Voice For Liberty

Tag: Corporate welfare

  • Sedgwick County, Golf Warehouse, reveal shortcomings in procedure

    Wednesday’s decision by the Sedgwick County Commission to grant a forgivable loan of $48,000 to The Golf Warehouse is yet another example of local government relying on corporate welfare as economic development, and exposes how little deliberation is given to making these decisions.

    This subsidy was promoted by the county and TGW’s consultant as necessary to persuade the applicant company to expand its operations in Wichita rather than Indiana, where the company has other operations and had also received an offer of subsidy. The same argument had been made to the Wichita City Council in May 10th, and it was successful in persuading all council members but one to vote in favor of granting a forgivable loan of the same amount as the county.

    At the county commission meeting, commissioners received a presentation by Leslie Wagner, Director of Project Management and Development for Ginovus, an economic development and site location advisory services firm working on behalf of TGW.

    While The Golf Warehouse was started in Wichita by entrepreneurs, Wagner told commissioners that the company is now owned by Redcats, a Paris, France company. That acquisition took place in 2006, she said.

    A focus of Wagner’s presentation was how large and successful an enterprise Redcats is, with $4.8 billion in annual sales revenue and over 14,000 employees. As to TGW specifically, Wagner said it offers the largest and broadest selection of golf products in the world, and has expanded to included baseball, softball, and soccer products.

    Right away some might be inclined to ask why, with the company so large and successful, local governments find it necessary to prop up this company with public assistance.

    According to Wagner, TGW will add 105 new employees by 2015, and the company’s average annual payroll by then will be $9,995,000.

    The argument for subsidy

    In her presentation, Wagner listed the incentives offered to TGW by both Indiana and Kansas. But she did not supply the value of each incentive, which makes the comparison largely meaningless. Additionally, the list of the incentives and subsidies offered by the State of Kansas was not complete. Further, some of the incentives offered by Indiana are already present in Kansas.

    For example, one incentive offered by Indiana was an abatement on personal property tax, which Wagner indicated was a factor in favor of that state. But Kansas does not tax business personal property, that is, business machinery and equipment newly purchased, leased, or moved into Kansas. This ranges from desks, computers, and copiers to large pieces of machinery and equipment. The incentive offered by Indiana, therefore, is already in place in Kansas without companies needing to ask for it, and Wagner should not have included this as a distinguishing factor between Indiana and Kansas.

    In addition, Kansas has added “expensing,” which allows businesses to depreciate purchases in one year instead of several, which reduces Kansas state income tax. As TGW expands and makes these purchases, it will be able to take advantage of this new provision in the Kansas tax code.

    Wagner also mentioned an Indiana program called EDGE (Economic Development for a Growing Economy), which rebates employees’ state income tax withholding back to the company. We have that in Kansas, too. It’s called Promoting Employment Across Kansas (PEAK), and the range of situations where this program can be applied has been expanded by this year’s legislature. This, again, is an example where an incentive offered by Indiana and promoted by Wagner as a reason as to why the county must grant a subsidy of its own to TGW is already present in Kansas.

    Another part of Wagner’s presentation that deserves a second look is her analysis of the economic impact of TGW. Wagner said that over ten years the payroll — the wages paid to its employees in Wichita — of TGW would be $100,623,437, with a “conservative” apportionment to the county of $50,311,718.

    She then showed the commission a slide where she computed the return on the county’s investment. For the “return,” she used the $50,311,718 figure of payroll that she attributed to the county. For the “investment,” she used $96,000, which is the sum of the forgivable loans from both Wichita and Sedgwick County. (Why she used both entity’s investment but only county payroll, I don’t know.)

    Her calculations from these numbers produced a return on investment of 524 percent. “If I were making an investment, that’s a phenomenal return, and I’d make that one all day long,” she told commissioners.

    But her actual calculation should have been as follows ($50,311,718 – $96,000) / $96,000 * 100 = 52,308 percent for the rate of return, if she was looking to fluff up her numbers as much as possible.

    But even that calculation wouldn’t make economic or financial sense. The $50,311,718 is returned over a period of 10 years, so the receipt of that money needs to be spread over that time. Then, since long time periods are involved, the returns in future years need to be discounted, because a dollar expected to be received in ten years is not worth as much as a dollar received this year. I made a few other assumptions and used Excel’s internal rate of return function to compute a rate of return of 5,241 percent.

    This tremendous rate of return, of course, makes no economic sense either. The $50,311,718 used as the “return” to the county is not that at all. This money is wages paid to workers. It belongs to them, not to the county. True, the county will get some of that in the form of sales taxes these workers pay as they make purchases within the county, and perhaps in other forms of taxes. Using an estimate of that number would make sense on some level, and that is the type of reasoning the Wichita State University Center for Economic Development and Business Research uses to compute the cost-benefit figures the city and county often rely upon in making decisions.

    But the figures and calculations Wagner used to make the case for TGW make absolutely no economic or financial sense. Worse than being merely absurd, they are deceptive. Compounding the error, elected officials such as commission chair Dave Unruh cited them as a factor in making his vote in favor of granting the forgivable loan.

    Completing her presentation, Wagner said “Perhaps as important, it’s goodwill. … Does the state want us to stay, does the community want us to stay, and are they willing to help us grow?” Brad Wolansky, CEO of TGW, said the loan is part of the “element of partnership” between the county and TGW, which he said was indicative of the county’s support. This is the same attitude expressed at the Wichita City Council meeting: Many of these companies requesting incentives and subsidies believe they deserve some sort of reward for investing in Wichita and creating jobs. The profits of entrepreneurs or capitalists are no longer sufficient, it seems, for some companies.

