Tag Archives: Cronyism

More TIF spending in Wichita

The Wichita City Council will consider approval of a redevelopment plan in a tax increment financing (TIF) district.

This week the Wichita City Council will hold a public hearing considering approval of more tax increment financing (TIF) spending in downtown Wichita. The spending is for the second phase of redevelopment of the Union Station property on East Douglas. According to city documents, the total cost of this phase is $31,000,000, with TIF paying for $2,954,734. 1

This is a pay-as-you-go form of TIF, which means the city does not borrow funds as it would in a traditional TIF district. Instead, the eligible portion of the developer’s property taxes will be rerouted back to the development as they are paid.

The TIF district was established in 2014. The council this week considers a redevelopment plan, which authorizes spending TIF funds on a specific project. Redevelopment plans must be approved by a two-thirds majority of the council. While overlapping jurisdictions like counties and school districts can block the formation of a TIF district, they have no such role in the approval of a redevelopment plan.

Of note, this public hearing is being held after the fact, sort of. City documents state: “A development agreement was approved by the City Council on August 7, to allow for the developer to begin non-TIF eligible improvements in order to meet deadlines for a new tenant.” The city documents for the August 7 meeting hold this: 2

The Developer has requested that the development agreement be approved now, prior to adoption of the project plan, to allow work to begin on the Meade Corridor improvements in order to complete the project in time for the tenant to move in. The Development agreement is drafted to allow for the Meade Corridor improvements to occur following adoption of the agreement, however, any work or reimbursement for TIF is contingent on City Council adoption of the project plan following the September 11 public hearing.

Citizens have to wonder will the September 11 public hearing have any meaning or relevance, given that on August 7 the city gave its de facto approval of the redevelopment plan.

Following, more information about tax increment financing.

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

How TIF works

A TIF district is a geographically-defined area.

In Kansas, TIF takes two or more steps. The first step is that cities or counties establish the boundaries of the TIF district. After the TIF district is defined, cities then must approve one or more project plans that authorize the spending of TIF funds in specific ways. (The project plan is also called a redevelopment plan.) In Kansas, overlapping counties and school districts have an opportunity to veto the formation of the TIF district, but this rarely happens. Once the district is formed, cities and counties have no ability to object to TIF project plans.

Figure 1.
Figure 1.
Before the formation of the TIF district, the property pays taxes to the city, county, school district, and state as can be seen in figure 1. Because property considered for TIF is purportedly blighted, the amount of tax paid is usually small. Whatever it is, that level is called the “base.”

Figure 2.
Figure 2.
After approval of one or more TIF project plans the city borrows money and gives it to the project or development. The city now has additional debt in the form of TIF bonds that require annual payments. Figure 2 illustrates. (There is now another form of TIF known as “pay-as-you-go” that works differently, but produces much the same economic effect.)

Figure 3.
Figure 3.
Figure 3 shows the flow of tax revenue after the formation of the TIF district and after the completion of a project. Because buildings were built or renovated, the property is worth more, and the property tax is now higher. The development now has two streams of property tax payments that are handled in different ways. The original tax — the “base” — is handled just like before, distributed to city, state, school district, and the state, according to their mill levy rates. The difference between the new tax and the base tax — the “increment” — is handled differently. It goes to only two destinations (mostly): The State of Kansas, and repayment of the TIF bonds.

Figure 4.
Figure 4.
Figure 4 highlights the difference in the flow of tax revenues. The top portion of the illustration shows development outside of TIF. We see the flows of tax payments to city, county, school district, and the state. In the bottom portion, which shows development under TIF, the tax flows to city, county, and school district are missing. No longer does a property contribute to the support of these three units of government, although the property undoubtedly requires the services of them. This is especially true for a property in Old Town, which consumes large amounts of policing.

(Cities, counties, and school districts still receive the base tax payments, but these are usually small, much smaller than the incremental taxes. In non-TIF development, these agencies still receive the base taxes too, plus whatever taxes result from improvement of the property — the “increment,” so to speak. Or simply, all taxes.)

The Kansas law governing TIF, or redevelopment districts as they are also called, starts at K.S.A. 12-1770.

TIF and public policy

Originally most states included a “but for” test that TIF districts must meet. That is, the proposed development could not happen but for the benefits of TIF. Many states have dropped this requirement. At any rate, developers can always present proposals that show financial necessity for subsidy, and gullible government officials will believe.

Similarly, TIF was originally promoted as a way to cure blight. But cities are so creative and expansive in their interpretation of blight that this requirement, if it still exists, has little meaning.

The rerouting of property taxes under TIF goes against the grain of the way taxes are usually rationalized. We use taxation as a way to pay for services that everyone benefits from, and from which we can’t exclude people. An example would be police protection. Everyone benefits from being safe, and we can’t exclude people from benefiting from police protection.

So when we pay property tax — or any tax, for that matter — people may be comforted knowing that it goes towards police and fire protection, street lights, schools, and the like. (Of course, some is wasted, and government is not the only way these services, especially education, could be provided.)

But TIF is contrary to this justification of taxes. TIF allows property taxes to be used for one person’s (or group of persons) exclusive benefit. This violates the principle of broad-based taxation to pay for an array of services for everyone. Remember: What was the purpose of the TIF bonds? To pay for things that benefited the development. Now, the development’s property taxes are being used to repay those bonds instead of funding government.

One more thing: Defenders of TIF will say that the developers will pay all their property taxes. This is true, but only on a superficial level. We now see that the lion’s share of the property taxes paid by TIF developers are routed back to them for their own benefit.

It’s only infrastructure

In their justification of TIF in general, or specific projects, proponents may say that TIF dollars are spent only on allowable purposes. Usually a prominent portion of TIF dollars are spent on infrastructure. This allows TIF proponents to say the money isn’t really being spent for the benefit of a specific project. It’s spent on infrastructure, they say, which they contend is something that benefits everyone, not one project specifically. Therefore, everyone ought to pay.

This attitude is represented by a comment left at Voice for Liberty, which contended: “The thing is that real estate developers do not invest in public streets, sidewalks and lamp posts, because there would be no incentive to do so. Why spend millions of dollars redoing or constructing public streets when you can not get a return on investment for that”

This perception is common: that when we see developers building something, the City of Wichita builds the supporting infrastructure at no cost to the developers. But it isn’t quite so. About a decade ago a project was being developed on the east side of Wichita, the Waterfront. This project was built on vacant land. Here’s what I found when I searched for City of Wichita resolutions concerning this project:

Figure 5. Waterfront resolutions.
Figure 5. Waterfront resolutions.
Note specifically one item: $1,672,000 for the construction of Waterfront Parkway. To anyone driving or walking in this area, they would think this is just another city street — although a very nicely designed and landscaped street. But the city did not pay for this street. Private developers paid for this infrastructure. Other resolutions resulted in the same developers paying for street lights, traffic signals, sewers, water pipes, and turning lanes on major city streets. All this is infrastructure that we’re told real estate developers will not pay for. But in order to build the Waterfront development, private developers did, with a total cost of these projects being $3,334,500. (It’s likely I did not find all the resolutions and costs pertaining to this project, and more development has happened since this research.)

In a TIF district, these things are called “infrastructure” and will be paid for by the development’s own property taxes — taxes that must be paid in any case. Outside of TIF districts, developers pay for these things themselves.

If not for TIF, nothing will happen here

Generally, TIF is justified using the “but-for” argument. That is, nothing will happen within a district unless the subsidy of TIF is used. Paul F. Byrne explains:

“The but-for provision refers to the statutory requirement that an incentive cannot be awarded unless the supported economic activity would not occur but for the incentive being offered. This provision has economic importance because if a firm would locate in a particular jurisdiction with or without receiving the economic incentive, then the economic impact of offering the incentive is non-existent. … The but-for provision represents the legislature’s attempt at preventing a local jurisdiction from awarding more than the minimum incentive necessary to induce a firm to locate within the jurisdiction. However, while a firm receiving the incentive is well aware of the minimum incentive necessary, the municipality is not.”

It’s often thought that when a but-for justification is required in order to receive an economic development incentive, financial figures can be produced that show such need. Now, recent research shows that the but-for justification is problematic. In Does Chicago’s Tax Increment Financing (TIF) Programme Pass the ‘But-for’ Test? Job Creation and Economic Development Impacts Using Time-series Data, author T. William Lester looked at block-level data regarding employment growth and private real estate development. The abstract of the paper describes:

“This paper conducts a comprehensive assessment of the effectiveness of Chicago’s TIF program in creating economic opportunities and catalyzing real estate investments at the neighborhood scale. This paper uses a unique panel dataset at the block group level to analyze the impact of TIF designation and investments on employment change, business creation, and building permit activity. After controlling for potential selection bias in TIF assignment, this paper shows that TIF ultimately fails the ‘but-for’ test and shows no evidence of increasing tangible economic development benefits for local residents.” (emphasis added)

In the paper, the author clarifies:

“To clarify these findings, this analysis does not indicate that no building activity or job crea-tion occurred in TIFed block groups, or resulted from TIF projects. Rather, the level of these activities was no faster than similar areas of the city which did not receive TIF assistance. It is in this aspect of the research design that we are able to conclude that the development seen in and around Chicago’s TIF districts would have likely occurred without the TIF subsidy. In other words, on the whole, Chicago’s TIF program fails the ‘but-for’ test.

Later on, for emphasis:

“While the findings of this paper are clear and decisive, it is important to comment here on their exact extent and external validity, and to discuss the limitations of this analysis. First, the findings do not indicate that overall employment growth in the City of Chicago was negative or flat during this period. Nor does this research design enable us to claim that any given TIF-funded project did not end up creating jobs. Rather, we conclude that on-average, across the whole city, TIF was unsuccessful in jumpstarting economic development activity — relative to what would have likely occurred otherwise.” (emphasis in original)

The author notes that these conclusions are specific to Chicago’s use of TIF, but should “should serve as a cautionary tale.”

The paper reinforces the problem of using tax revenue for private purposes, rather than for public benefit: “Essentially, Chicago’s extensive use of TIF can be interpreted as the siphoning off of public revenue for largely private-sector purposes. Although, TIF proponents argue that the public receives enhanced economic opportunity in the bargain, the findings of this paper show that the bargain is in fact no bargain at all.”

TIF is social engineering

TIF represents social engineering. By using it, city government has decided that it knows best where development should be directed. In particular, the Wichita city council has decided that Old Town and downtown development is on a superior moral plane to other development. Therefore, we all have to pay higher taxes to support this development. What is the basis for saying Old Town developers don’t have to pay for their infrastructure, but developers in other parts of the city must pay?

TIF doesn’t work

Does TIF work? It depends on what the meaning of “work” is.

If by working, do we mean does TIF induce development? If so, then TIF usually works. When the city authorizes a TIF project plan, something usually gets built or renovated. But this definition of “works” must be tempered by a few considerations.

Does TIF pay for itself?
First, is the project self-sustaining? That is, is the incremental property tax revenue sufficient to repay the TIF bonds? This has not been the case with all TIF projects in Wichita. The city has had to bail out two TIFs, one with a no-interest and low-interest loan that cost city taxpayers an estimated $1.2 million.

The verge of corruption
Second, does the use of TIF promote a civil society, or does it lead to cronyism? Randal O’Toole has written:

“TIF puts city officials on the verge of corruption, favoring some developers and property owners over others. TIF creates what economists call a moral hazard for developers. If you are a developer and your competitors are getting subsidies, you may simply fold your hands and wait until someone offers you a subsidy before you make any investments in new development. In many cities, TIF is a major source of government corruption, as city leaders hand tax dollars over to developers who then make campaign contributions to re-elect those leaders.”

