The Wichita Eagle’s coverage of the number of workers in Downtown Wichita isn’t fake news, just wrong news.
A recent Wichita Eagle article reported on the number of workers in downtown Wichita, designated as zip code 67202: “The 67202 ZIP code had lost nearly 15 percent of its businesses and 20 percent of its employees in the decade ending in 2015, according to the U.S. Census’s County Business Pattern data. The loss of the State Office Building in 2016 and the Wichita school district’s downtown office this summer — employees are moving to the former Southeast High School — will make that decline steeper.” 1
Trends of business activity in downtown Wichita. Click for larger.In the first sentence, the reporter is correct. The trend in the number of business establishments, the number of employees, and the annual payroll is downwards. 2
But the second sentence reveals a misunderstanding of the meaning of two sets of Census Bureau data. According to the Census Bureau’s description of the County Business Pattern data — that’s the data referenced in the article — the two events mentioned will not change the CBP data. That’s because governmental agencies are not included in CPB data. The Census Bureau plainly explains:
“Statistics are available on business establishments at the U.S. level and by State, County, Metropolitan area, ZIP Code, and Congressional District Levels. … CBP covers most NAICS industries excluding crop and animal production; rail transportation; National Postal Service; pension, health, welfare, and vacation funds; trusts, estates, and agency accounts; private households; and public administration. CBP also excludes most establishments reporting government employees.” 3
LODES data for census block 201730043001036, showing 7,740 workers.A second set of Census Bureau data known as LODES will change with the departure of USD 259 from zip code 67202. LODES is the source of 26,000 downtown Wichita workers claimed by Wichita State University’s Center for Economic Development and Business Research, the Wichita Downtown Development Corporation, the Greater Wichita Partnership, the City of Wichita, and other agencies. An earlier Eagle article from May 10 just scratched the surface on this topic. 4 That article described the Census Bureau data as erroneous. But there is no error in the data, as the Census Bureau plainly explains what the data means. 5 The error was in the application of the data by someone who used it to represent something it does not represent.
Readers of the Wichita Eagle may be thoroughly confused by now. Can we expect a correction or explanation? The Eagle says no.
Is the presentation of the number of workers in downtown Wichita an innocent mistake, mere incompetence, or a willful lie?
There’s a question regarding how many people work in downtown Wichita, the Wichita Eagle reports.1 Other sources have noticed a discrepancy.2
Promotional material on the former Henry’s building. Click for larger.At issue is the meaning of “working” in a certain location. Data that the Center for Economic Development and Business Research at Wichita State University supplied to the Wichita Downtown Development Corporation indicates about 26,000 people work in downtown Wichita, for these purposes defined as zip code 67202. This number is used in a wide variety of ways, including in Wichita city budgets and federal grants made by the city.
It’s appropriate, then, to understand what the 26,000 number means. The Eagle article mentions “a likely mistake in how the number of jobs downtown is calculated.”3 The same article quotes Jeremy Hill, director of CEDBR, as saying, “It looks very obvious and plausible that it is an error.”
There is no “mistake” or “error” in this Census data, which is known as LEHD Origin-Destination Employment Statistics, or LODES. But we need to be curious or cautious enough to investigate what this data means. Documentation from the Census Bureau for LODES data gives the definition of the place of work and a cautionary note: “A place of work is defined by the physical or mailing address reported by employers in the QCEW (formerly ES-202) or Multiple Worksite Reports. An address from administrative data may or may not be the actual location that a worker reports to most often.”
The Census Bureau continues with another warning regarding this data: “Nonreporting of multiple worksites is especially common with state and local governments and school districts. In such a case, LEHD infrastructure files assign all workers for that employer (within the state) to the main address provided.”4
In the case of downtown Wichita, the mistake was made in the application of this data, which is the claim that there are 26,000 workers in downtown Wichita. There may be that many people who draw a paycheck from an administrative office located in downtown. But large numbers of these don’t come to downtown to perform their jobs.
