-A-Lot store’s developers. Where the mayor is mistaken is in the role of the Sedgwick County Commission and the action that body took. The Kansas law regarding CIDs — the mayor’s “two cents” — gives no role to counties. Instead, the county commission voted to cancel the TIF district that the city created at the same time it created the CID. Now I can understand how people make misstatements when speaking on live television or radio. But the mayor seemed quite sure of himself. Host Steve McIntosh didn’t pick up on this error. KNSS shows have had other quality control problems recently, as when a host and guest discussed Wichita city council member Paul Gray and his prospects for reelection. Gray can’t run again due to term limits.

    Shop this way. Before addressing the proposed Planeview Save-A-Lot store, the mayor said that regarding the existing Save-A-Lot store at 13th and Grove, the city had to educate people in the surrounding area that they couldn’t buy just a loaf of bread or one item at at time, they had to buy an entire week’s groceries.

    Rasmussen tells us. “With less than a week to go before midterm elections, 32% of Likely U.S. Voters now say the country is heading in the right direction.” See Right Direction or Wrong Track. “Just 12% of Likely U.S. Voters now think Congress is doing a good or excellent job. Sixty-one percent (61%) rate their performance as poor. More at Congressional Performance. “With midterm congressional elections just a week away, the number of voters who view Speaker of the House Nancy Pelosi and Senate Majority Leader Harry Reid Very Unfavorably have reached their highest levels yet.” See Congressional Favorability Ratings.

    Kansas high schools turn out graduates, but many are unprepared. At the end of a Lawrence Journal-World article on Kansas community colleges, “Responding to a question Thursday, [Jacqueline Vietti, president of Butler County Community College in El Dorado] noted that K-12 schools perhaps needed to place less emphasis on tests and more on the learning process and pointed to what she saw as ‘a disconnect between ACT scores and the preparedness of students’ coming to Butler County…. In a later interview, she acknowledged that 65 percent of recent high school graduates coming to her school require developmental work in math, English or reading.” This tracks with my reporting from earlier this year, which found that “only 26 percent of Kansas students that take the ACT test are ready for college-level coursework in all four areas that ACT considers.”

    Government or private sector. In today’s Wichita Eagle opinion line: “Why would anyone want to take the power away from the government, which is an elected body, elected by the people, and turn the power over to the private sector, which is elected by no one and in which very few have a say?” I might point out to this person that private sector firms must meet the test and demands of consumer preferences each and every day. Politicians, on the other hand, face the voters only every few years when their terms are up. Furthermore, in the private sector, I can choose to buy my produce at Dillons, canned goods at Wal-Mart, snacks at Target, meats at the carneceria, etc. In government, we usually have to choose between Candidate A and B, each in their entirety. We can’t select the things we like about each candidate as we can in the private sector and free markets.

    MSNBC’s Olbermann unhinged. “On Wednesday’s Countdown show, during a 21-minute ‘Special Comment,’ MSNBC host Keith Olbermann warned American voters against electing Tea Party Republicans to power, whom he suggested are ‘unqualified, unstable individuals’ who will take America ‘backward to Jim Crow, or backward to the breadlines of the ‘30s, or backward to hanging union organizers.’ He then made a play off MSNBC’s ‘Lean Forward’ slogan to disparage the Tea Party movement as he declared: ‘Vote backward, vote Tea Party.’” More, including video, at Newsbusters.

    Wichita Eagle to be protested. A little birdie told me: “I have heard that a group calling themselves Women Against Violence plans to picket the Wichita Eagle building on Monday from 11:30 am until 1:30 pm and again at 4:30 pm until 6:30 pm showing their opposition to the Eagle’s endorsement of a political candidate who allegedly assaulted his wife.”

  • Business can oppose incentives and use them

    In the campaign for United States Congress from the fourth district of Kansas, Democrat Raj Goyle criticizes leading opponent Republican Mike Pompeo for accepting economic development incentives while opposing their existence.

    A Goyle press release reads: “Already a known outsourcer, Pompeo, in an act of hypocrisy, took government incentivized aid for three of his companies, including Sunflower, Thayer and Sentry. He did this despite repeatedly denouncing government assistance in the private sector.”

    This criticism — that those who oppose government programs nonetheless hypocritically take advantage of them — is an important topic to examine, not only as a campaign issue, but because the conflict that leads to this form of criticism arises often. It’s something that libertarians struggle with daily — and I don’t think Mike Pompeo would describe himself as libertarian.