    In remarks from the bench, Sedgwick County Commissioner Richard Ranzau questioned the need for this incentive, citing the recent example of a Save-A-Lot store which will be built by a developer without incentives, after the original developer failed to acquire all the incentive he asked for. Video of his remarks and an exchange with Wagner is below.

    In his remarks, Commissioner Jim Skelton said this decision is a “no-brainer,” and that he was proud to do this for the community. Chairman Unruh said “we’re competing with someone else for this company.” He referenced the “great return” on the county’s investment, and that he could not find a reason not to support it.

    All commissioners except Ranzau voted to grant the forgivable loan, with Karl Peterjohn absent.

    City and county information not complete

    The forgivable loan subsidy granted by both Wichita and Sedgwick County is not the only subsidy TGW will receive. An inquiry to the Kansas Department of Commerce indicates that from the state of Kansas, TGW will receive $125,000 from the Kansas Economic Opportunity Initiatives Fund, $125,000 in Kansas Industrial Retraining, $50,000 in Kansas Industrial Training, $96,000 in sales tax savings, $315,918 in personal property tax savings, and $623,796 from the High Performance Incentive Program, for total incentives from the state of $1,310,714.

    These state incentives were not mentioned by the county. The value is also much higher than the City of Wichita reported in its material for its May 10th meeting when the city approved its forgivable loan to TGW. At that time, city documents reported the value of state subsidies at $275,000, a figure just 21 percent of the value reported by the Department of Commerce.

    Corporate welfare, again

    This episode, where subsidy is heaped on a company who presents a threat — real or imagined — of leaving Wichita or expanding elsewhere, represents local officials not grounding a decision on actual facts. The wild claims of return on investment made by the company’s representative simply can’t be believed. Her information about the incentives offered and available, as well as that from the City of Wichita, is incomplete or misleading.

    With some time to analyze the claims made by Wagner (and others who appear in similar situations), we can expose them for what they are. But commissioners — city council members too — often don’t have time or expertise to examine the facts. Commissioner Ranzau told me that he did not receive Wagner’s slides before the meeting. The information delivered to the council by Sherdeill Breathett, Economic Development Specialist for the county, did not appear in the new agenda system the county recently implemented. During meetings there is not time to analyze calculations or examine the claims made by presenters.

    We have to ask, however, if local government officials have the desire to examine these presentations and claims. Once the veneer of economic development hucksterism — thin as it is — is stripped away, we are left with what Ranzau has stated several times from his position on the commission bench: a simple transfer of one person’s money to another using the force of government as the agent. This reality of corporate welfare is something that officials would rather not recognize, and it’s not economic development in my book.

  • In Wichita, corporate welfare not needed, after all

    Last fall the City of Wichita awarded two forms of economic development subsidy to a proposed Save-A-Lot grocery store to be built in the Planeview neighborhood. The developer of the store was able to persuade Wichita economic development officials and city council members that the store could not be built without public assistance. But now a different developer is going ahead with the project — without any of the subsidies Wichita approved, raising questions as to whether the city’s original offer of public assistance was genuine economic development, or just another instance of corporate welfare.

    The subsidies approved were in the form of a tax increment financing district (TIF) and a Community Improvement District (CID). Over a period of years, the two forms of subsidy were estimated to be worth $900,000 to the developer.

    Kansas law allows affected counties and school districts to veto the formation of a TIF district. The Sedgwick County Commission did just that, and the developer said he would not proceed with the project.

    But now, according to Wichita Eagle reporting, a different developer is proceeding with the project, and without subsidy, according to the article. While TIF is not available, it seems the authorizing ordinance for the CID is still in effect, and could be used by the new developer, if desired.

    Economic development, or corporate welfare?

    That the Planeview Save-A-Lot grocery store is able to proceed, and in a larger and more expensive form than originally proposed, tells us that the arguments of its supporters — that economic development assistance was absolutely required — were not true. Actually, these arguments might have been true in the mind of Rob Snyder, the original developer. Developers who seek public subsidy have a powerful incentive to make the case to local governments that their projects need financial assistance. In this case, Snyder was able to convince Wichita city staff that there was indeed a “gap,” according to city documents, of “approximately $950,000 on a total project cost of over $2,000,000.” In other words, the purported “gap” was nearly half the total project cost.

    But in the hands of a different developer, that gap has evaporated, and the project is able to stand on its own without public assistance.

    We need to realize that the “gap” analysis performed by the City of Wichita is not thorough. There’s an imbalance of power in the relationship between city officials and developers. As mentioned above, developers have powerful financial motives to present their projects in a way that makes them eligible for public assistance. Government officials want these projects to happen. Economic activity is good for everyone, after all. So the motives of local economic development officials and elected representatives to turn over a lot of rocks — examining deals too closely — is weak. As a result, we’ve seen examples where outsiders brought information to the City of Wichita that would not have been considered otherwise.

    In one instance a former Wichita City Council member was unhappy that the Wichita Eagle uncovered negative information about a potential recipient of Wichita public assistance.

    Wichita officials and council members need to take a look at their economic development programs and decide whether the city is willing to — and wants to — distinguish between real and valid economic development programs and corporate welfare. In the case of Wichita’s public assistance offer to Rob Snyder’s Save-A-Lot grocery store, recent developments confirm what a few people suspected at the time — it was corporate welfare, plain and simple.