Census block 201730043001036, showing 7,740 workers.The LODES data reports a one square block in downtown that holds 7,740 workers. This is the block that holds the administrative office building for the Wichita public school district. Regarding this, the Eagle article reports: “One of the most likely reasons for the difference, according to multiple local academics, including Hill, is that the Census is reporting that every employee for USD 259 works downtown. Most USD 259 employees work in buildings across the city, but the central office is located downtown.” This is something the Census Bureau warns users to consider.
There’s another area of erroneous application, too, and it isn’t mentioned in the Eagle article. This concerns the second largest concentration of workers in downtown Wichita (according to the LODES data) in a Census block which has 3,437 employees. This is the block that holds Wichita city hall. In 2014 the city had 3,270 employees. But they don’t all work at Main and Central. They’re dispersed throughout the city in police stations, fire stations, and other sites.
How was this missed?
The Census Bureau OnTheMap application for downtown Wichita, zip code 67202. Click for larger.Nearby is an example of using the Census OnTheMap application.5 This is the source of LODES data that the WDDC cites in its footnotes to its annual report. When using the application for zip code 67202, there are two — and only two — large dark blue dots. These represent the census blocks with the greatest number of workers, 7,740 and 3,437. I’d like to think that if someone at CEDBR, WDDC, or city hall looked at this map and saw those two big blue dots, they might ask a few questions. Wasn’t someone curious as to how a single block of downtown Wichita manages to hold so many employees? Which companies do they work for? What can we learn from the success of these companies that employ so many people? Can we duplicate this success in other parts of downtown?
But I don’t think anyone asked these questions. No one — not at CEDBR, WDDC, or city hall — was inquisitive enough to really look at this data and see what it means. It’s either that or there was a willful misrepresentation.
The Eagle article also reports this: “This won’t make much of a difference to most businesses downtown, according to Hill. They already know how big the market is because they have experience with it. … The best companies will look at census data when coming up with their business plans, Hill said, but every business relies on several numbers, so even if there are thousands of fewer jobs downtown than previously thought, it’s unlikely that it would have much of an impact.”
On these remarks, I would say that first, we’re trying to recruit new businesses to downtown Wichita. It’s those business firms that this data speaks to. While the “best” companies may use other sources of data, I don’t think we want to discriminate. All companies are welcome to Wichita, I hope.
Second, Hill says companies “will look at census data.” Well, this is census data.
Third, Hill says this mistake won’t have “much of an impact.” In the future, I think we’ll need to ask CEDBR, WDDC, and city hall if the data they supply is intended to have an impact, or is it for something else.
Trends of business activity in downtown Wichita. Click for larger.Fourth, there is other census data. The United States Census Bureau tracks business data by zip code.6 The data that is available includes the number of business establishments, the number of employees, and the annual payroll, expressed in thousands of dollars not adjusted for inflation. It includes private-sector workers only, so it does not count all workers.
Nearby are results for zip code 67202. For 2015 the number of jobs is 13,581, not much more than half of what city leaders have told us. Again, these are private-sector workers only.7
Not only are these numbers much smaller, the results since 2007 show fewer business establishments, fewer people working downtown, and lower earnings generated in downtown Wichita. In all cases, the trend is lower. The LODES data is on a downwards trend, too.
“But the reason for this is not because 7,000 workers actually will leave but because of a likely mistake in how the number of jobs downtown is calculated. ↩
“For LODES, a place of work is defined by the physical or mailing address reported by employers in the QCEW (formerly ES-202) or Multiple Worksite Reports. An address from administrative data may or may not be the actual location that a worker reports to most often. The distinction of worksite and administrative address may be especially significant in some industries such as construction, where work is often carried out at temporary locations. In some cases, employers do not provide a multiple worksite report when it would be appropriate to do so. Nonreporting of multiple worksites is especially common with state and local governments and school districts. In such a case, LEHD infrastructure files assign all workers for that employer (within the state) to the main address provided. Bureau of Labor Statistics (BLS) data show a national noncompliance rate of 5.61 percent of multiunit employers responsible for about 4.45 percent of multiunit employment.” U.S. Census Bureau. Matthew R. Graham, Mark J. Kutzbach, and Brian McKenzie. Design comparison of LODES and ACS commuting data products. Available at ftp://ftp2.census.gov/ces/wp/2014/CES-WP-14-38.pdf. ↩
The City of Wichita will soon be flooded with data regarding downtown convention and performing arts facilities. Past experience should warn us to be skeptical.