    In an article examining whether presidential candidate Ron Paul should accept federal matching campaign funds, the libertarian scholar Walter Block described the pervasiveness of government and the impossibility of escaping it:

    For the modern state is so involved in the lives of its citizens that it is the rare individual who does not accept some form of government largesse, whether in the form of money payments, services, or goods of one type or another.

    For example, while not everyone goes to a public school or teaches there, it is the rare individual who does not: walk on statist sidewalks, drive on public roads, carry currency in his pocket, avail himself of the services of governmental libraries, museums, parks, stadiums, etc. Which of us has not entered the premises of the motor vehicle bureau, sued someone in court, posted a letter, attempted to attain a passport, or interacted with government in any of the thousand and one other ways it touches upon our lives?

    This hints at part of the conflict — angst even — that libertarians digest internally as we go about our business in a world dominated by government. I, for example, firmly believe that we would be better off with private ownership of the streets and highways. Each time I drive my car from my driveway onto the government street in front of my house, I think of this. I get it. I understand the conflict that government thrusts on me. It bothers me daily.

    But there’s no other way for me to get to where I want to go. I’m consoled somewhat by the fact that the motor fuel taxes I paid go to building and maintaining the roads. This doesn’t mean, however, that I agree that our system of primarily government ownership of streets and highways is the best system. But it’s the system I am forced to live with, and I try to change it.

    Business firms are generally aware, although not always, of government incentives available for economic development. These incentives are part of the economic and political landscape that business firms face. They have to be recognized and dealt with, just like any other factor such as regulation. If business firm “A” decides not to accept incentives and subsidies when firm “B” does, is this wise, even if accepting subsidy is against the principles of firm “A”?

    I would recommend firm “A” to apply for and accept the subsidy. For one thing, if firm “A” is a public corporation and doesn’t pursue these incentives when they are available, the company is likely to be sued by its shareholders.

    Second, these subsidies are part of the competitive landscape. Even though from a libertarian and conservative view they are wrong and harmful, they still exist. It does no good for a firm to pretend they don’t exist and thereby create a competitive disadvantage for itself. This is especially the case if firms “A” and “B” are direct competitors in the same industry. But even if they are not, these two firms still compete in the same markets for land, labor, capital, and other generic factors.

    Third, firm “A,” like all of us, is paying for these incentives and subsidies. While this may seem like conceding to the power of the state, firm “A” might as well get some back of what it paid for.

    So yes, business firms need to use government incentives and subsidies. At the same time, we need to work for the elimination of these programs. This is difficult, as the more government becomes involved in management and direction of the economy, it becomes harder to get government to stop. We see this in play at Wichita city hall, as more and more firms ask the city council for various forms of assistance or corporate welfare.

    The fight is important, too. The factors that made our country and its economy great are at peril. Gary North wrote in The Snare of Government Subsidies: “… those within the government possess an extremely potent device for expanding political power. By a comprehensive program of direct political intervention into the market, government officials can steadily reduce the opposition of businessmen to the transformation of the market into a bureaucratic, regulated, and even centrally-directed organization. Bureaucracy replaces entrepreneurship as the principal form of economic planning.”

    Returning to the politics of the day: Isn’t is a little strange to hear Goyle, who favors expansion of public-private partnerships, criticize those who use them, even if they are opposed to the idea in principle? Doesn’t Goyle want everyone to be in “the snare” that North describes?

  • Kansas and Wichita quick takes: Wednesday October 27, 2010

    Kansas politics in National Review. Today Denis Boyles takes on Kansas politics in National Review Online, starting with well-deserved criticism of Thomas Frank’s book What’s the Matter with Kansas? He also predicts that Republicans will sweep all the statewide election contests. But the real target of this article is the Kansas Supreme Court and our state’s method of judicial selection. For those wishing to rely on the Kansas Commission on Judicial Performance as a source of reliable information about judges, Boyles describes it as a “Potemkin commission” that “spends $700,000 of taxpayers’ money annually running ads in support of retention and endorsing every single judge in the state.” Boyles says the problem with Kansas will be clear to everyone after the election: It’s the Kansas Supreme Court.

    Midterm blowout forecast. From The Hill: “Republicans are headed for a blowout election win that seems certain to seize more than enough seats to knock out the Democrats and take control of the House. … The deficits facing some longtime Democratic incumbents, who have spent most of their careers relatively safe from electoral peril, are striking — a reflection of just how deeply the anti-incumbent sentiment runs this election year.”