We see this in Wichita, where the regular recipients of TIF benefits are also regular contributors to the political campaigns of those who are in a position to give them benefits. The corruption is not illegal, but it is real and harmful, and calls out for reform. See In Wichita, the need for campaign finance reform.

The effect of TIF on everyone
Third, what about the effect of TIF on everyone, that is, the entire city or region? Economists have studied this matter, and have concluded that in most cases, the effect is negative.

An example are economists Richard F. Dye and David F. Merriman, who have studied tax increment financing extensively. Their article Tax Increment Financing: A Tool for Local Economic Development states in its conclusion:

“TIF districts grow much faster than other areas in their host municipalities. TIF boosters or naive analysts might point to this as evidence of the success of tax increment financing, but they would be wrong. Observing high growth in an area targeted for development is unremarkable.”

So TIF districts are good for the favored development that receives the subsidy — not a surprising finding. What about the rest of the city? Continuing from the same study:

“If the use of tax increment financing stimulates economic development, there should be a positive relationship between TIF adoption and overall growth in municipalities. This did not occur. If, on the other hand, TIF merely moves capital around within a municipality, there should be no relationship between TIF adoption and growth. What we find, however, is a negative relationship. Municipalities that use TIF do worse.

We find evidence that the non-TIF areas of municipalities that use TIF grow no more rapidly, and perhaps more slowly, than similar municipalities that do not use TIF.” (emphasis added)

In a different paper (The Effects of Tax Increment Financing on Economic Development), the same economists wrote “We find clear and consistent evidence that municipalities that adopt TIF grow more slowly after adoption than those that do not. … These findings suggest that TIF trades off higher growth in the TIF district for lower growth elsewhere. This hypothesis is bolstered by other empirical findings.” (emphasis added)

The Wichita city council is concerned about creating jobs, and is easily swayed by the promises of developers that their establishments will create jobs. Paul F. Byrne of Washburn University has examined the effect of TIF on jobs. His recent report is Does Tax Increment Financing Deliver on Its Promise of Jobs? The Impact of Tax Increment Financing on Municipal Employment Growth, and in its abstract we find this conclusion regarding the impact of TIF on jobs:

“This article addresses the claim by examining the impact of TIF adoption on municipal employment growth in Illinois, looking for both general impact and impact specific to the type of development supported. Results find no general impact of TIF use on employment. However, findings suggest that TIF districts supporting industrial development may have a positive effect on municipal employment, whereas TIF districts supporting retail development have a negative effect on municipal employment. These results are consistent with industrial TIF districts capturing employment that would have otherwise occurred outside of the adopting municipality and retail TIF districts shifting employment within the municipality to more labor-efficient retailers within the TIF district.” (emphasis added)

These studies and others show that as a strategy for increasing the overall wellbeing of a city, TIF fails to deliver prosperity, and in fact, causes harm.


Notes

  1. Wichita city council agenda packet for September 11, 2018.
  2. Wichita city council agenda packet for August 7, 2018.

Taxers prefer Hugh Nicks for Sedgwick County Commission

Those who supported higher sales taxes in Wichita also support one Sedgwick County Commission District 4 Republican candidate exclusively.

In 2014 the Wichita Metro Chamber of Commerce, now known as the Wichita Regional Chamber of Commerce, managed a campaign to persuade voters to institute a sales tax in the City of Wichita. The sales tax was to be one cent per dollar for five years, estimated to raise about $400 million in total. Of that, $250 million was to pay for enhancing the ASR water supply project, $80 million for job creation, and lesser amounts for bus transit and street repair.

The sales tax failed to pass, with 62 percent of voters saying no. Since then, the wisdom of voters in rejecting the tax has become evident. For example, the city has developed a plan to provide the same benefits for water supply for over $100 million less.

During the 2014 campaign the sales tax boosters raised campaign money through an organization named Yes Wichita Inc. Over one hundred people and companies contributed $321,527 in cash, and the Chamber of Commerce added $50,818 as an in-kind contribution.

These people and companies contributed money to persuade voters to raise taxes in Wichita. In some cases, a lot of money: $100,818 from the Wichita Chamber of Commerce, $40,000 from Intrust Bank, and $25,000 from Westar Energy.

Some of these people and companies have also contributed to a candidate for the Sedgwick County Commission District 4 Republican primary election. I examined campaign finance reports for matches. It isn’t an exact science. The data is not filed in a way that can be readily analyzed by a computer in a spreadsheet or database. Sometimes donations are made in a company name, and sometimes by owners or executives of the same company. There are spelling errors and variations in how company names are reported. So I may have failed to notice matches, and there is a small chance that I made erroneous matches.

Based on my research, I found that all the pro-tax people and companies who also contributed to Sedgwick County Commission District 4 Republican candidates had one thing in common: They contributed to Hugh Nicks exclusively. His opponent, Richard Ranzau, received no contributions from the pro-tax people and companies, based on my analysis.

Separately, the Wichita Regional Chamber of Commerce PAC has spent $45,148 on political candidates through August 1 of this year. Of that, $36,665 was spent in favor of one candidate, Hugh Nicks. That’s 81.2 percent spent on one candidate from an organization that contributed $100,818 towards higher taxes. (See Wichita Chamber PAC spends heavily for Hugh Nicks.)

What does this mean: Those who want higher sales taxes in Wichita contribute to Hugh Nicks for Sedgwick County Commission, and he alone? It is a coincidence, mere serendipity?

In his campaign literature, Hugh Nicks says “Taxes Are High Enough.”

But the evidence is clear: Those who want higher taxes prefer Hugh Nicks.

Following, a table showing the commonality between contributors to the Yes Wichita sales tax campaign in 2014 and Hugh Nicks. Click for a larger version.

For Hugh Nicks, a return to the backroom deal?

Remarks from a candidate for Sedgwick County Commission call for presenting a unified front to the public.

Speaking to the Wichita Pachyderm Club, Sedgwick County Commission candidate Hugh Nicks called for leadership to end what he called “divisive behavior:” “We can’t have — we can’t have the kind of divisive behavior that we have going on right now — we just — it’s just not — it’s just not acceptable.”

His opponent in the August Republican Party primary election is Richard Ranzau, who currently holds the office.

The “divisive behavior” that Nicks objects to takes several forms, but it’s clear he thinks that the Sedgwick County Commission should present a united front: The commission should have a plan that’s agreed to, and if commissioners don’t follow the plan, there should be consequences. At least that’s the moral of a story he told members of guests of the Wichita Pachyderm Club.

That attitude is problematic. Especially so because the Sedgwick County Commission is different from a legislature. At the commission, there is no opportunity for interested parties — lobbyists and regular people — to testify before a committee as legislation is being developed. At the commission, there is no committee mark-up process in which the text of a bill is crafted and finalized. There is no committee vote that decides whether to recommend the bill to the entire legislative body.

So there really isn’t much debate or disagreement in public at the Sedgwick County Commission meetings. And when there is, it may be squelched. Last year a commissioner attempted to offer two amendments to a proposal. He was trying to generate a consensus. But the majority of commissioners wouldn’t have it, and the vote happened without considering the amendments. (See For Sedgwick County Commission, too much debate.)

It’s important that there be discussion in public, even if “divisive.” The prelude to the Kansas Open Meetings Act gives a reason why: “In recognition of the fact that a representative government is dependent upon an informed electorate, it is declared to be the policy of this state that meetings for the conduct of governmental affairs and the transaction of governmental business be open to the public.” 1

When things are not done in view of the public, we call them backroom deals, with all the well-deserved negative connotations. Here’s an example, from 2012: Sedgwick County staff and several commissioners worked out a deal to sell an unused radio tower for $280,000. Commissioners Ranzau and Peterjohn thought there should be an auction. There was an auction, and the county received net proceeds of $553,872. 2

There is already too much suspicion that backroom deals are common at the county and City of Wichita. The more important and “divisive” a matter is, the more discussion it deserves in public.

But that isn’t the attitude of candidate Nicks when he said, “It’d be like a business: I mean, if in our business when we had closed door meetings when, when we argue about how we move forward, in our, in our business, we didn’t go out in front of our employees afterwards and act the same way that we did back behind closed doors. It just doesn’t work. And if we went and acted that way in front of our customers, if we did, we wouldn’t have any customers.”

Business and government are different things. A business is accountable only to its owners and shareholders, and also to the public by acting lawfully. Other than this, a business can do what it wants. It may make decisions using any means its owners tolerate. 3

Government, however, is different. It should be accountable to the people. Sometimes — frequently — that requires “divisive” discussion and debate. And the more important the matter, the more discussion and debate — transparency — is needed.

It’s a lot easier on commissioners if the attitude is “go along to get along.” That attitude has led to a faltering Wichita economy as majorities of members of the Wichita City Council and Sedgwick County Commission have avoided debate and gone along with the advice of staff and economic development regimes. I think this is the strategy of Hugh Nicks, should he be elected to the commission.

It might be tempting to dismiss these remarks as having been made by an uninformed candidate. But Nicks says he has been running since October 2017 so that he can learn about the issues. 4

Following are excerpts of remarks of Hugh Nicks and Richard Ranzau at the Wichita Pachyderm Club, June 8, 2018.

Hugh Nicks:

In the area — in the area of leadership, uh, it always starts at the top. Yeah, it doesn’t matter what organization it is, it always starts at the top. I’ll give you just a couple of examples. Uh, when I first started out as a young guy, and I was coaching, I worked for a guy Lafayette Norwood. Maybe some of you know that name. Uh, he was the first black basketball coach — the city league’s first black coach in the city of Wichita, actually. And I worked for the man for two years and learned some hard lessons from him because he wanted to fire me a couple times.

Yeah, he wanted to fire me because one day I decided I’d run some drills that he would not have agreed upon and when we got back in the locker room and got all the kids checked out, he came and said, “I believe I’m gonna fire you.” I said, “I need that job.” It pays 6,200 dollars a year. I already said that. He said, “Well I saw what you were doing down at the other end of the court. It’s not what we agreed on. And uh, so, when we have a plan, we leave this, this office, then you’re gonna do what you’re supposed to do, and you’re not gonna counter anything that I say out on that floor because we’re a team and we’re gonna move forward.”

Uh, so that — that was one of my first lessons that I learned with regard to leadership. But I, I think it starts at the top, so here’s what I see at the county: Um, you know, we can’t have — we can’t have the kind of divisive behavior that we have going on right now — we just — it’s just not — it’s just not acceptable.

Now, it’s alright to disagree in my view. I mean, I’m probably one of the — one of the guys that disagree with and vehemently if I have a strong opinion. But it’s not done in public. You just — you just — you just can’t do that. So, if you want to have an argument with me and go back behind closed doors and have it all day long, that’s alright with me. But when we come out and we’re in front of a staff, then were gonna act differently, and we’re certainly gonna act differently in front of our constituents — in front of, in front of the, the people that we represent. It’d be like a business: I mean, if in our business when we had closed door meetings when, when we argue about how we move forward, in our, in our business, we didn’t go out in front of our employees afterwards and act the same way that we did back behind closed doors. It just doesn’t work. And if we went and acted that way in front of our customers, if we did, we wouldn’t have any customers.

So I’m a proponent, and trying to answer that question from back there in, in terms of leadership style, that we need a different leadership style in the county. Now Richard’s probably gonna take exception with that because he fights for what he believes in and I understand that. But it’s a matter of the way we go about it in my view, uh, and everything starts at the top. I mean, it starts at the top and works its way down, uh, that’s — that’s how I view that.