  • Pickens criticism illustrates divide between free markets and intervention

    Last week’s criticism by energy investor T. Boone Pickens of U.S. Representative Mike Pompeo, a Wichita Republican serving his first term, continues to illustrate the difference between those who believe in economic freedom and free markets, and those — like Pickens — who invest in politicians, bureaucrats, and the hope of a government subsidy.

    Pickens is pushing H.R. 1380: New Alternative Transportation to Give Americans Solutions Act of 2011, or NAT GAS act. The bill provides a variety of subsidies, implemented through tax credits, to producers and users of natural gas. The goal is to promote the use of natural gas as the fuel the nation uses for transportation.

    In his op-ed in the Wichita Eagle, Pickens was critical of Pompeo for his stance in favor of free markets and in opposition to subsidies. His criticism, however, was inconsistent and contradictory. Further, Pompeo’s position on this issue is clear, as part of a resolution he introduced reads: eliminate existing energy subsidies.

    There was another target of Pickens’ criticism. He didn’t mention the company by name, but there were several thinly-veiled references to Wichita-based Koch Industries. Charles Koch and his brother David Koch have emerged as prominent defenders of economic freedom and the freedom and prosperity it generates. Charles Koch, in particular, has been outspoken in his criticism of the type of subsidies that Pickens seeks. Koch’s op-ed, also in the Wichita Eagle and on Koch Industries website at Advancing economic freedom, was pointed in its criticism of corporate welfare: “Our government made a point of reforming its welfare policies for individuals but not for corporations. … Unfair programs that favor certain companies — such as the current well-intentioned but misguided suggestion that the natural-gas industry should receive enormous new subsidies — don’t just happen. They are promoted, in large part, by those seeking to profit politically, rather than by competing in a market where consumers vote with their wallets.”

    In a statement on the company’s Viewpoint website, Dr. Richard Fink, Executive Vice President of Koch Industries, continued to explain the harm of government intervention, saying “Koch has consistently opposed subsidies that distort markets. We maintain that the marketplace, while not perfect, is the best mechanism for allocating resources to consumers. People deciding what fuels to purchase, instead of the government, is best for consumers and our country. Likewise, if natural gas vehicles are truly advantageous and economically efficient, then consumers will demand that they be developed without political mandates that exhaust more taxpayer dollars.”

    Fink continues, “We do not question T. Boone Pickens’ intentions or integrity in this debate. We recognize his experience in the energy markets and take him at his word that he thinks this is a good idea. However, we believe history has demonstrated over and over that these subsidies end up undermining the long term prosperity of the country. For these principled reasons, we oppose this bill to give tax incentives to buyers and makers of natural gas-powered vehicles and related infrastructure. We also consistently oppose subsidies for all other fuels whether or not we benefit from them.”

    Pickens would probably object to the use of the term “subsidy,” as the legislation he pushes grants “credits,” a term that sounds fairly benign. Timothy P. Carney, writing in the Washington Examiner, provides an explanation of the difference: “Pickens draws two dividing lines in the piece: tax credit vs. grant, and permanent versus temporary. A temporary subsidy is certainly better than an indefinite or permanent one. The tax credit question is trickier. Many free-market champions support every tax break ever proposed (Ron Paul, for instance). Other free market types (like me, probably) think that tax credits act as subsidies which distort the market, and ultimately lead to tax hikes on others. One of the bad things about tax credits is that they reward businesses for following political signals rather than market signals, but they do it in a way that allow the beneficiaries, like Pickens, to act as if they’re not on the public dole. Sure, a tax credit (most of the time) isn’t a handout, but the favored product (like ethanol or natural gas) only succeeds because its competition is taxed at high rates. So tax credits are the socially acceptable form of corporate welfare.” (emphasis added)

    While Carney usually gets things just right, I’ll disagree with him that the question of tax credits is tricky: They have the same economic effect as a grant or subsidy. They engineer the behavior the government wants. But Carney is right about the confusing appearance of tax credits, allowing them to be “the socially acceptable form of corporate welfare.” Unless we really think about it, that is.

    In any discussion of Pickens and natural gas, we must recognize that he is an investor in gas and another energy technology related to gas: wind power. In 2008 Pickens ordered 667 wind turbines worth $2 billion from General Electric with plans to build a large wind power plant in Texas. Wind power is highly dependent on government subsidy, with supporters claiming the industry will be devastated unless Congress continues to renew the subsidies.

    At one time Pickens wanted to use wind power to generate electricity, and the natural gas saved would be used to power transportation. But there’s another relationship between wind power and gas, and it stems from the unreliability and variability of wind power. It’s difficult to quickly adjust the output of most power plants. But natural gas turbine plants are an exception. Kansas recently saw one of its major electric utilities complete a new natural gas power plant. The need for the plant was at least partly created by its investment in wind: A document produced by Westar titled The Greenhouse Gas Challenge noted the “Construction of the 665 MW natural gas-fired Emporia Energy Center, providing the ability to efficiently follow the variability of wind generation.” In another document announcing a request for a rate increase it stated “Our Emporia Energy Center is excellent for following the variability of wind production.”

    At the time of these investments by Pickens and Westar, the price of natural gas was high. Now it is low — so low, and the prospects for future low prices certain enough that Pickens has abandoned his wind farm projects. Even with all the subsidy granted to wind power, it’s cheaper to generate electricity with gas.

    (Pickens has been left with many wind turbines he can’t use. According to the Wall Street Journal: “He’s hoping to foist them on ratepayers in Canada, because that country has mandates that require consumers to buy more expensive renewable electricity.” In other words, relying on some other country’s government intervention to relieve him of his mistake.)