    National Center for Aviation Training ceremony today. As The Wichita Eagle’s Rhonda Holman notes in an editorial today, Sedgwick County has spent $52 million on a training facility for the aviation industry. At the time, industry leaders told us this was necessary to retain aircraft jobs in Wichita. It should be noted that this expenditure has not been sufficient, as since then Cessna, Bombardier Learjet, and recently Hawker Beechcraft have each hit up the state — and in some cases local government — for corporate welfare under the threat of locating jobs elsewhere.

    New Wichita schools divert attention. Two years ago the voters of USD 259, the Wichita public school district, passed a bond issue to build new schools and facilities. Today the Wichita Eagle describes a groundbreaking ceremony for two new schools. The problems with all the planning for the schools are these: First, it looks like the district is doing something to solve problems, when the path the district is taking is not likely to produce the promised results. Second, the district’s attention has been, and is now, focused on facilities, not the real problems the schools face, like an honest assessment of student results. Third, the district was in no way honest with Wichita taxpayers about the additional expense required to operate the schools after they are built. Fourth, more spending on government schools makes it even more difficult for families who want to pursue other paths for their children. Overall, a bad day for children in Wichita.

    Challenges for Kansas education. Speaking of, Kansas State Voard of Education member Walt Chappell contributes an article describing some problems with education in Kansas and some recommendations for policy changes. One problem is our priorities, as mentioned in the previous section. Chappell writes: “First, we need to change our priorities. More emphasis is needed on preparing our students to earn a living and financial literacy instead of on varsity sports. Currently, more money is spent on a few players to win the Friday night football or basketball game than to teach our kids the skills they need to get a job.” The complete piece is at State of the State KS.

    October surprises more difficult now. The popularity of advance voting in states like Kansas makes it more difficult to pull off an “October surprise.” This is a campaign tactic where unfavorable information about a candidate is sprung upon the public right before the election, the idea being that the accused candidate will not have time to react to the charges and voters will go to the polls on Election Day with the negative information fresh in their minds. Journalists probably won’t have time to react, either. We see examples of this technique in Kansas now with DUI charges against third district Congressional candidate Kevin Yoder. In the fourth district Raj Goyle is raising new charges against Mike Pompeo. But with perhaps as many as half the voters having already voted by the weekend before Election Day — the favorite time to launch an attack — the effectiveness of this technique is reduced. When should a campaign release the surprise charges? The good news is that with the expanded voting schedule, campaigns have more time to rebut or clarify charges, or disprove factually incorrect information. We saw this in the Republican primary for the fourth district, where last-minute charges by the Wink Hartman campaign were found to be lacking clear and convincing evidence.

    Advance voting regrets. With so many Kansas voters voting far in advance of Election Day, what happens if voters regret their vote? Suppose their chosen candidate dies or withdraws from the race? (Withdrawing is more likely during primary contests.) More likely, what if there is an “October surprise” that makes you want to change your already-cast vote? Personally, I still like to vote old-school style at my precinct’s polling place on Election Day. But for those voting in advance, there’s no need to mail in your ballot far in advance. As long as it arrives by Election Day, your vote will be counted just the same.

  • Kansas and Wichita quick takes: Wednesday October 20, 2010

    Poll: Republicans to win big. Wall Street Journal: “A vigorous post-Labor Day Democratic offensive has failed to diminish the resurgent Republicans’ lead among likely voters, leaving the GOP poised for major gains in congressional elections two weeks away, according to a new Wall Street Journal/NBC News poll. Among likely voters, Republicans hold a 50% to 43% edge, up from a three-percentage-point lead a month ago. … ‘It’s hard to say Democrats are facing anything less than a category four hurricane,’ said Peter Hart, the Democratic pollster who conducts the Journal poll with Republican pollster Bill McInturff. ‘And it’s unlikely the Democratic House will be left standing.’”

    Faust-Goudeau, Ranzau featured. The two major party candidates for Sedgwick County Commission District 4 — Democrat Oletha Faust-Goudeau and Republican Richard Ranzau — are featured in today’s Wichita Eagle. This is an important election, as the balance of power on the commission is at stake.

    Rasmussen: Health care, bailouts, stimulus not popular with voters. “A new Rasmussen Reports national telephone survey finds that most Likely Voters think their representative in Congress does not deserve reelection if he or she voted for the national health care law, the auto bailouts or the $787-billion economic stimulus plan.” The complete story is here.