Notes

  1. Kansas Statutes Annotated 75-4317. Available at https://www.ksrevisor.org/statutes/chapters/ch75/075_043_0017.html.
  2. As a result of system upgrades, the county no longer needs a radio tower located near 77th Street North and Interstate 135. Pixius Communications, LLC made an offer to purchase the tower and the five acre tower site for $280,000. The county proceeded making arrangements for the sale, preparing a sales agreement contract between Sedgwick County and Pixius with a sales price of $280,000, along with several other legal documents necessary to support the sale. … But commissioners Richard Ranzau and Karl Peterjohn felt that the best way to sell the tower was through an auction. … The result of the auction? A Florida company offered $610,000. After a sales commission ($55,000) and half of closing costs ($1,128), the county will net $553,872. That’s almost twice the price the county manager and two commissioners were willing to sell the tower for. See Weeks, Bob. Sedgwick County tower sale was not in citizens’ best interest. Available at https://wichitaliberty.org/sedgwick-county-government/sedgwick-county-tower-sale-was-not-in-citizens-best-interest/.
  3. It’s true that some government officials say we must run government like a business. They usually mean that until they are held to the standards of accountability the private sector faces. Then, things are different. Accountability is avoided. (The non-discussion of expenses of the Intrust Bank Arena is an example of evading business-type accountability by members of the Sedgwick County Commission. See Intrust Bank Arena loss for 2017 is $4,222,182.)
  4. “You may wonder why I’m announcing so early, since the Republican Primary for the County Commission seat isn’t until August 2018. The reason is simple. I like to do my homework. I want to learn about the way Sedgwick County governs, and the rationale behind the decisions that have been made. I want to learn about the issues that are most important to the people in the 4th District. I think serving as County Commissioner is too important to take an on-the-job-training approach, and I don’t want to be on a learning curve at the taxpayers’ expense.” Nicks4commissioner.com. News. October 19, 2017. Available at http://www.nicks4commissioner.com/news.html. .

In Wichita, spending semi-secret

The Wichita City Council authorized the spending of a lot of money without discussion.

At its March 27, 2018 meeting, the Wichita City Council passed a resolution authorizing the spending of funds for the River Vista development on the west bank of the Arkansas River in downtown.

The agenda packet for the meeting gave the details: “The overall project budget is $7,862,999 with STAR Bonds financing $4,750,000 of the costs and the City financing $1,050,000. The balance of the project costs will be assessed against the Improvement District.”

(STAR bonds are a mechanism whereby future sales tax revenue is routed to the project developer, rather than paying for the cost of state and Sedgwick County government. The “Improvement District” is the development itself, and the “City” is, of course, the taxpayers of Wichita.)

All this was approved by the city council at its meeting on July 21, 2015, under the item “Amendment to Amended and Restated Development Agreement – River Vista, L.L.C. (West Bank Apartments) and issuance of Sales Tax Special Obligation Revenue (STAR) Bonds (District VI).” It appeared on the March 27, 2018 agenda so that a resolution formalizing the arrangement could be passed.

Was the council’s action of public business and interest? The city council didn’t think so. The item was passed as part of the meeting’s consent agenda. This is a bundle of agenda items that are voted on in bulk, with one single vote, unless a council member requests an item be “pulled” for discussion and possibly a separate vote. If no council member asks to pull an item, there is no discussion.

No one asked to “pull” this agenda item for a discussion and vote.

Generally, items on consent agendas are not controversial, at least according to the city’s reasoning. I suppose that applies to this item, as the spending was approved in the past.

It might have been useful, however, to remind Wichitans of the taxpayer-supplied subsidy going to this project. Just so we’re reminded now and then of where our money is going.

But: The principals of the apartment project are frequent seekers of taxpayer subsidy, and likely plan to ask for more — much more — in the future. Some are also big funders of campaigns, in particular that of Wichita Mayor Jeff Longwell. We call this cronyism.

So the consent agenda provides a handy place to pass laws without discussing them, hoping that no one will notice. Semi-secret.

As it turns out, the Wichita Business Journal noticed this item and wrote the article West bank Arkansas River upgrades on City Council agenda. The article starts with “Wichita’s City Council on Tuesday is scheduled to discuss …” But because of the consent agenda and no council member believing the spending deserved attention, that discussion never happened.

Naftzger Park private use plans unsettled

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

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

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

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

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

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

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

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

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

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

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

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

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


Notes

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

Sedgwick County’s David Dennis on economic development

Following the Wichita Mayor, the Chair of the Sedgwick County Commission speaks on economic development.

Last week Sedgwick County Commissioner David Dennis penned a column for the Wichita Eagle praising the county’s efforts in economic development. 1 Dennis is also chair of the commission this year.

In his column, the commissioner wrote: “Economic development is a key topic for the Board of County Commissioners and for me in particular. Right now we have a lot of momentum to make our community a more attractive place for people and businesses.”

This emphasis on the word “momentum” seems to be a fad among Wichita’s government leaders. More about this later.

Dennis also wrote: “Traditional governmental incentives are a thing of the past. There are no more blank checks from Sedgwick County for businesses.”

Except: The county participates in incentive programs that allow companies like Spirit to escape paying taxes, and when you don’t have to pay taxes, that’s the same economic effect as someone giving you cash to pay those taxes. Spirit Aerosystems will receive Industrial Revenue Bonds, which are not a loan of money to Spirit, but allow the company to avoid paying property taxes and sales taxes. 2 3 These incentives are a cost to the county and other units of government, and are as good as cash to Spirit. (For this and many other projects the county is not involved in the approval of the IRB program, but it doesn’t object, and it sees its tacit approval as part of its partnership with the City of Wichita.)

Besides this, the county engages in traditional incentives — almost like a blank check — but disguises them. In this case, for example, the county is contributing $7 million towards the construction of a building exclusively for Spirit’s use. How will the county pay for that? The memorandum that the county agreed to states: “The county participation of $7 million US is anticipated to be available cash.” 4

You might be wondering if the county is treating this contribution as an investment that a business would make, where it would earn back its investment plus a profit by collecting rent from Spirit. After all, county leaders tell us they want to operate government like a business.

But, you’d be wrong if you thought that. The memorandum specifies the rent as $1 per year. Not $1 per square foot per year, but $1 per year for the entire building. Furthermore, at the end of 20 years, Spirit will have the option to purchase the property for $1.

There’s really no way to characterize this transaction other than as a multi-million giveaway to Spirit. Not directly as a blank check or cash, but in a roundabout way that costs the county and benefits Spirit in the same way as cash.

I can understand how Dennis and others like Wichita Mayor Jeff Longwell want to convince the public that they are no longer dishing out cash. Often, the public doesn’t like that. So instead they do the same thing in roundabout ways like leasing a building for $1 per year or paying millions in cash for a “parking easement” for which the city has no real use. 5 Chairman Dennis and others hope you won’t notice, but these leaders would be more credible if they didn’t try to obfuscate the truth.

Sedgwick County jobs. Click for larger.
Sedgwick County jobs, change from prior year. Click for larger.
At the end of his column, Dennis wrote: “There is a lot of momentum and forward movement in our community right now and I’m encouraged to see what we can achieve as a team.”

There’s that word again: momentum. Coincidently, shortly after this column was published, the Bureau of Labor Statistics published an update to the Quarterly Census of Employment and Wages. It shows the number of jobs in Sedgwick County declining. This update was released after Dennis wrote his column, but as can be seen from the nearby charts, the slowdown in Sedgwick County jobs and the Wichita-area economy is not a new trend.

If Dennis really believes our economy has “momentum and forward movement,” it is my sincere hope that he is simply uninformed or misinformed about these statistics. Because if he is aware, we can only conclude that he is something else that is worse than being merely ignorant.


Notes

  1. David Dennis. Sedgwick County part of drive to strengthen area workforce. Wichita Eagle, March 5, 2018. Available at http://www.kansas.com/opinion/opn-columns-blogs/article203559734.html.
  2. Weeks, Bob. Industrial revenue bonds in Kansas. Available at https://wichitaliberty.org/kansas-government/industrial-revenue-bonds-kansas/.
  3. Weeks, Bob. Spirit expands in Wichita. Available at https://wichitaliberty.org/wichita-government/spirit-expands-wichita/.
  4. Sedgwick County. RESOLUTION AUTHORIZING THE EXECUTION OF A MEMORANDUM OF UNDERSTANDING WITH THE CITY OF WICHITA AND SPIRIT AEROSYSTEMS, INC. RELATING TO PROJECT ECLIPSE. Available at https://sedgwickcounty.legistar.com/LegislationDetail.aspx?ID=3290907&GUID=E732A9A2-C01A-4ACE-B134-C15E551F989F.
  5. Weeks, Bob. More Cargill incentives from Wichita detailed. Available at https://wichitaliberty.org/wichita-government/cargill-incentives-from-wichita-detailed/.

Naftzger Park concerts and parties?

In Wichita, a space for outdoor concerts may be created across the street from where amplified concerts are banned.

Amplified music is banned in Gallery Alley, but concerts and parties are proposed in Naftzger Park.
One of the City of Wichita’s stated purposes for the redesign of Naftzger Park in downtown Wichita is to, “create a continuous flex space for multi-use; i.e. Tai Chai, as well as other passive use activities including but not limited to weddings, concerts, performances, films, special celebrations and parties as well as quiet contemplation.” 1

There may be a problem, however. Directly across the street from Naftzger Park lies Gallery Alley. This is a new development whereby an alley was converted to a space for events, like concerts. Not long after the alley’s first events, the Wichita Eagle reported this:

But it was too much for the neighbors, according to Jason Gregory, executive vice president of Downtown Wichita.

“It’s just the amplified sound — we’re just trying to be respectful to those buildings there, that have a mix of uses,” Gregory said. “There’s residences there, and obviously when you get high-bass subwoofers, you’re basically hearing that through the building.” 2

Now, right across the street from Gallery Alley, directly across St. Francis from residences at the former Eaton Hotel, directly across Douglas from the Zelman Lofts, and catty-corner from the Lofts at St. Francis, the city proposes creating an outdoor space for — get ready: Concerts and parties.

By the way, the proposed use of the parking lot that abuts Naftzger Park is a “high-end mixed-use development” possibly including a hotel. I don’t know if this use is consistent with parties and concerts in its front yard.


Notes

  1. Request for Qualifications No. — FP740043. Available at https://drive.google.com/file/d/0B97azj3TSm9MQ1ZVcXVsNVQ2dkE/view.
  2. Riedl, Matt. Bummer, no more crowd-surfing in downtown Wichita alley. Wichita Eagle, June 20, 2017. Available at http://www.kansas.com/entertainment/ent-columns-blogs/keeper-of-the-plans/article157094874.html.

Wichita WaterWalk contract not followed, again

Wichita city hall failed to uphold the terms of a development agreement from five years ago, not monitoring contracts that protect the public interest.

Two weeks ago a Wichita Eagle article reported on a 2002 public-private partnership that called for the private-sector company to submit an annual report to the city. But the company did not submit the reports, and the city didn’t ask for them. The city did after the Eagle inquired. 1

Much of the Eagle article described why current city officials were not aware of the 2002 agreement: “Due largely to turnover on the city staff and term limits on the City Council, top officials at City Hall were unaware of the contract provisions until The Eagle inquired about them. … No city official who played a major role in the 2002 contract is still actively involved in government.”

The article quoted Mayor Jeff Longwell as “interested in WaterWalk fulfilling any contractual agreement they have in place (with the city), even if that contract was made 20 years prior to my time.”