    So we see Pickens moving from one government-subsidized industry — wind power — to another: the subsidized market for natural gas-powered vehicles he hopes to create. The distinction between political entrepreneurs and market entrepreneurs couldn’t be clearer.

  • Kansas and Wichita quick takes: Monday May 23, 2011

    Wichita City council. As it is the fourth Tuesday of the month, the Wichita City Council handles only consent agenda items. The council will also hold a workshop. Consent agendas are usually reserved for items thought to be of non-controversial nature. Today’s Wichita Eagle spotlights one item where the city is proposing to hire an outside firm to inspect the roof of the airport for damage from last September’s storm. Some, including Council Member Michael O’Donnell (district 4, south and southwest Wichita) wonder why the city can’t do the inspection with it’s own engineering staff and resources. … Of further note is that the city proposes to use general obligation bonds to borrow the funds to pay for this inspection. This is similar to last December, when the city decided to also use bonds to borrow money to pay for an analysis of nine aging fire stations and what repairs and upgrades they might require. While borrowing to pay for long-term capital projects is fine, this is borrowing for thinking about long-term projects. … The workshop will cover Century II parking meters, something involving the North Industrial Corridor, and a presentation on next year’s budget. The detailed agenda packet is at Wichita City Council May 24, 2011. No similar information is available for the workshop topics. … Next week is the fifth Tuesday of a month and the day after a holiday, so there’s two reasons to explain why there won’t be a city council meeting next week.

    Sedgwick County Commission. In its Wednesday meeting, the Sedgwick County Commission will consider approval of the county’s portion of the Hawker Beechcraft deal. In order to persuade Hawker to stay in Kansas rather than move to Louisiana, the State of Kansas offered $40 million in various form of incentive and subsidy, and it was proposed at the time that the City of Wichita and Sedgwick County each add $2.5 million. Last week the Wichita City Council approved its share, which can only be described as corporate welfare. It was widely reported that Hawker had received an offer, said by some to be worth as much as $400 million, to move to Louisiana. But that offer was not a valid threat of Hawker leaving Kansas, as in a December 2010 television news report, Louisiana’s governor said “they couldn’t guarantee the number of jobs that would have been required for them to come here.” … The meeting agenda is at Sedgwick County Commission, May 25, 2011.

    Kobach on voter reform in Wall Street Journal. Today’s Wall Street Journal opinion section carries a piece by Kris W. Kobach, who is Kansas Secretary of State. The title is The Case for Voter ID: You can’t cash a check, board a plane, or even buy full-strength Sudafed over the counter without ID. Why should voting be different? In it, Kobach writes Kansas is the only state with all of these elements of voter ID reform: “(1) a requirement that voters present photo IDs when they vote in person; (2) a requirement that absentee voters present a full driver’s license number and have their signatures verified; and (3) a proof of citizenship requirement for all newly registered voters.” In support of the need for these reforms, Kobach provides evidence of the prevalence of election fraud. He also cites evidence that there is already widespread possession of the documents necessary to vote: “According to the 2010 census, there are 2,126,179 Kansans of voting age. According to the Kansas Department of Motor Vehicles, 2,156,446 Kansans already have a driver’s license or a non-driver ID. In other words, there are more photo IDs in circulation than there are eligible voters. The notion that there are hundreds of thousands of voters in Kansas (or any other state) without photo IDs is a myth.” … Some critics of these reforms fear that they will suppress voter turnout, and primarily that of Democratic Party voters. Kobach counters: “If election security laws really were part of a Republican scheme to suppress Democratic votes, one would expect Democrats to fight such laws, tooth and nail. That didn’t happen in Kansas, where two-thirds of the Democrats in the House and three-fourths of the Democrats in the Senate voted in favor of the Secure and Fair Elections Act. They did so because they realize that fair elections protect every voter and every party equally. No candidate, Republican or Democrat, wants to emerge from an election with voters suspecting that he didn’t really win. Election security measures like the one in my state give confidence to voters and candidates alike that the system is fair.” … The bill is HB 2067, and is the easiest way to understand it is by reading the supplemental note.

    Tiahrt, former Congressman, to address Pachyderms. This week the Wichita Pachyderm Club features Todd Tiahrt, Former Congressman for the fourth district of Kansas, speaking on the topic “Outsourcing Our National Security — How the Pentagon is Working Against Us.” I suspect the prolonged decision process of selecting where the build the Air Force refueling tanker will be a topic. After the Pentagon awarded to contract to AirBus in 2008, which Boeing protested, the Wall Street Journal wrote: “The Pentagon’s job is to defend the country, which means letting contracts that best serve American soldiers and taxpayers, not certain companies. Defense Department rules explicitly state that jobs cannot be a factor in procurement and that companies from certain countries, including France, must be treated as if they are U.S. firms in contract bids. Such competition ensures that taxpayers get the best value for their money and soldiers get the best technology.” More on this decision is here. The public is welcome and encouraged to attend Wichita Pachyderm meetings. For more information click on Wichita Pachyderm Club.