    Downtown Wichita planning. The people of Wichita need to be wary about the planning for the revitalization of downtown Wichita developed by planning firm Goody Clancy. As Randal O’Toole explains in a passage from his book The Best-Laid Plans: How Government Planning Harms Your Quality of Life, Your Pocketbook, and Your Future, planning provides an opportunity for special interests to run over the will of the people: “When confronted with criticism about their plans, planners often point to their public involvement processes. ‘Hundreds of people came to our meetings and commented on our plans,’ they say. ‘So we must be doing something right.’ Wrong. Planning is inherently undemocratic. Efforts to involve the public mainly attract people who have a special interest in the outcome of the plans. … Planning processes are even less likely to attract the public than elections. Getting involved in planning requires a much greater commitment of time than simply voting, and the process is so nebulous that there is no assurance that planners will even listen to the public. … At the same time, some groups have a strong interest in getting involved in planning either for ideological reasons or because planning can enrich their businesses. The usual result when a few special interest get involved in a process ignored by everyone else is to develop a plan that accommodates the special interests at everyone else’s expense.” When we look at who is involved in the Wichita planning, we see these special interests hard at work.

    More corporate welfare in Sedgwick County. Today, without meaningful discussion, the Sedgwick County Commission committed to a $25,000 forgivable loan to TECT Power. The loan agreement specifies targets of employment and wages that TECT must meet. This is not the only corporate welfare the company is seeking. The Wichita Business Journal reports: “The Wichita City Council will be asked to match the Sedgwick County loan, and the company is seeking incentives from the Kansas Department of Commerce.” Does this approach to economic development work? See Kansas spending should be cut, not frozen and In Wichita and Kansas, economic development is not working.

    Heartland policy blog launched. The Heartland Institute has launched Somewhat Reasonable, described as an “in-house” policy blog. In an announcement, HI says: “It is the place friends and fans of The Heartland Institute can keep up with the conversation about free markets, public policy and current events that takes place every day among our fellows and scholars. Heartland staffers don’t always agree, which is part of the fun of working at a libertarian think tank.” Heartland is continually at the forefront of research and advocacy for free markets and economic freedom.

    Tea Parties and the Political Establishment. The Sam Adams Alliance has released a new report that examines the relationship between tea party activists and the political establishment. Its research shows “shows the two entities are united on issue priorities, but differ when it comes to their level of enthusiasm and the Tea Party movement’s ability to accomplish its political goals.” One finding is that the political establishment doesn’t have much confidence in tea party activists’ ability to achieve their goals: “… only about 7 percent of Establishment respondents said the Tea Party knows how to accomplish its goals, while about 41 percent of Tea Party activists surveyed say this is true.” But the establishment needs tea party activists: “42 percent of Establishment respondents said it was ‘very important’ that Tea Partiers work with them.” In conclusion, the study states: “The Tea Parties have knowingly or unknowingly begun to promote a distinctly separate understanding of the political landscape compared to the Establishment’s. The tensions between them illustrate the underlying differences in their conception of the current political environment, their willingness to embrace populist elements, selection of means and tactics, and their acceptance of new entrants into the political world. However they share many of the same issue priorities, indicating that there is opportunity for a closer and more amicable relationship between the two factions.” The full document is at Surface Tension: Tea Parties and the Political Establishment.

    Chevrolet Volt. The Chevrolet Volt plug-in car is suffering a bit of dings in its green-glamour now that GM has revealed that it will use its gasoline motor more often than previously thought. But there are substantive reasons why this car should be scrutinized. Writes Holman W. Jenkins, Jr.: “Cars account for 9% of America’s CO2 output, making power plants a much more sensible target if your worry is global warming. Ironically, the Volt rolls out amid news that an investor is abandoning a big U.S. nuclear project, leaving America more dependent than ever on ‘dirty’ coal for its electricity. Storing electricity — which is what the Volt’s batteries do — is probably the least efficient thing you can do with the output of such plants. Then again, perhaps this explains the rapturous greeting the Volt is receiving from the utility industry. … The Volt’s defenders will shout that the Volt is a blow against terrorism and in favor of energy independence. Two answers: The Volt doesn’t need defenders if it’s a car that consumers want, and that GM can make and sell at a profit. But GM can’t. … The second answer is that even if every American drove a Volt, and every car in America was a Volt, it would not appreciably change the global challenges we face.” More at Volte-Face: GM’s new electric car depends on coal-belching power plants to charge its batteries. What’s the point?