Now we know that the city did not enforce a similar agreement with the same WaterWalk developer made while Longwell was a council member. The city manager who oversaw the agreement is still manager.

WaterWalk additional rent calculation, excerpt. Click for larger.
We don’t have to look as far back in history as 2002 to find an agreement the city did not enforce, one where the city was not protecting the interest of taxpayers. In 2012 the city entered into a same or similar agreement in the same WaterWalk development with the same developer, Jack P. Deboer. It also called for the city to potentially earn payments, called “additional annual rent.” It also called for reports to be made, although the exact language used is “provide that calculation.” 2

I asked for the annual reports on July 10. Three days later I received a message indicating the documents would be ready on July 19. On that day they arrived. Like those provided to the Eagle, they were heavily redacted and showed that no additional rent was due the city.

Upon further inquiry, it is clear that these reports were not filed with the city on an annual basis, but were created only after I asked for them. 3

Calculations use incorrect formula

The 2012 agreement specified that the WaterWalk developer would be able to annually deduct 20 percent of the construction costs as “development cost return.” But, in the calculations provided to me by the city, 17 percent is used instead. 4

WaterWalk additional rent calculation, excerpt. Click for larger.

The city excused this error as being in favor of the city, and no additional rent was due in any case.

Redacted, not really

As shown in the examples above, the documents provided to me were heavily redacted, with nearly all numbers obscured. The illustrations show the appearance of the pdf document when opened in Acrobat reader or another pdf reader.

But a simple copy and paste into another application like Microsoft Word revealed the blacked-out numbers. The procedure used by the city didn’t really redact the numbers. It appears that someone used the Acrobat drawing tools to draw thick black lines over the numbers, which isn’t effective. Acrobat offers a set of redaction tools specifically designed for removing sensitive content from pdfs, and the city should have used this method. 5

When I reported this finding to the city, Elder replied: “We would ask that you respect the privacy of this information as well as the City’s obligations under the Kansas Open Records Act at K.S.A. 45-221(b), included below, which strictly prohibits the release of the financial information of a taxpayer, and not disclose the financial information.” 6

I don’t believe that the Kansas Open Records Act prohibits the disclosure of this information, and it is in the public interest that these numbers are available. At the moment, I am inclined to respect the city’s request.

Again

Here is another example of the city and its private-sector partners failing to observe a contract. The city did not monitor its agreements to protect the public interest, and this agreement is recent enough that remoteness in time is not an excuse.

Were the 2002 and 2012 development agreements wise for the city? At the time of the 2012 deal, I wrote this: 7

[There] is a provision that requires the apartment developer to pay “Additional Annual Rent.” Under this concept, each year the apartment developer will calculate “Adjusted Net Cash Flow” and remit 25 percent of that to the city.

To the casual observer, this seems like a magnanimous gesture by the apartment developer. It makes it look like the city has been a tough negotiator, hammering out a good deal for the city, letting citizens profit along with the apartment developer.

But the definition of cash flow includes a comprehensive list of expenses the may be deducted, including the cost of repaying any loans. There’s also an allowable expense called “Tenant Development Cost Return,” which is the apartment developer’s profit. The agreement defines this profit as 20 percent, and it’s deducted as part of the computation of “Adjusted Net Cash Flow.”

If there is ever any money left over after the dedication of all these expenses and profit margin, I will be surprised. Shocked, even. Here’s one reason why. One of the allowable deductions that goes into the computation of “Adjusted Net Cash Flow” is, according to city documents: “Amounts paid into any capital, furniture, fixture, equipment or other reserve.” There’s no restriction as to how much can be funneled into these reserve accounts. We can be sure that if this project was ever in the position where it looked like it might have to remit “Additional Annual Rent” to the city, contributions to these reserve funds would rise. Then, no funds paid to the city.

This is an example of the city appearing to be concerned for the welfare of taxpayers. In reality, this concept of “Additional Annual Rent” is worse than meaningless. It borders on deception.

Beyond this, we now know that neither the city nor the WaterWalk developer followed the terms of the deal. The annual reports were not supplied by the company, and they were not requested by the city. As it turns out the annual reports purport to show that the city was owed no money under the profit sharing agreement.

But that’s not the point. The issue is that the city did not enforce a simple aspect of the agreement, and the private-sector company felt it did not need to comply. Taxpayers were not protected, and we’re left wondering whether these agreements were really meant to be followed.


Notes

  1. Lefler, Dion. WaterWalk profit-sharing: 15 years, zero dollars for Wichita. Wichita Eagle, July 8, 2017. Available at http://www.kansas.com/news/politics-government/article160147944.html.
  2. “As Additional Annual Rent Tenant shall pay a sum equal to twenty-five percent (25%) of the Adjusted Net Cash Flow commencing with the first day the Tenant Improvements open for business. The Tenant shall calculate Adjusted Net Cash Flow for each Current Year within forty-five (45) days after the end of the Current Year (or portion thereof) and provide that calculation, and pay to the Landlord the Additional Annual Rent, within sixty (60) days after the end of the Current Year. Additional Annual Rent shall continue until this Lease expires. Adjusted Net Cash Flow is Gross Revenues less Total Expenses, less the total amount of capital expenses for furniture, fixtures, and equipment for the Tenant Improvements in excess of the aggregate amount expended from any reserve during such year.” Amendments to WaterWalk Developer Agreements. August 21, 2012. Available at https://drive.google.com/file/d/0B97azj3TSm9Mdm1tWjlQbVAzemM/view?usp=sharing.
  3. Email from city development analyst Mark Elder, July 21, 2017. “The annual report for this project was requested in the same time frame as the reports provided for Gander Mountain however, the documents were provided to the City within the last week.”
  4. Wichita City Council agenda packet for August 21, 2012. Waterwalk Ground Lease, Section 16.08. “Tenant Development Cost Return, defined as, on an annual basis, twenty percent (20%) of the total Construction Costs for all Tenant Improvements paid by Tenant, Developer, or permitted assignees and sublessees. As further clarification, the amount determined to be twenty percent (20%) of the total Construction Costs for all Tenant Improvements may be included in the calculation of the Total Expenses each year during the Term of this Lease.”
  5. Adobe.com. Removing sensitive content from PDFs. Available at https://helpx.adobe.com/acrobat/using/removing-sensitive-content-pdfs.html.
  6. “Except to the extent disclosure is otherwise required by law or as appropriate during the course of an administrative proceeding or on appeal from agency action, a public agency or officer shall not disclose financial information of a taxpayer which may be required or requested by a county appraiser or the director of property valuation to assist in the determination of the value of the taxpayer’s property for ad valorem taxation purposes; or any financial information of a personal nature required or requested by a public agency or officer, including a name, job description or title revealing the salary or other compensation of officers, employees or applicants for employment with a firm, corporation or agency, except a public agency. Nothing contained herein shall be construed to prohibit the publication of statistics, so classified as to prevent identification of particular reports or returns and the items thereof.”
  7. Weeks, Bob. Wichita WaterWalk apartment deal not good for citizens. https://wichitaliberty.org/wichita-government/wichita-waterwalk-apartment-deal-not-good-for-citizens/.

Wichita WaterWalk agreement not followed

Does the City of Wichita enforce its public-private partnership agreements? In some cases the city doesn’t even ask for the information that is needed for enforcement.

A Wichita Eagle article reports on a 2002 public-private partnership that called for the private-sector company to submit an annual report to the city. But the company did not submit the reports, and the city didn’t ask for them. The city did after the Eagle inquired. 1

The deal involves the city leasing land to a private developer for a project now known as WaterWalk. Part of the deal called for the city to possibly receive annual payments in a form of profit-sharing. Annual reports to the city were to provide figures from which the city’s payment would be calculated.

There is an important issue here apart from the wisdom of striking the initial deal in 2002. That is, neither the city nor the company followed the terms of the deal. The annual reports were not supplied by the company, and they were not requested by the city, according to Eagle reporting. As it turns out the annual reports purport to show that the city was owed no money under the profit sharing agreement.

But that’s not the point. The issue is that the city did not enforce a simple aspect of the agreement, and the private-sector company felt it did not need to comply.

Some of the Eagle article is devoted to explaining that the deal was struck some years ago, and: “No city official who played a major role in the 2002 contract is still actively involved in government.”

I’m sure we will hear that excuse from current city council members and bureaucrats, that all this happened before our time. Anyone taking cover using that excuse deserves to be terminated immediately.

We should not accept this or any excuse. This is because in 2012 the city entered into a same or similar agreement in the same WaterWalk development with the same developer, Jack P. Deboer. It also called for the city to potentially earn payments, called “additional annual rent.” It also called for reports to be made, although the exact language used is “provide that calculation.” 2

I wonder: When city staff drafted the new agreement in 2012, and when the council deliberated the agreement, did anyone wonder how the 2002 agreement worked out? Did anyone wonder if the city earned any payments from that deal? The 2012 agreement was controversial, at least to some. I and others spoke to the council expressing our concerns. 3

I also wonder: Has the developer filed the annual reports from the 2012 agreement? I’ve asked the city.

Here is the article I filed in 2012: Wichita WaterWalk apartment deal not good for citizens.


Notes

  1. Lefler, Dion. WaterWalk profit-sharing: 15 years, zero dollars for Wichita. Wichita Eagle, July 8, 2017. Available at http://www.kansas.com/news/politics-government/article160147944.html.
  2. “As Additional Annual Rent Tenant shall pay a sum equal to twenty-five percent (25%) of the Adjusted Net Cash Flow commencing with the first day the Tenant Improvements open for business. The Tenant shall calculate Adjusted Net Cash Flow for each Current Year within forty-five (45) days after the end of the Current Year (or portion thereof) and provide that calculation, and pay to the Landlord the Additional Annual Rent, within sixty (60) days after the end of the Current Year. Additional Annual Rent shall continue until this Lease expires. Adjusted Net Cash Flow is Gross Revenues less Total Expenses, less the total amount of capital expenses for furniture, fixtures, and equipment for the Tenant Improvements in excess of the aggregate amount expended from any reserve during such year.” Amendments to WaterWalk Developer Agreements. August 21, 2012. Available at https://drive.google.com/file/d/0B97azj3TSm9Mdm1tWjlQbVAzemM/view?usp=sharing.
  3. Wichita City Council. Minutes of August 21, 2012 meeting. Available at http://wichitaks.granicus.com/MinutesViewer.php?view_id=2&clip_id=1843.

WichitaLiberty.TV: Dr. James Otteson on capitalism

In this episode of WichitaLiberty.TV: Dr. James Otteson is executive director of the BB&T Center for the Study of Capitalism, the Thomas W. Smith Presidential Chair in Business Ethics, and Professor of Economics at Wake Forest University in Winston-Salem, North Carolina. He was in Wichita to speak at the Bastiat Society and stopped by the WichitaLiberty.TV studios to discuss capitalism. Thank you to Raul Brito and the Bastiat Society for making him available. View below, or click here to view at YouTube. Episode 140, broadcast February 26, 2017.

Shownotes

Year in Review: 2016

Here are highlights from Voice for Liberty for 2016. Was it a good year for the principles of individual liberty, limited government, economic freedom, and free markets in Wichita and Kansas?

Also be sure to view the programs on WichitaLiberty.TV for guests like journalist, novelist, and blogger Bud Norman; Radio talk show host Joseph Ashby; David Bobb, President of Bill of Rights Institute; Heritage Foundation trade expert Bryan Riley; Radio talk show host Andy Hooser; Keen Umbehr; John Chisholm on entrepreneurship; James Rosebush, author of “True Reagan,” Jonathan Williams of American Legislative Exchange Council (ALEC); Gidget Southway, or Danedri Herbert; Lawrence W. Reed, president of the Foundation for Economic Education; and Congressman Mike Pompeo.