    Wichita speaker lineup set. The schedule of speakers for the Wichita Pachyderm Club for the next several weeks is set, and as usual, it looks to be an interesting set of programs. The public is welcome and encouraged to attend Wichita Pachyderm meetings. For more information click on Wichita Pachyderm Club. Upcoming speakers are: On June 3, Nola Tedesco Foulston, District Attorney, Eighteenth Judicial District of Kansas, speaking on “An office overview and current events at the Eighteenth Judicial District of Kansas District Attorney’s office.” On June 10, John Allison, Superintendent of USD 259, the Wichita public school district, on “An update from USD 259.” On June 17, The Honorable Lawton R. Nuss, Kansas Supreme Court Chief Justice on “The State of the Kansas Courts.” On June 24, Jim Mason, Naturalist at the Great Plains Nature Center will have a presentation and book signing. Mason is author of Wichita’s Riverside Parks, published in April 2011. On July 1, Jay M. Price, Director of the Public History Program at Wichita State University, speaking on “Classes of Values in Kansas History.” On July 8, Dave Trabert, President, Kansas Policy Institute, on “Stabilizing the Kansas Budget.”

    Blue Ribbon Commission coming to Wichita. “Local residents will have an opportunity to voice concerns and offer suggestions on how to improve the state’s court systems during two public meetings next week in Wichita. A panel from the Blue Ribbon Commission (BRC), which was appointed by the Kansas Supreme Court to review the state’s court systems, will listen to public comments during the meetings at 3:00 pm and 7:00 pm, Thursday, May 26, 2011 at Century II, in Room 101, in Wichita. The BRC will examine ways to assure proper access to justice, the number of court locations, services provided in each location, hours of operation, the use of technology, possible cost reductions, and flexibility in the use of court personnel and other resources, and any other topic that may lead to the more efficient operation of our courts.” For more information, see the Blue Ribbon Commission Website.

    School choice cast as civil rights issue. Star Parker, after citing the case of a homeless mother who falsified an address so her child could get into a good school: “Public school reality today for black kids is one that overwhelmingly keeps them incarcerated in failing, dangerous schools. It’s evidence of the indomitable human spirit that, despite horrible circumstances, many poor unmarried black mothers understand the importance of getting their child educated and will do whatever it takes to get their kid into a decent school. … But let’s not forget the bigger picture that the NAACP has consistently opposed school choice and voucher initiatives and has been a stalwart defender of the public school system that traps these kids and prohibits the freedom and flexibility that these mothers seek. … Generally, black establishment politicians and organizations such as the NAACP have defended government public schools and education status quo and sadly have hurt their own communities. Nothing contributes more to the growing income gaps in the country than disparities in education, and the impact continues to grow.” … A common choice of allowing widespread school choice is that poor and uneducated parents aren’t capable of making wise selections of schools for their children.

    Medicare reform necessary. Wall Street Journal in Republicans and Mediscare: Paul Ryan’s GOP critics are ObamaCare’s best friends: “With ObamaCare, Democrats offered their vision for Medicare cost control: A 15-member unelected board with vast powers to set prices for doctors, hospitals and other providers, and to regulate how they should be organized and what government will pay for. The liberal conceit is that their technocratic wizardry will make health care more rational, but this is faith-based government. The liberal fallback is political rationing of care, which is why Mr. Obama made it so difficult for Congress to change that 15-member board’s decisions. Republicans have staunchly opposed this agenda, but until Mr. Ryan’s budget they hadn’t answered the White House with a competing idea. Mr. Ryan’s proposal is the most important free-market reform in years because it expands the policy options for rethinking the entitlement state.” The unelected board referred to is the Independent Payment Advisory Board. With its mission to reduce spending, some have aid this board is the feared “death panel.”

    Science, public agencies, and politics. Cato Institute Senior Fellow Patrick J. Michaels explains the reality of cap-and-trade proposals in this ten minute video. If the Waxman-Markey bill was implemented, world temperature would be reduced by 0.04 degrees. That compares to a forecast increase of 1.584 degrees. If implemented worldwide by the Kyoto nations, the reduction would be 0.08 degrees worldwide. … Michaels says the growth in emissions by China eclipses anything we in America can do. … Michaels echos Dwight Esienhower’s warning that “we must also be alert to the equal and opposite danger that public policy could itself become the captive of a scientific-technological elite. The prospect of domination of the nation’s scholars by Federal employment, project allocations and the power of money is ever present — and is gravely to be regarded.” He goes on to explain some of the dangers of “public choice science.”

  • Charles Koch: Advancing economic freedom

    In recent years Charles Koch and his brother David Koch have emerged as prominent defenders of economic freedom and the freedom and prosperity it promises. In today’s Wichita Eagle, Charles Koch explains the importance of economic freedom and warns of the threats to freedom and prosperity that our country faces.

    A key component of economic freedom is property rights. In his 2007 book The Science of Success: How Market-Based Management Built the World’s Largest Private Company, Mr. Koch explained the importance of property rights: “Countries that clearly define and protect individual private property rights stimulate investment and grow. Those that threaten and confiscate private property lose capital and decline. They also lose the capability and efforts of the individuals who would be the greatest contributors to economic growth.”

    In the Economic Freedom of the World report, there are five broad areas that are measured to determine the relative economic freedom of countries:

    • Size of Government: Expenditures, Taxes, and Enterprises;
    • Legal Structure and Security of Property Rights;
    • Access to Sound Money;
    • Freedom to Trade Internationally; and
    • Regulation of Credit, Labor, and Business.

    We can see the importance of property rights to economic freedom. When government taxes, it takes our property and gives it to someone else — often to business firms in the form of corporate welfare. Without a developed legal system, property rights are not secure. Without sound money, government takes our property by devaluing our savings through inflationary monetary policies.