  • In Wichita and Kansas, economic development is not working

    The effort of Wichita and Kansas to retain Hawker Beechcraft, one of our leading employers and a Wichita institution, provides a lesson in the futility of corporate welfare as an economic development policy: Someone is usually willing to pay more. We would be much better off if we start transforming Kansas to a state where all companies are nurtured, not by bureaucratic and political oversight and handouts, but by a low taxing and spending environment, and a reasonable regulatory regime.

    Recently I was shown a listing of all the industrial revenue bonds (IRBs) that Hawker Beechcraft and its predecessors have been authorized over the last 20 years. The number is large: $1.2 billion. This is not money that any governmental body has lent to Hawker Beechcraft. The purpose, instead, of the IRB program is to allow companies to escape paying property tax on property purchased with the bond proceeds. In some cases, companies escape paying sales tax as well.

    It would be difficult to calculate how much tax Hawker Beechcraft and its predecessors have not paid due to the abatements, but it is a lot. The company still pays some property tax. Records from the Sedgwick County Treasurer’s system indicate the company paid $971,073 in tax year 2009.

    When asking for tax breaks like this, companies often point out that they hire many people and pay good wages, so the taxing entities make up their money in other ways. That may be true. In fact, the cost-benefit analysis the city and county use make just that reckoning: if we give up collecting some tax from a company, how much additional tax will we collect from everyone else? Perhaps government officials don’t realize that much of this “benefit” is simply taxes shifted to someone else.

    Nonetheless, politicians and bureaucrats call this making an investment in, say, Hawker Beechcraft or whatever company is asking for tax breaks at the moment. The problem is that we don’t know if investing in these companies is the right investment, if government should be making these investments at all.

    Somewhere in Wichita or Kansas there a small unknown company that has half a dozen or so employees — maybe more, maybe less — that is working on some innovation. If we’re lucky, we have many such companies. These companies could be working on a new technology, manufacturing process, computer software, video game, internet site, food processing technology, retail concept, chemical process, restaurant idea, engineering methodology, agricultural process, airplane wing — we just don’t know. Many will fail. But some will succeed, and few will, hopefully, succeed in a big way.

    But these small startup companies may not fit in to the economic development programs the city and state have. Some people may not even think of looking to government for economic development assistance, as when I interviewed a successful Vietnamese grocer in Wichita. He didn’t know “where to dig” for government handouts.

    Any of these now-small companies could become the next Microsoft, Google, Home Depot, or Pizza Hut. We just don’t know which. But these companies, when in small startup stage, struggle to pay the taxes that large companies are able to escape. Being small, they may also be disproportionally impacted by regulation. It’s not necessarily the case that a small startup aviation company is competing directly with Hawker Beechcraft and is handicapped by the larger company’s tax advantages. But these two companies could be competing for the same employees, for example, and that puts the smaller company at a disadvantage.

    How can we identify which companies are deserving of government subsidy? Which companies should have their tax burden softened at the expense of others? Allocating resources — deciding what to do — in the face of uncertainty is the crux of entrepreneurship. It’s something that government is not equipped to do, as its incentives and motivations are all wrong.

    For politicians, the prime motivation is to be reelected. It is rare that the time horizon of a politician extends beyond the next election.

    For bureaucrats, the motivation is to expand their sphere of influence and power.

    Neither of these motivations are compatible with entrepreneurship. Some are not compatible in any way with running a business. For example, a business firm looks at its employees as a cost that must be managed and controlled if a profit is to be made and the firm survive. But to government, spending on employees is a social benefit, and one that is paid for by someone else.

    Another problem is the nature of knowledge. In a recent issue of Cato Policy Report, Arnold King wrote:

    As Hayek pointed out, knowledge that is important in the economy is dispersed. Consumers understand their own wants and business managers understand their technological opportunities and constraints to a greater degree than they can articulate and to a far greater degree than experts can understand and absorb.

    When knowledge is dispersed but power is concentrated, I call this the knowledge-power discrepancy. Such discrepancies can arise in large firms, where CEOs can fail to appreciate the significance of what is known by some of their subordinates. … With government experts, the knowledge-power discrepancy is particularly acute.

    I emphasized the last sentence to highlight the problem of the dispersed nature of knowledge.

    There are other problems with government management of economic development. We need to move away from this and towards a free market approach to economic development. This will take some time, and until then, we’re forced to defend our industry from other states, as we are presently doing with Hawker Beechcraft.

    But if we don’t start transforming Kansas, we’ll be doing this forever. And someone else always seems to have more money to spend.