January

Kansas legislative resources. Citizens who want to be informed of the happenings of the Kansas Legislature have these resources available.

School choice in Kansas: The haves and have-nots. Kansas non-profit executives work to deny low-income families the school choice opportunities that executive salaries can afford.

Kansas efficiency study released. An interim version of a report presents possibilities of saving the state $2 billion over five years.

Wichita Eagle Publisher Roy Heatherly. Wichita Eagle Publisher Roy Heatherly spoke to the Wichita Pachyderm Club on January 15, 2016. This is an audio presentation.

Pupil-teacher ratios in the states. Kansas ranks near the top of the states in having a low pupil-teacher ratio.

Kansas highway conditions. Has continually “robbing the bank of KDOT” harmed Kansas highways?

Property rights in Wichita: Your roof. The Wichita City Council will attempt to settle a dispute concerning whether a new roof should be allowed to have a vertical appearance rather than the horizontal appearance of the old.

Must it be public schools? A joint statement released by Kansas Association of School Boards, United School Administrators of Kansas, Kansas School Superintendents’ Association, and Kansas National Education Association exposes the attitudes of the Kansas public school establishment.

Kansas schools and other states. A joint statement released by Kansas Association of School Boards, United School Administrators of Kansas, Kansas School Superintendents’ Association, and Kansas National Education Association makes claims about Kansas public schools that aren’t factual.

After years of low standards, Kansas schools adopt truthful standards. In a refreshing change, Kansas schools have adopted realistic standards for students, but only after many years of evaluating students using low standards.

Brownback and Obama stimulus plans. There are useful lessons we can learn from the criticism of Kansas Governor Sam Brownback, including how easy it is to ignore inconvenient lessons of history.

February

Spending and taxing in Kansas. Difficulty balancing the Kansas budget is different from, and has not caused, widespread spending cuts.

In Sedgwick County, choosing your own benchmarks. The Sedgwick County Commission makes a bid for accountability with an economic development agency, but will likely fall short of anything meaningful.

This is why we must eliminate defined-benefit public pensions. Actions considered by the Kansas Legislature demonstrate — again — that governments are not capable of managing defined-benefit pension plans.

Kansas transportation bonds economics worse than told. The economic details of a semi-secret sale of bonds by the State of Kansas are worse than what’s been reported.

Massage business regulations likely to be ineffective, but will be onerous. The Wichita City Council is likely to create a new regulatory regime for massage businesses in response to a problem that is already addressed by strict laws.

Inspector General evaluates Obamacare website. The HHS Inspector General has released an evaluation of the Obamacare website HealthCare.gov, shedding light on the performance of former Kansas Governor Kathleen Sebelius.

Kansas highway spending. An op-ed by an advocate for more highway spending in Kansas needs context and correction.

Brookings Metro Monitor and Wichita. A research project by The Brookings Institution illustrates the poor performance of the Wichita-area economy.

March

Wichita: A conversation for a positive community and city agenda. Wichita City Manager Robert Layton held a discussion titled “What are Wichita’s Strengths and Weaknesses: A Conversation for a Positive Community and City Agenda” at the February 26, 2016 luncheon of the Wichita Pachyderm Club.

In Kansas, teachers unions should stand for retention. A bill requiring teachers unions to stand for retention elections each year would be good for teachers, students, and taxpayers.

In Kansas, doctors may “learn” just by doing their jobs. A proposed bill in Kansas should make us question the rationale of continuing medical education requirements for physicians.

Power of Kansas cities to take property may be expanded. A bill working its way through the Kansas Legislature will give cities additional means to seize property.

Wichita TIF district disbands; taxpayers on the hook. A real estate development in College Hill was not successful. What does this mean for city taxpayers?

Kansas and Colorado, compared. News that a Wichita-based company is moving to Colorado sparked a round of Kansas-bashing, most not based on facts.

In Wichita, the phased approach to water supply can save a bundle. In 2014 the City of Wichita recommended voters spend $250 million on a new water supply. But since voters rejected the tax to support that spending, the cost of providing adequate water has dropped, and dropped a lot.

Wichita Eagle, where are you? The state’s largest newspaper has no good reason to avoid reporting and editorializing on an important issue. But that’s what the Wichita Eagle has done.

April

Wichita on verge of new regulatory regime. The Wichita City Council is likely to create a new regulatory regime for massage businesses in response to a problem that is already addressed by strict laws.

Wichita economic development and capacity. An expansion fueled by incentives is welcome, but illustrates a larger problem with Wichita-area economic development.

Rich States, Poor States, 2106 edition. In Rich States, Poor States, Kansas continues with middle-of-the-pack performance, and fell sharply in the forward-looking forecast.

In Wichita, revealing discussion of property rights. Reaction to the veto of a bill in Kansas reveals the instincts of many government officials, which is to grab more power whenever possible.

‘Trump, Trump, Trump’ … oops! An event in Wichita that made national headlines has so far turned out to be not the story news media enthusiastically promoted.

Wichita doesn’t have this. A small Kansas city provides an example of what Wichita should do.

Kansas continues to snub school choice reform that helps the most vulnerable schoolchildren. Charter schools benefit minority and poor children, yet Kansas does not leverage their benefits, despite having a pressing need to boost the prospects of these children.

Wichita property tax rate: Up again. The City of Wichita says it hasn’t raised its property mill levy in many years. But data shows the mill levy has risen, and its use has shifted from debt service to current consumption.

AFP Foundation wins a battle for free speech for everyone. Americans for Prosperity Foundation achieves a victory for free speech and free association.

Kansas Center for Economic Growth. Kansas Center for Economic Growth, often cited as an authority by Kansas news media and politicians, is not the independent and unbiased source it claims to be.

Under Goossen, Left’s favorite expert, Kansas was admonished by Securities and Exchange Commission. The State of Kansas was ordered to take remedial action to correct material omissions in the state’s financial statements prepared under the leadership of Duane Goossen.

May

Spirit Aerosystems tax relief. Wichita’s largest employer asks to avoid paying millions in taxes, which increases the cost of government for everyone else, including young companies struggling to break through.

Wichita mayor’s counterfactual op-ed. Wichita’s mayor pens an op-ed that is counter to facts that he knows, or should know.

Electioneering in Kansas?. An op-ed written under the banner of a non-profit organization appears to violate the ban on electioneering.

Wichita city council campaign finance reform. Some citizen activists and Wichita city council members believe that a single $500 campaign contribution from a corporation has a corrupting influence. But stacking dozens of the same $500 contributions from executives and spouses of the same corporation? Not a problem.

In Wichita, more sales tax hypocrisy. Another Wichita company that paid to persuade you to vote for higher taxes now seeks to avoid paying those taxes.

Wichita student/teacher ratios. Despite years of purported budget cuts, the Wichita public school district has been able to improve its student/teacher ratios.

June

KPERS payments and Kansas schools. There is a claim that a recent change in the handling of KPERS payments falsely inflates school spending. The Kansas State Department of Education says otherwise.

Regulation in Wichita, a ‘labyrinth of city processes’. Wichita offers special regulatory treatment for special circumstances, widening the gulf between the haves and have-nots.

They really are government schools. What’s wrong with the term “government schools?”

July

Kansas City Star as critic, or apologist. An editorial in the Kansas City Star criticizes a Kansas free-market think tank.

State and local government employee and payroll. Considering all state and local government employees in proportion to population, Kansas has many, compared to other states, and especially so in education.

Kansas government ‘hollowed-out’. Considering all state and local government employees in proportion to population, Kansas has many, compared to other states, and especially so in education.

In Wichita, Meitzner, Clendenin sow seeds of distrust. Comments by two Wichita city council members give citizens more reasons to be cynical and distrusting of politicians.

David Dennis, gleeful regulatory revisionist. David Dennis, candidate for Sedgwick County Commission, rewrites his history of service on the Kansas State Board of Education.

Say no to Kansas taxpayer-funded campaigning. Kansas taxpayers should know their tax dollars are helping staff campaigns for political office.

Roger Marshall campaign setting new standards. Attacks on Tim Huelskamp reveal the worst in political campaigning.

Wichita Metro Chamber of Commerce on the campaign trail. We want to believe that The Wichita Metro Chamber of Commerce and its PAC are a force for good. Why does the PAC need to be deceptive and untruthful?

August

Which Kansas Governor made these proposals?. Cutting spending for higher education, holding K through 12 public school spending steady, sweeping highway money to the general fund, reducing aid to local governments, spending down state reserves, and a huge projected budget gap. Who and when is the following newspaper report referencing?

Wichita Business Journal editorial missed the news on the Wichita economy. A Wichita business newspaper’s editorial ignores the history of our local economy. Even the history that it reported in its own pages.

Sedgwick County Health Department: Services provided. Sedgwick County government trimmed spending on health. What has been the result so far?

School staffing and students. Trends for the nation and each state in teachers, administrators, and students, presented in an interactive visualization.

Intrust Bank Arena loss for 2015 is $4.1 million. The depreciation expense of Intrust Bank Arena in downtown Wichita recognizes and accounts for the sacrifices of the people of Sedgwick County and its visitors to pay for the arena.

School spending in the states. School spending in the states, presented in an interactive visualization.

September

Kansas construction employment. Tip to the Wichita Eagle editorial board: When a lobbying group feeds you statistics, try to learn what they really mean.

Wichita has no city sales tax, except for these. There is no Wichita city retail sales tax, but the city collects tax revenue from citizens when they buy utilities, just like a sales tax.

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

Cost per visitor to Wichita cultural attractions. Wichitans might be surprised to learn the cost of cultural attractions.

GetTheFactsKansas launched. From Kansas Policy Institute and the Kansas Chamber of Commerce, a new website with facts about the Kansas budget, economy, and schools.

The nation’s report card and charter schools.
* An interactive table of NAEP scores for the states and races, broken down by charter school and traditional public school.
* Some states have few or no charter schools.
* In many states, minority students perform better on the NAEP test when in charter schools.

School choice and funding. Opponents of school choice programs argue the programs harm traditional public schools, both financially and in their ability to serve their remaining students. Evidence does not support this position.

October

Public school experts. Do only those within the Kansas public schooling community have a say?

Kansas and Arizona schools. Arizona shows that Kansas is missing out on an opportunity to provide better education at lower cost.

Video in the Kansas Senate. A plan to increase visibility of the Kansas Senate is a good start, and needs to go just one or two steps farther.

Kansas, a frugal state?. Is Kansas a frugal state, compared to others?

Topeka Capital-Journal falls for a story. The editorial boards of two large Kansas newspapers have shown how little effort goes into forming the opinions they foist upon our state.

Kansas revenue estimates. Kansas revenue estimates are frequently in the news and have become a political issue. Here’s a look at them over the past decades.

Kansas school fund balances.
* Kansas school fund balances rose significantly this year, in both absolute dollars and dollars per pupil.
* Kansans might wonder why schools did not spend some of these funds to offset cuts they have contended were necessary.
* The interactive visualization holds data for each district since 2008.

In Wichita, developer welfare under a cloud. A downtown Wichita project receives a small benefit from the city, with no mention of the really big money.

Wichita, give back the Hyatt proceeds. Instead of spending the proceeds of the Hyatt hotel sale, the city should honor those who paid for the hotel — the city’s taxpayers.

Kansas Democrats: They don’t add it up — or they don’t tell us. Kansas Democrats (and some Republicans) are campaigning on some very expensive programs, and they’re aren’t adding it up for us.