    It is the advancement of policies that promote economic freedom that, as Koch writes, “help societies prosper.” We see this in the rankings of countries on the economic freedom index. Countries with high levels of economic freedom, like Hong Kong, are prosperous even through they often have little in the way of natural resources. And countries that are rich in resources but not in economic freedom: Their people suffer, although corrupt leaders usually live richly.

    Economic freedom is not just for rich people. Everyone — especially those on the lowest rungs of the economic ladder — benefits.

    Charles Koch: Economic freedom key to improving society

    By Charles G. Koch

    My brother David and I have long supported the principles that help societies prosper. I have actively done so for nearly 50 years, as has my brother for more than 40.

    In recent years, we have stepped up our efforts to deal with the enormous threats to the future well-being of the people of this country. This has prompted some extreme criticism. From the White House to fringe bloggers, we are now being vilified, mischaracterized and threatened.

    In a perverse way, these attacks indicate that we are having a positive effect on public awareness and policymaking. That is why we are working even harder to advance economic freedom and prosperity.

    We do so because we believe economic freedom is essential for improving the well-being of society as a whole, especially those who work hard to provide for their families, as well as our most vulnerable. History and sound theory are clear on this point. If we allow our government to waste scarce resources and become the ultimate decision maker, almost everyone will suffer a lower standard of living.

    Continue reading at The Wichita Eagle. A slightly different version of Mr. Koch’s editorial is available on the Koch Industries website at Advancing economic freedom.

  • Wichita on corporate welfare, again

    Yesterday’s award of $2.5 million by the City of Wichita to aircraft manufacturer Hawker Beechcraft to ward off a threatened move to Louisiana stands out as an example of corporate welfare given for its own sake, and not in response to any real threat.

    Hawker will also ask Sedgwick County for the same amount, in addition to receiving $40 million in credits and incentives from the State of Kansas.

    It was widely reported that Hawker had received an offer, said by some to be worth as much as $400 million, to move to Louisiana. But that offer was not a valid threat of Hawker leaving Kansas, as in a December 2010 television news report, Louisiana’s governor said “they couldn’t guarantee the number of jobs that would have been required for them to come here.”

    Further evidence of the payment being corporate welfare for its own sake is lack of a cost-benefit analysis that usually accompanies such matters. Generally, the city justifies spending on economic development by citing a cost-benefit analysis performed by Wichita State University. By giving up some tax revenue or making a payment, the city feels it will gain even more tax revenue in the future. But no such numbers were cited as justification for this payment to Hawker Beechcraft.

    Speaking from the bench, new council member James Clendenin (district 3, south and southeast Wichita) said “At the end of 10 years, I don’t think anyone wants to have to go this process again.” He asked economic development director Allen Bell if there was a process in place so that we wouldn’t be blindsided, so that we could “come up with solutions ahead of time.” A streamlining of the corporate welfare, so to speak. Bell said there is such an effort: IDEA (Industrial Development and Expansion Assistance), plus informal discussions between high level city officials and businesses.

    Council Member Michael O’Donnell (district 4, south and southwest Wichita) brought out the fact that although it has been widely reported that the agreement requires Hawker to keep employment at 4,000 or more, it’s not until employment falls below 3,600 that clawback provisions become triggered. O’Donnell said he wanted to protect these 400 jobs, but Bell said the agreement was negotiated between Hawker and the State of Kansas (under former governor Mark Parkinson), and that O’Donnell was correct. O’Donnell expressed his concern: “I think that we definitely need to get the word out that we’re voting for something that could be 3,601 jobs and not 4,000 jobs like’s been sold to us and the public. … I think that’s problematic when we’re dealing with multi-millions of dollars.”

    Two members of the public addressed the council on this matter, including myself based on my remarks in Hawker Beechcraft to receive subsidy from Wichita City Council.

    In a lecture delivered to Clinton Coen, a young man who spoke against the Hawker incentive, Mayor Brewer spoke of the “employment rate [sic] before the recession” at Cessna, which the mayor cited as 12,000 employees, noting that there are only 6,000 today. The mayor said “That’s part of what contributed to this,” but did not make a connection between the decline in employment at Cessna and requirement of the subsidy being offered to Hawker. Cessna, by the way, received approval of similar incentives from the state and local governments for an expansion to be made in Wichita, but the declining aviation market led Cessna to cancel the expansion and the incentives.

    The mayor also mentioned how we lost 1,500 jobs from one company because another state paid the company $1 million per job. The mayor did not mention the company, and inquiries to the mayor’s office and the city’s information office and staffers could not produce an answer. The mayor might have been referring to a 2008 offer by North Carolina to Spirit Aerosystems to build a plant there. That deal, as reported by the Triangle Business Journal, was an offer worth up to $250 million for employment expected to reach 1,031 within six years. That’s about $242,000 per job — a long way from a million. Furthermore, the report listed Jacksonville, not Wichita, as the main competition for the plant, even through Spirit is headquartered in Wichita.

    The mayor also lectured Coen, as he has to others, about “philosophies or a theory” one may have concerning economic development, and how it is easy to say the things Coen did “if you really truly don’t know.” He also mentioned the threat of losing the entire company, not only to Louisiana, which he said is not the only competition, but the entire world.

    All council members except O’Donnell voted for the measure.

    Hawker as Wichita corporate citizen

    At the city council meeting, I noted that the Hawker Beechcraft campus, although entirely surrounded by the city of Wichita, is not itself within the city limits. Apparently this does not limit the ability of Wichita to spend its citizens’ money on Hawker, but no one on the council or staff wanted to tackle that issue at the meeting.