November

How would higher Kansas taxes help?. Candidates in Kansas who promise more spending ought to explain just how higher taxes will — purportedly — help the Kansas economy.

Decoding the Kansas teachers union. Explaining to Kansans what the teachers union really means in its public communications.

Kansas school spending: Visualization. An interactive visualization of revenue and spending data for Kansas school districts.

Decoding Duane Goossen. The writing of Duane Goossen, a former Kansas budget director, requires decoding and explanation. This time, his vehicle is “Rise Up, Kansas.”

Decoding the Kansas teachers union. Decoding and deconstructing communications from KNEA, the Kansas teachers union, lets us discover the true purpose of the union.

Government schools’ entitlement mentality. If the Kansas personal income grows, should school spending also rise?

December

Wichita bridges, well memorialized. Drivers on East Twenty-First Street in Wichita are happy that the work on a small bridge is complete, but may not be pleased with one aspect of the project.

Gary Sherrer and Kansas Policy Institute. A former Kansas government official criticizes Kansas Policy Institute.

Wichita to grant property and sales tax relief. Several large employers in Wichita ask to avoid paying millions in taxes, which increases the cost of government for everyone else, including young companies struggling to break through.

Economic development incentives at the margin. The evaluation of economic development incentives in Wichita and Kansas requires thinking at the margin, not the entirety.

The Wichita economy, according to Milken Institute. The performance of the Wichita-area economy, compared to other large cities, is on a downward trend.

State pension cronyism. A new report details the way state pension funds harm workers and taxpayers through cronyism.

In Wichita, converting a hotel into street repairs. In Wichita, it turns out we have to sell a hotel in order to fix our streets.

In Wichita, we’ll not know how this tax money is spent. Despite claims to the contrary, the attitude of the City of Wichita towards citizens’ right to know is poor, and its attitude will likely be reaffirmed this week.

State pension cronyism

A new report details the way state pension funds harm workers and taxpayers through cronyism.

Updated to accurately reflect the time period of the targeted investments.

American Legislative Exchange Council (ALEC) has released a report detailing the various ways state employee pension funds are harmed by cronyism. The report may be read at Keeping the Promise: Getting Politics Out of Pensions.

The problem, ALEC reports, is: “Unfortunately, many lawmakers and pension plan officials have other priorities besides doing what is best for workers. They see the billions of pension fund dollars they manage as an opportunity to advance their own agendas. Rather than investing to earn the best return for workers, they use pension funds in a misguided attempt to boost their local economies, provide kickbacks to their political supporters, reward industries they like, punish those they don’t and bully corporations into silence and behaving as they see fit.”

One form of pension fund cronyism is Economically Targeted Investments (ETIs). These are local investments “that have been selected for their economic or social benefits in addition to the investment return to the employee benefit plan.” Kansas has its own experience with this type of cronyism. During the first half of the 1980s KPERS, the Kansas Public Employee Retirement System, made numerous targeted investments that led to large losses. One newspaper article reported: 1

It all seemed so easy to many economic development planners.

In an era of hard-to-get money for business start-ups and small business expansion, why not tap into the state’s healthy $3 billion-plus retirement funds as a source for seed capital?

After all, it is there. And much of the profits earned by the Kansas Public Employees Retirement Systems have come from out-of-state investments.

For many Kansas legislators, the lure of using KPERS money for economic development was tempting. So KPERS, under considerable legislative pressure, agreed to target nearly 10 percent of its fund for business expansions in Kansas.

But three years after that decision, it is clear that KPERS money is not a panacea for economic development.

Here is one particularly egregious example of how KPERS did business.2 In this case, the chair of KPERS benefited personally from KPERS investment decisions, and in a brazen manner:

Take, for example, the $7.8 million investment in Emblem Graphic Systems, a company based in Kansas City and Denver that manufactured specialty package labels. According to court documents:

KPERS Chairman Mike Russell was on the Emblem board of directors and had personally guaranteed $200,000 in loans to the company.

Shortly before KPERS invested $5.3 million in Emblem in 1985, Russell resigned from his Emblem seat. The KPERS loan, however, was used to relieve Russell of his obligation to cover the earlier loans totaling $200,000.

KPERS continued to invest in the company until 1988, At one point, KPERS even paid $273,305 to itself to pay back the money it had lent Emblem when the company was sold. KPERS got back only $1.76 million of the $7.8 million it had lent the company.

Russell, however, was able to make a profit on his 3,000 shares in Emblem when the company bought him out for $48,330 — using KPERS money.

KPERS is suing, among others, Russell, the lawyers who approved the transactions, and Kenneth Koger, who managed the Emblem investment and about 70 percent of the investments in question.

Russell was not available for comment.

In 1992, Russell pleaded no contest to one felony count of aiding and abetting securities fraud regarding a different KPERS investment.3

In September 1991 the loss to KPERS was given as $92 million. 4 Lawsuits continued until 2003.

The governor of Kansas during the time of the targeted KPERS investments was John Carlin (1979 to 1987).


Notes

  1. S. Gossett/The Wichita Eagle, F 1989, ‘Disappointing returns the percentage of the KPERS fund given over to new business ventures has been reduced in light of big losses’, Wichita Eagle, The (KS), 16 Oct, p. 7D, (online NewsBank).
  2. Hobson, G 1996, ‘Full Accountability’, Wichita Eagle, The (KS), 22 Sep, p. 1A, (online NewsBank).
  3. Press, A 1992, ‘Former KPERS Chief Sentenced To Probation For Securities Fraud’, Wichita Eagle, The (KS), 25 Jun, p. 4D, (online NewsBank).}
  4. “After six years of investing in small- and medium-sized companies in Kansas, the state pension fund has 87 investments that are worth $231 million less than the fund paid for them, analysts told the fund’s trustees Friday. Considering that KPERS has collected about $139 million from those companies, however, the fund has lost $92 million in cash on its so-called ‘direct placement’ program, according to estimates by the staff of the Kansas Public Employees Retirement System.” Cross/The Wichita Eagle, J 1991, ‘Kpers Losses Put At $92 Million Lawyer Predicts ‘Monumental’ Suit’, Wichita Eagle, The (KS), 14 Sep, p. 2D, (online NewsBank).

Wichita to grant property and sales tax relief

Several large employers in Wichita ask to avoid paying millions in taxes, which increases the cost of government for everyone else, including young companies struggling to break through.

This week the Wichita City Council will hold public hearings concerning the issuance of Industrial Revenue Bonds to Spirit AeroSystems, Inc and other companies.1 In the IRB program, government is not lending money, and Wichita taxpayers are not at risk if the bonds are not repaid. In fact, in the case of Spirit, the applicant company plans to purchase the bonds itself, according to city documents. Instead, the purpose of the IRB process is to allow Spirit to escape paying property taxes and, often, sales taxes.

These bonds will allow Spirit to avoid paying property taxes on taxable property purchased with bond proceeds for a period of five years. The abatement may then be extended for another five years. Usually these IRB issues also carry a sales tax exemption, but the agenda packet for this item does not mention such

City documents state that the property tax abatement will be shared among the taxing jurisdictions in these estimated amounts:

City: $424,918
State: $19,500
County: $381,979
USD 259: $731,614

The listing of USD 259, the Wichita public school district, is likely a mistake by the city, as the Spirit properties lie in the Derby school district. This is evident below.

The forgiveness of taxes is justified by the city because it believes it will receive a return that is greater than the foregone taxes. This benefit-cost ratio is calculated by the Center for Economic Development and Business Research (CEDBR) at Wichita State University based on data supplied by the applicant company and the city. The rationale behind these calculations is a matter of debate. Even if valid, calculating the ratio with any degree of precision is folly, reminding us of the old saw “Economists use a decimal point to remind us they have a sense of humor.”

City of Wichita: 5.38 to 1
City General Fund: 2.60 to 1
City Debt Service Fund: NA to 1
Sedgwick County: 2.69 to 1
U.S.D. 260: 1.16 to 1
State of Kansas: 5.51 to 1

These figures reveal that the City of Wichita is forcing a decision on a neighboring jurisdiction that it would not accept for itself, unless it uses one of many exceptions or loopholes. This adverse decision is forced upon the Derby School District. It faces a benefit-cost ratio of 1.16 to 1, which is below the city’s standard of 1.30 to 1, unless an exception is cited. 2 The Derby School District is not involved in this action and has no ability to influence the issuance of these bonds, should it desire to.

We have to wonder why the City of Wichita imposes upon the Derby school district an economic development incentive that costs the Derby schools $731,614 per year, with a substandard payoff?
Of note, the Derby school district extends into Wichita, including parts of city council districts 2 and 3. These districts are represented by Pete Meitzner and James Clendenin, respectively.

In a second agenda item, the city will consider IRBs for a building being developed by Air Capital Flight Line. The beneficiary, however, is Spirit, as city documents state: “The requested sales tax exemption and property tax abatement will be passed on as a benefit to Spirit.”

The annual benefit in tax savings is given by the city as:

City: $294,174
State: $13,500
County: $264,447
USD 259: $506,502

These values are offset by a Payment-In-Lieu-Of-Taxes (PILOT) estimated at $13,251 annually.

For benefit-cost ratios, the city supplies these:

City of Wichita: 3.65 to 1
City of Wichita Gen Fund: 1.83 to 1
City of Wichita Debt Serv: NA to 1
Sedgwick County: 2.09 to 1
USD 260: 1.00 to 1
State of Kansas 2.48: to 1

Here we see the same mistake with the Wichita and Derby school districts. We also see the Derby school district giving up $506,502 in tax revenue, with no positive return.

Spirit is not the only company asking for tax relief through IRBs this week. Three other companies are making similar requests. In none of these cases is economic necessity cited as a reason for escaping taxes. None are threatening to leave Wichita if the relief is not granted.

The problem with these actions

Part of the cost of these companies’ investment, along with the accompanying risk, is spread to a class of business firms that can’t afford additional cost and risk. These are young startup firms, the entrepreneurial firms that we need to nurture in order to have real and sustainable economic growth and jobs. But we can’t identify which firms will be successful. So we need an economic development strategy that creates an environment where these young entrepreneurial firms have the greatest chance to survive. The action the Wichita city council is considering this week works against entrepreneurial firms. (See Kansas economic growth policy should embrace dynamism and How to grow the Kansas economy.)

A major reason why these tax abatements are harmful to the Wichita economy is its strangling effect on entrepreneurship and young companies. As these companies and others escape paying taxes, others have to pay. This increases the burden of the cost of government on everyone else — in particular on the companies we need to nurture.

There’s plenty of evidence that entrepreneurship, in particular young business firms, are the key to economic growth. But Wichita’s economic development policies, as evidenced by these actions, are definitely stacked against the entrepreneur. As Wichita props up its established industries, it makes it more difficult for young firms to thrive. Wichita relies on targeted investment in our future. Our elected officials and bureaucrats believe they have the ability to select which companies are worthy of public investment, and which are not. It’s a form of centralized planning by government that shapes the future direction of the Wichita economy.

These targeted economic development efforts fail for several reasons. First is the knowledge problem, in that government simply does not know which companies are worthy of public investment. This lack of knowledge, however, does not stop governments from creating policies for the awarding of incentives. This “active investor” approach to economic development is what has led to companies receiving grants or escaping hundreds of millions in taxes — taxes that others have to pay. That has a harmful effect on other business, both existing and those that wish to form. Young entrepreneurial companies are particularly vulnerable.

Embracing Dynamism: The Next Phase in Kansas Economic Development PolicyProfessor Art Hall of the Center for Applied Economics at the Kansas University School of Business is critical of this approach to economic development. In his paper Embracing Dynamism: The Next Phase in Kansas Economic Development Policy, Hall quotes Alan Peters and Peter Fisher: “The most fundamental problem is that many public officials appear to believe that they can influence the course of their state and local economies through incentives and subsidies to a degree far beyond anything supported by even the most optimistic evidence. We need to begin by lowering expectations about their ability to micro-manage economic growth and making the case for a more sensible view of the role of government — providing foundations for growth through sound fiscal practices, quality public infrastructure, and good education systems — and then letting the economy take care of itself.”

In the same paper, Hall writes this regarding “benchmarking” — the bidding wars for large employers: “Kansas can break out of the benchmarking race by developing a strategy built on embracing dynamism. Such a strategy, far from losing opportunity, can distinguish itself by building unique capabilities that create a different mix of value that can enhance the probability of long-term economic success through enhanced opportunity. Embracing dynamism can change how Kansas plays the game.”

In making his argument, Hall cites research on the futility of chasing large employers as an economic development strategy: “Large-employer businesses have no measurable net economic effect on local economies when properly measured. To quote from the most comprehensive study: ‘The primary finding is that the location of a large firm has no measurable net economic effect on local economies when the entire dynamic of location effects is taken into account. Thus, the siting of large firms that are the target of aggressive recruitment efforts fails to create positive private sector gains and likely does not generate significant public revenue gains either.'”

(For a summary of the peer-reviewed academic research that examines the local impact of targeted tax incentives from an empirical point of view, see Research on economic development incentives. A sample finding is “General fiscal policy found to be mildly effective, while targeted incentives reduced economic performance (as measured by per capita income).”)

There is also substantial research that is it young firms — distinguished from small business in general — that are the engine of economic growth for the future. We can’t detect which of the young firms will blossom into major success — or even small-scale successes. The only way to nurture them is through economic policies that all companies can benefit from. Reducing tax rates for everyone is an example of such a policy. Abating taxes for specific companies through programs like the Wichita city council is considering this week is an example of precisely the wrong policy.

In explaining the importance of dynamism, Hall wrote: “Generally speaking, dynamism represents persistent, annual change in about one-third of Kansas jobs. Job creation may be a key goal of economic development policy but job creation is a residual economic outcome of business dynamism. The policy challenge centers on promoting dynamism by establishing a business environment that induces business birth and expansion without bias related to the size or type of business.”

We need to move away from economic development based on this active investor approach, especially the policies that prop up our established companies to the detriment of dynamism. We need to advocate for policies — at Wichita City Hall, at the Sedgwick County Commission, and at the Kansas Statehouse — that lead to sustainable economic development. We need political leaders who have the wisdom to realize this, and the courage to act appropriately. Which is to say, to not act in most circumstances.

Small business

This year American City Business Journals presented the results of a study of small business vitality in cities. 3 Wichita ranked at number 104 out of 106 cities studied. Awarding incentives to large companies places small business at a disadvantage. Not only must small business pay for the cost of government that incentivized companies avoid, small companies must also compete with subsidized companies for inputs such as capital and labor.

Pursuing large companies

Research has found that the pursuit of large companies doesn’t produce the desired growth: “The results show that large firms fail to produce significant net benefits for their host communities, calling into question the high-stakes bidding war over jobs and investment.” 4

This finding is counterintuitive. People can easily see the large companies. They are likely to know someone that works there. But it is the unseen effects that must be considered too, and that is rarely done.


Notes

  1. City of Wichita. City Council agenda packet for December 6, 2016.
  2. Sedgwick County/City of Wichita Economic Development Policy. Available at www.wichita.gov/Government/Departments/Economic/EconomicDevelopmentDocuments/City%20of%20Wichita%20Economic%20Development%20Policy.pdf.
  3. Wichita Business Journal. The State of Small Business: Wichita scores low in small biz vitality. Available at www.bizjournals.com/wichita/print-edition/2016/04/29/the-state-of-small-business-wichita-scores-low-in.html.
  4. William F. Fox and Matthew N. Murray, “Do Economic Effects Justify the Use of Fiscal Incentives?” Southern Economic Journal, Vol. 71, No. 1, 2004, p. 79.

In Wichita, developer welfare under a cloud

A downtown Wichita project receives a small benefit from the city, with no mention of the really big money.

Today the Wichita City Council approved a subsidy for a project in downtown Wichita.

The city will lend the developer of a project at 303 S. Broadway $620,000 to improve the building’s facade. The property must repay this amount through an assessment on its property tax. The benefit to the property is that the city is able to borrow money at a lower interest rate, and this reduces the cost of borrowing for the project.

The agenda packet for this item states: “The Office of Urban Development has reviewed the economic (“gap”) analysis of the project and determined a financial need for incentives based on the current market.” This stems from the city’s policy on facade improvement projects, which is that the project would not be feasible except for this loan.1

Upon inquiry to the city, I was told that the facade improvement program would increase the developer’s return on investment from 7.06 percent to 8.35 percent. This seemed a stretch; that a small savings on interest costs on a small portion of the project cost could have such a large effect on profitability.

I asked the city for supporting documents that hold the figures used to calculate these amounts, but the city believes the Kansas Open Records Act does not allow it to release the records. In the past, however, I have received this information on request.

So, we’ll have to trust the city on this matter. I’m not comfortable with that. This is another example of the city conducting business within a cloud of secrecy.

Here’s the real money

The cost savings on borrowing $620,000 is just a small portion of subsidy this project will receive. Through tax credits, this project likely will receive over two million dollars in a form equivalent to cash.

The property was listed on the Register of Historic Kansas Places in August. This entitles the project to a tax credit of 25 percent of qualified expenses.2 With a project cost of $5,000,000, according to city documents, this tax credit could be worth $1,250,000.

From the National Park Service, a credit of 20 percent may be awarded.3 With a project cost of $5,000,000, according to city documents, this tax credit could be worth $1,000,000. It is not known at this time whether this project has qualified for this tax credit.

Together, the tax credits are worth potentially $2,250,000. Not all citizens may be aware of the mechanism of tax credits. In the case of the state of Kansas, the Department of Revenue will — figuratively — print a certificate that says the holder of this certificate may use it to pay $1,250,000 of state tax liability. It costs the state nothing to create this certificate. When the Department of Revenue receives the certificate instead of cash, the state gains nothing of economic value. The net economic effect is that the holder of the tax credit has been enriched by $1,250,000, and the state misses out on the same amount of revenue.4 Unless the state reduces its spending by the amount of the tax credit, the taxpayers have to make up the lost revenue.

This is not all. The project may apply for Industrial Revenue Bonds. This is a mechanism whereby a project may avoid paying property taxes and sales taxes.5 This property is located within a TIF district, so it is ineligible for property tax abatements. But, a sales tax exemption could be possible, if the developer applies.

That application is likely, as this developer did just that on another downtown Wichita building, also located in a TIF district, but eligible for sales tax exemption on purchases related to the redevelopment.6

Of note: This developer actively campaigned for the proposed 2014 Wichita city sales tax, offering free office space to the effort.7 Should he apply for a sales tax exemption on this property, this is another example of low-income families in Wichita paying sales tax on groceries, but well-off developers escaping paying that same tax.

The council meeting

At the council meeting, a citizen remarked how this project is good for the tax base. But, being in a TIF district, the incremental property taxes from this property will go to the TIF district, not the city, until the TIF debt is retired.

Council Member Janet Miller (district 6, north central Wichita) noted that the city is not contributing to the project, that the developer pays all the costs of the facade improvement loan. But of a direct contribution to the project, she said “Although I wouldn’t probably complain if that was a request.” I’d suggest that Miller read up on the economics of tax credits, and of a possible sales tax exemption. She might be surprised to learn how much cash this project is receiving.


Notes

  1. “Owner shall provide financial information that substantiates the need for the City’s facade loan in order to complete the redevelopment project, including the overall sources and uses of funds and pro forma cash flow analysis that shows a reasonable return on owner’s investment.” City of Wichita. Facade Improvement Program Policies and Procedures. Available at www.wichita.gov/Government/Departments/Economic/EconomicDevelopmentDocuments/Facade%20Improvement%20Program%20Policy.pdf.
  2. Kansas Historical Society. State Historic Rehabilitation Tax Credit. Available at www.kshs.org/p/tax-credit-basics/14673.
  3. National Park Service. Tax Incentives for Preserving Historic Properties. Available at www.nps.gov/tps/tax-incentives.htm.
  4. Sometime the tax credits are sold to someone else. In this case the seller usually receives less than the face value of the credit.
  5. Weeks, Bob. Industrial revenue bonds in Kansas. Available at wichitaliberty.org/kansas-government/industrial-revenue-bonds-kansas/.
  6. Weeks, Bob. The Lux in Wichita: Taxpayer funding of lifestyle choices. Available at wichitaliberty.org/wichita-government/the-lux-in-wichita-taxpayer-funding-of-lifestyle-choices/.
  7. Weeks, Bob. In Wichita, pro-sales tax campaign group uses sales tax-exempt building as headquarters. Available at wichitaliberty.org/wichita-government/wichita-pro-sales-tax-campaign-group-uses-sales-tax-exempt-building-headquarters/.

Roger Marshall campaign setting new standards

Attacks on Tim Huelskamp reveal the worst in political campaigning.

When the campaign of Roger Marshall accuses Tim Huelskamp of being in favor of abortion, you know his campaign is spiraling out of control. Either that, or the Marshall campaign is deliberately lying about a politician’s record.

Beyond this issue, the Marshall campaign and its surrogates are making arguments that simply have no basis in reality. An example is one radio ad, placed by an independent spending group, that uses the term “Washing-Tim.” The ad tries to persuade voters that Huelskamp has sold out to the Washington establishment. That is a true whopper, as Huelskamp has been anything but an establishment crony.

As an example, Huelskamp opposed the reauthorization of the Export-Import Bank last year. This is an issue that draws a bright line, with progressive Democrats and left-wing Republicans on one side, and free-market, limited government conservatives on the other. The issue truly and precisely sorts politicians into two groups, and Huelskamp is on the right side of this issue. Which is to say, the non-establishment side. Yet, we get “Washing-Tim” from Marshall supporters.

Part of the problem is that officeholders in legislatures, both state and federal, must often vote on bills that contain hundreds of provisions. This bundling of so many often disparate issues into one vote allows unscrupulous campaigns to label someone as a supporter of an issue. That’s what the Marshall campaign and its surrogates are doing.

Mark Holden, a top leader of groups that support free-market causes including Americans for Prosperity, told The Hill this:

I don’t know who is behind [the ESAFund], I’ve heard different rumors about it, but Mr. Singer and the Ricketts family have been good partners of ours in the past and in the present as well. I totally am mystified by Ending Spending and their point of view. I just wonder who could be better [than Huelskamp] on the issues that a group like Ending Spending, I mean their whole name … who could be better on these issues than Tim Huelskamp? If you believe in fiscal responsibility, fiscal conservatism, the proper role of government, particularly on these economic issues that I’m talking about and that our network is focused on; we don’t know of anyone who’s better than Tim Huelskamp.

Huelskamp’s free-market bona fides are buttressed by his lifetime ratings with groups that focus on fiscal conservatism. Club for Growth rates Huelskamp at 100 percent lifetime. Americans for Prosperity scores him at 98 percent.

During election season, especially in close campaigns, we’re accustomed to seeing campaigns paint opponents in unflattering light. The Roger Marshall campaign and its surrogates, however, may be establishing a new standard for deceptive behavior and outright lies.