    Being outside the city limits of Wichita, Hawker pays no property tax to the city, as confirmed by examining tax records maintained by the Sedgwick County Treasurer’s Office.

    Aviation summit

    In his lecture to Coen, the mayor mentioned the recent aviation summit held by Kansas Governor Sam Brownback in Wichita. At that event, the attitude of the industry towards government assistance was clear: much is demanded.

    Lynn Nichols, who is President of the Wichita Metro Chamber of Commerce and also owner of an aviation service business, answered several questions, including one asking which state incentives and tax and regulatory polices are important?

    Nichols listed the sales tax exemption on aircraft service, repair, and modification; business expensing on capital expenditures; and reasonable and practical compliance policies from the Kansas Department of Health and Environment. Then, he added: “And of course, we can’t wait for Secretary [of Commerce Pat] George’s new cookie jar with his proposed economic development discretionary deal-closing fund. So we support you on that one, Secretary.”

    The choice of language by Nichols — “cookie jar” — was found to be offensive by Sedgwick County Commissioner Richard Ranzau, and he commented on that at a recent commission meeting:

    Overall, the tone of the summit was that the Kansas aviation industry is dependent on support and incentives from state and local governments. Without that, industry leaders said it will be difficult to survive or resist offers to move to other states.

    But as we saw yesterday at the Wichita City Council, perceived threats need not be credible in order to extract taxpayer funds in the form of corporate welfare. The taxpayer-funded cookie jar is open for business.

  • Hawker Beechcraft to receive subsidy from Wichita City Council

    Tomorrow the Wichita City Council will very likely live up to its part in a deal to award $2.5 million in subsidy to aircraft manufacturer Hawker Beechcraft. Sedgwick County will also be called on to contribute the same amount, and the state has agreed to chip in $40 million.

    Undoubtedly the occasion will be used by Wichita Mayor Carl Brewer and others to crow about the city’s effort to retain Hawker Beechcraft in the face of an offer from the State of Louisiana. While our local governments got what they wanted in this instance, it nonetheless provides a lesson in the futility of corporate welfare as 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 government handouts, but by a low taxing and spending environment, and a reasonable regulatory regime.

    I use “got what they wanted” rather than “success,” as there are important questions surrounding the wisdom of this deal. First, there is some evidence that Hawker may need to shrink substantially in order to survive, handouts notwithstanding. See The Teetering State of Hawker Beechcraft. Besides indicting Hawker for a “bloated and inefficient production process,” the report claims the company’s pension plan is underfunded by $296 million.

    Some have called into question the validity of the competing offer. Louisiana had purportedly offered up to $400 million to attract Hawker’s 4,000 jobs. This is a cost of $100,000 per job, a very costly number, but some states have paid even more. If genuine, Kansas got a deal at only $11,250 per job.

    But: These are retained jobs, not new jobs. H. Edward Flentje explained in his analysis Brinkmanship with jobs: “But the Hawker Beechcraft deal is different, focused on saving existing jobs, not creating new jobs, and the result diverts millions in limited taxpayer funds, primarily state income tax revenues, from state coffers to a company’s benefit, simply to have an existing business stay put.”

    Flentje went on to explain the new economic development policy in Kansas and the precedent the Hawker deal sets: “The barn door has been flung open as well over 500 Kansas businesses are now eligible for state assistance, a tenfold increase over the year 2000, thanks to lawmakers. The expanding game of brinkmanship with jobs leaves state and local officials more vulnerable and can be expected to divert millions more in state tax revenues from state government’s primary obligations in response to the demands of companies that choose to play.”

    The major problem, however, is that economic development policy in Wichita and Kansas is not moving in the right direction. We place large bets on old, established industry, when we should be looking to foster dynamism and young companies as the engine to propel the Kansas economy.

    Somewhere in Wichita or Kansas there is a small, new, 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, manufacturing methodology, agricultural process, airplane wing — we just don’t know. Many will fail. But some will succeed, and a 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. Being of entrepreneurial spirit, these people may not even think of looking to government for economic development assistance.

    Any of these new and now-small companies could become the next Microsoft, Google, Home Depot, or Pizza Hut. We just don’t know which — and it’s impossible for anyone, government bureaucrats included — to know. But these companies, when in startup phase, struggle to pay the taxes that large companies are able to escape. Being small, they may also be disproportionally impacted by regulation. They don’t qualify for the economic development programs that larger companies benefit from, and they probably couldn’t afford to devote the time and effort to apply.

    It’s not necessarily the case that a small startup aviation company is competing directly in aircraft sales with Hawker Beechcraft and is handicapped by the larger company’s government handouts. But these two companies could be competing for the same employees, for example, and that puts the smaller, unsubsidized company at a disadvantage.

    But having decided to pursue a policy of giving in to the demands of companies who threaten to leave or build elsewhere, we have a question to answer: How can we identify which companies are deserving of government subsidy? Which companies should have their tax burden softened, their treasury fattened, at the expense of others? Allocating resources and 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.

    The deal with Hawker continues and expands the same process that Kansas and other states have been using for economic development. 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.

    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.

    Deals like this with Hawker move Kansas towards towards more state-controlled economic development and away from creating a dynamic economy. We prop up the old and declining at the expense of the new and vibrant.

    And, we don’t learn. At the same meeting the Wichita City Council is considering approval of its policies for awarding economic development subsidy in downtown — another example of the very type of government planning that stifles economic dynamism and replaces it with cronyism.