In Sedgwick County, special interest politics on display

Campaign finance reports reveal special interest groups working to elect candidates. Their efforts to mold a candidate’s thinking appear to be working.

Why do people make political campaign contributions? I try to be optimistic. I’m willing to believe that people have sincerely-held beliefs.

But when you look under the covers, I find myself in agreement with Lily Tomlin, who quipped “No matter how cynical you become, it’s never enough to keep up.”

A few days ago I showed how the campaign finance report for David Dennis, a candidate for Sedgwick County Commission, was full of contributions from people who regularly ask government for special favors and subsidy, people who campaigned for the Wichita city sales tax, and Democrats who are ideologically presupposed to higher taxes.1 In other words, people who believe they know better than you how to spend your money, and believe David Dennis will give them more to spend.

But I didn’t go far enough. The Wichita Eagle’s Daniel Salazar found this: “He [Dennis] received at least $4,814 in direct donations from board members of the Sedgwick County Zoological Society.”2

This is classic and explicit special interest group behavior. The group members contribute a little bit to a candidate in expectation of reaping big benefits for their special interest.

Economists call this rent seeking, defined as “An attempt to obtain economic rent (i.e., the portion of income paid to a factor of production in excess of what is needed to keep it employed in its current use) by manipulating the social or political environment in which economic activities occur, rather than by creating new wealth.”3 That obscure term has been partially supplanted by a term more readily understood: cronyism.

And it appears to be working. Salazar’s article quotes Dennis: “I don’t think it’s (funding) adequate based on what I’ve learned. I think we’re going to have to do a complete review of what’s required to run the zoo.”4

There it is. I wonder who David Dennis consulted for his research?


Notes

  1. Weeks, Bob. A look at a David Dennis campaign finance report. Available at wichitaliberty.org/sedgwick-county-government/look-david-dennis-campaign-finance-report/.
  2. Salazar, Daniel. Dennis draws more donations than Peterjohn, including from zoo board members. Wichita Eagle, July 27, 2016. Available at www.kansas.com/news/politics-government/election/article92135002.html.
  3. Wikipedia, en.wikipedia.org/wiki/Rent-seeking
  4. ibid.

A look at a David Dennis campaign finance report

It’s interesting to look at campaign finance reports. Following, a few highlights on a report from the David Dennis campaign. He’s a candidate for Sedgwick County Commission in the August Republican Party primary election. The report was filed July 25, 2016, covering the period from January 1, 2016 through July 21, 2016. These reports are available online at the Sedgwick County Election Office website.

Keith Stevens, $200
A longtime Democrat community activist, always on the side of higher taxes and more government spending.

Suzanne F. Ahlstrand, $250
Gary & Cathy Schmitt, $100
Jon E. Rosell, $100
Charlie Chandler, Maria Chandler, $1,000 total
Al and Judy Higdon, $500
James & Vera Bothner, $250
Lyndon O. & Marty Wells, $500
All are, or have been, affiliated with the Wichita Metro Chamber of Commerce in various roles, including paid staff and leadership. At one time local chambers of commerce were dedicated to pro-growth economic policies and free markets. But no longer. The Wichita Chamber regularly advocates for more taxes (the 2014 Wichita sales tax campaign was run by the Wichita Chamber), more spending, more cronyism, and less economic freedom. It campaigns against fiscally conservative candidates when the alternative is a candidate in favor of more taxes. The Chamber says it does all this in the name of providing jobs in Wichita. If you’re wondering who ground down the Wichita economy over the past few decades, look no further than the Wichita Chamber of Commerce and its affiliates who have run Wichita’s economic development bureaucracy.

Harvey Sorensen, $500
Sorensen was one of the drivers behind the 2014 one cent per dollar Wichita city sales tax proposal, serving as co-chair of Yes Wichita, the primary group campaigning for the tax. In a public forum Sorensen said, “Koch Industries is going to spend a million dollars to try to kill the future of our community.”1 Wichita voters rejected that sales tax, with 62 percent of voters voting “No.”2 Since the election, we’ve learned that we can satisfy our water future needs by spending much less than Sorensen recommended, at least $100 million less.3 Part of the Wichita Metro Chamber of Commerce cabal, Sorensen has played both sides of the street, having donated $500 to Jeff Longwell and the same amount to his opponent Sam Williams in the 2015 Wichita mayoral election. We might be led to wonder if Sorenson makes contributions based on sincerely held beliefs regarding public policy, or simply for access to officeholders.

Jon, Lauren, David, and Barbara Rolph, $2,000 total
Jon Rolph was another co-chair of Yes Wichita, the primary group campaigning for the 2014 Wichita city sales tax. Since then he’s floated the idea of trying again for a city sales tax.

Plumbers & Pipefitters Local Union No. 441 Political Action Committee, $500
Labor unions rarely — very rarely — make campaign contributions to Republicans. Except for David Dennis.

Bryan K & Sheila R Frye, $50
Bryan Frye is a newly-elected Wichita City Council member who has quickly found a home among the other big-taxing, big-spending council members. He’d very much like a county commissioner who is compliant with more taxes and more spending — like David Dennis.

Lynn W. & Kristine L. Rogers, $50
Lynn Rogers is a Republican-turned-Democrat. As a member of the Wichita public schools board, he is an advocate for more school spending, less school accountability, and no school choice.

Alan J. & Sharon K. Fearey, $100
A Democrat, Sharon Fearey served two terms on the Wichita City Council. She was always an advocate for more taxes and spending, even scolding the Wichita Eagle when it thwarted her spending plans.

Foley Equipment, $500
Ann Konecny, $500
Foley was an advocate for the 2014 Wichita city sales tax, contributing $5,000 to the campaign. The next year, Foley asked for an exemption from property taxes and the sales tax that it campaigned for.4 Foley wanted poor people in Wichita to pay more sales tax on groceries, but didn’t want to pay that same sales tax itself.

BF Wichita, L.L.C., $500
A company affiliated with George Laham. He’s a partner in the taxpayer-subsidized River Vista Apartment project on the west bank of the Arkansas River north of Douglas Avenue. Rumor is that the apartment project will be abandoned in favor of selling the land as the site for an office building.

Automation Plus, $500
Sheryl Wohlford, Vice President, is a longtime progressive activist, a member of Wichita Downtown Vision Team. In short, someone who knows how to spend your money better than you.

Steven E. Cox, Janis E. Cox, $1,000 total
Owners of Cox Machine, this company regularly applies for and receives taxpayer-funded incentives, including the forgiveness of paying sales tax. Yet, this company contributed $2,000 to the campaign for the 2014 Wichita city sales tax.

Leon or Karen Lungwitz, $500
Owner of company where Wichita mayor Jeff Longwell once worked.

Slawson Commercial Properties, LLC, $500
Socora Homes, Inc., $500
New Market 1, LLC, $500
Buildings 22-23-24, LLC, $500
All are Slawson companies, advocates of and beneficiaries of taxpayer-funded subsidies.

Carl & Cathy Brewer, $200
The Democrat former mayor of Wichita. Enough said about that.

Tom Winters, $250
Winters is emblematic of the big-taxing, big-spending Republican officeholder who believes he knows how to spend your money better than you. Karl Peterjohn defeated Winters in the August 2008 primary election.

Timothy R. Austin, $150
We might label Austin as “engineer for the cronies” based on his frequent appearances before governmental bodies advocating for taxpayer-funded subsidy for his clients.


Notes

  1. Ryan, Kelsey. Comment on Koch involvement in sales tax heats up debate. Wichita Eagle, October 29, 2014. Available at www.kansas.com/news/local/article3456024.html.
  2. Sedgwick County Election Office. November 4th, 2014 General Election Official Results — Sedgwick County. Available at www.sedgwickcounty.org/elections/election_results/Gen14/index.html.
  3. Weeks, Bob. In Wichita, the phased approach to water supply can save a bundle. wichitaliberty.org/wichita-government/wichita-phased-approach-water-supply-can-save-bundle/.
  4. Weeks, Bob. In Wichita, campaigning for a tax, then asking for exemption from paying. Available at wichitaliberty.org/wichita-government/campaigning-for-tax-then-asking-for-exemption-from-paying/.

WichitaLiberty.TV: Confusion about corruption in Wichita, regulation in Wichita, and the lowly pencil

In this episode of WichitaLiberty.TV: Citizen activists were concerned about unleashing a corrupting influence in Wichita City Hall, but they didn’t know it’s already there. Then, the regulatory landscape in Wichita. Finally, what can a pencil teach us about how the world works? View below, or click here to view at YouTube. Episode 121, broadcast June 12, 2016.

Shownotes

In Wichita, more sales tax hypocrisy

Another Wichita company that paid to persuade you to vote for higher taxes now seeks to avoid paying those taxes.

Next week the Wichita City Council will consider issuing industrial revenue bonds to benefit a local company. In Kansas, IRBs are not a loan of money from government. Instead, the bonds are a vehicle for conveying property tax abatements, and often sales tax exemptions. 1 The applicant company is Hijos, LLC/JR Custom Metal Products, Inc.

City documents give the value of abated taxes at $44,900 for the first year. Following years will probably be similar.

Besides property tax breaks, industrial revenue bonds can convey an exemption from paying sales taxes on purchases. City documents don’t state the amount of sales tax the company might avoid paying. But documents state the bonds will be used to fund capital equipment in the amount of $2,686,000. Sales tax on that is $201,450.

City documents also state this expansion will add 13 new jobs over the next five years at an average wage of $41,995.

Like several other companies that have received an exemption on paying sales tax on their purchases, 2 3 4 5 JR Custom Metals advocated for you to pay more sales tax. During the campaign for the one cent per dollar Wichita sales tax in 2014, this company contributed $1,000 to persuade voters to approve the tax.

JR Custom Metals contribution to Yes Wichita, the group that campaigned for the Wichita sales tax.
JR Custom Metals contribution to Yes Wichita, the group that campaigned for the Wichita sales tax.

But now it seeks to avoid paying all sales tax on these purchases. It has done this several times in the recent past.

The jobs are welcome. But this incident and many others like it reveal a capacity problem, which is this: We need to be creating nine jobs every day in order to make any significant progress in economic growth. 6 If it takes this much effort and the forgiveness of hundreds of thousands of dollars in taxes to create 13 jobs over five years, how much effort and subsidy will it take to create the many thousands of jobs we need to create every year?

  1. Weeks, Bob. Industrial revenue bonds in Kansas. Available at wichitaliberty.org/kansas-government/industrial-revenue-bonds-kansas/.
  2. Weeks, Bob. Spirit Aerosystems tax relief. Available at wichitaliberty.org/wichita-government/spirit-aerosystems-tax-relief/.
  3. Weeks, Bob. In Wichita, campaigning for a tax, then asking for exemption from paying. Available at wichitaliberty.org/wichita-government/campaigning-for-tax-then-asking-for-exemption-from-paying/.
  4. Weeks, Bob. In Wichita, pro-sales tax campaign group uses sales tax-exempt building as headquarters. Available at wichitaliberty.org/wichita-government/wichita-pro-sales-tax-campaign-group-uses-sales-tax-exempt-building-headquarters/.
  5. Weeks, Bob. Union Station TIF provides lessons for Wichita voters. Available at wichitaliberty.org/wichita-government/union-station-tif-provides-lessons-wichita-voters.
  6. Weeks, Bob. Wichita economic development and capacity. Available at wichitaliberty.org/wichita-government/wichita-economic-development-capacity/.

Kansas economic development programs

Explaining common economic development programs in Kansas.

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

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

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

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

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

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

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

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

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