  • Kansas Bioscience Authority, protected

    This year the Kansas Bioscience Authority has come under scrutiny for a variety of reasons, including salaries, bonuses, and expenses paid by the authority. Especially troubling is revelation that money we all thought would be invested in Kansas businesses had no such requirement, as can be seen in this video of CEO Tom Thornton. Dion Lefler of the Wichita Eagle has other reporting on the KBA.

    The problem with public-private partnerships like the KBA is that they are, in one sense, expected to operate like a private business, but they don’t have the freedom to operate as such. They also don’t have the same motivations and incentives that guide true private enterprise, namely profit and loss. Instead, we see agencies like KBA reporting their impact in terms of “return on investment.” For example, KBA claims: “Including estimated wages of jobs, that represents a $9.41 return to the state’s economy for each $1 invested by the KBA!” This “investment” by the KBA is nothing like the investments that business and individuals make.

    There’s also the issue of covering for the KBA by leadership of the Kansas Senate, specifically Steve Morris and John Vratil, as Alan Cobb details below.

    Kansas Senate Leadership needs to answer for KBA protection

    By Alan Cobb, Americans for Prosperity

    First the good news.

    Kansas Bioscience Authority (KBA) CEO Tom Thornton resigned under pressure today.

    Much credit goes to Gov. Sam Brownback and especially Sen. Susan Wagle who brought to public attention a slew of conflict of interest and other inappropriate behavior by Thornton and others at the KBA.

    It is of little surprise the Johnson County District Attorney’s office is investigating the KBA. Wagle is totally vindicated and Kansas taxpayers owe her a big debt of gratitude.

    Now the bad news.

    From what we know so far, what’s happened at the KBA is a textbook case of what not to do at a public agency.

    Thornton’s wife was receiving a $107,000 salary as an administrative assistant. The state of Kansas paid for a $1 million life insurance policy for Thornton’s ex-wife. The KBA invested $50 million to venture firms out of state with little oversight. The KBA invested in companies whose executives couldn’t be located by state officials. Many people in the know said an investigation of KBA and Thornton was “long overdue” and the KBA offices in Olathe were a “shrine” to Thornton.

    And this is someone being praised and protected key members of Senate Leadership, President Steve Morris and John Vratil? Just last month Morris said he was 100 percent behind the ousted KBA leader. Morris recently said that the KBA was an “icon for the state.”

    What planet do these guys live on?

    Vratil and Morris sat in the hearings conducted by Wagle, certainly as a show of support for Thornton and for disdain for Wagle and much-needed oversight of KBA.

    The protection given Thornton by Senate leadership even after his resignation today is astonishing.

    The question is what else is being hidden and why are Morris and Vratil so willing to fall on their swords for Thornton and his corrupt behavior?

    That’s the 800-pound rat in the middle of the room that’s eaten some bad Danish cheese.

    Kansans are waiting are waiting for answers.

  • Wichita elections a blow for economic freedom

    Results from yesterday’s elections for Wichita mayor and city council members were in contrast to the message voters have sent in recent state and national races. There, voters expressed a preference for smaller government, less government spending, and less debt. For these Wichita city offices, however, voters — with one exception — voted for those who promised more government intervention and less economic freedom.

    The winning candidates, of course, didn’t mention the loss of economic freedom in their campaign pitches. But their promise to grow government means just that. Yes, they promise to carefully scrutinize city spending and incentives on a case-by-case basis, insisting they are wise enough and knowledgeable enough to determine which projects are worthy of taxpayer support, and which aren’t. They all say that, always.

    The winners in yesterday’s election — besides the officeholders — are those who will benefit from having a compliant and emboldened mayor and like-minded council members in office as they seek to earn their fortunes at city hall at taxpayer expense. We see these people and their names on the campaign donation reports of many of the successful candidates. Their interest is not good government, but personal enrichment. They generally contribute to all city council members regardless of political stance. It’s difficult to see how someone who has a consistent political ideology they believe in could contribute to all city council members. But they do.

    The incumbents who won re-election — Mayor Carl Brewer and council member and Vice Mayor Jeff Longwell — have already proven themselves to be totally captured by these special interests. Now the new council members have a decision to make: Do they stand up for limited government and economic freedom in Wichita, or do they join the mayor and other council members on the side of the crony capitalists?

    I’ll be surprised if any council member — excepting Michael O’Donnell — ever votes against any of the projects our city’s crony capitalists bring forward.

    This is not a happy day for the future of Wichita. While today’s Wichita Eagle editorial wrote of the mayor’s “enthusiasm for Wichita and optimism about its future,” we need to question the assumptions underlying his sentiments. Is it “optimistic” when a city feels it must dish out corporate welfare to any company that hints of leaving town for purportedly greener pastures? Is it “enthusiasm” when a government that doesn’t trust its citizens to build, work, and live where they want — instead pushing through a heavy-handed, taxpayer-funded downtown plan?

    The takeaway is that it’s easy for people to succumb to the mayor’s false promise of economic prosperity through government intervention. The message of economic freedom, of free people conducting their affairs with minimal interference, is more difficult to believe in for many people. Unfortunately, Wichita does not have a newspaper that believes in economic freedom and limited government, preferring instead the big-government approach to managing a city and its economy. Unlike in other recent elections, this time voters largely followed recommendations made by the Wichita Eagle editorial board.

    Going forward, we can expect a proposal for a tax increase of some sort soon. Some desire a citywide sales tax for the purposes of economic development. These ideas, along with any others expanding the reach and power of city government, will probably not face much resistance from the new city council.