But at least some of the data Goody Clancy used turned out to be total nonsense.
Specifically, Goody Clancy presented Walk Score data for downtown Wichita. Walk Score is purported to represent a measure of walkability of a location in a city. Walkability is a key design element of the master plan Goody Clancy has developed for downtown Wichita. David Dixon, who leads Goody Clancy’s Planning and Urban Design division, used Walk Score in a presentation delivered in Wichita.
Walk Score is not a project of Goody Clancy, as far as I know, and David Dixon is not responsible for the accuracy or reliability of the Walk Score website. But he presented it and relied on it as an example of the data-driven approach that Goody Clancy takes.
For example, the score for 525 E. Douglas, the block the Eaton Hotel is in and mentioned by Dixon as a walkable area, scored 91, which means it is a “walker’s paradise,” according to the Walk Score website.
Walk score data for 525 E. Douglas, in 2010. Click for larger.But here’s where we can start to see just how bad the data used to develop these scores is. For a grocery store — an important component of walkability — the website indicates indicated a grocery store just 0.19 miles away. It’s “Pepsi Bottling Group,” located on Broadway between Douglas and First Streets. Those familiar with the area know there is no grocery store there, only office buildings. The claim of a grocery store here is false. It’s an office, not a store.
For a nearby library, it listed Robert F. Walters Digital Library, which is a specialized geological library costing $1,500 per year to use — over the internet.
For a drug store, it listed Rx Doctor’s Choice, which is a company selling oral chelation treatments by mail order. It’s nothing at all like a general-purpose drug store. One of those is nowhere nearby.
There were other claimed amenities where the data is just as bad. But as Larry Weber, then chairman of the Wichita Downtown Development Corporation told me, Walk Score has been updated. I should no longer be concerned with the credibility of this data, he said.
He was correct — partially. Walk Score was updated, but we should still be concerned about the quality of the data. Now for the same location the walk score is 85, which is considered “very walkable.” The “grocery store” is no longer the Pepsi Bottling Group. It’s now “Market Place,” whose address is given as 155 N. Market St #220.
If anyone would ever happen to stroll by that location, they would find that address — 155 N. Market number 220 — is the management office for an office building whose name is Market Place. It’s not a grocery store. It’s an office. So I became even more concerned about the credibility of this data and the fact that Goody Clancy relied on it. I was also concerned that Weber thinks thought this was an improvement, and that he felt I should not be concerned.
David Dixon and Goody Clancy did not create the Walk Score data. But he and his planning company presented it to Wichitans as an example of the data-driven, market-oriented approach to planning that they use.
But anyone who relies on the evidence Dixon and Goody Clancy presented would surely be confused unless they investigated the area on their own.
And since this reliance on Walk Score was made after Goody Clancy had spent considerable time in Wichita, the fact that someone there could not immediately recognize how utterly bogus the data is: That should give us cause for concern that the entire planning process is based on similar shoddy data and analysis. We also ought to be concerned that no one at WDDC or city hall looked closely enough at this data to realize its total lack of correspondence to reality.
When I presented these concerns to the Wichita Metropolitan Area Planning Commission in 2010, Scott Knebel, a member of the city’s planning staff who is the city’s point man on downtown planning, address the concerns raised by me. He said, “In terms of the Walk Score, I suspect Mr. Weeks is absolutely right, it probably is a relatively flawed measurement of Walk Score.” He added that the measurement is probably flawed everywhere, downtown and elsewhere. He said that Goody Clancy used it “as an illustration of the importance of walkability in an urban area.”
An isolated incident, long ago?
Seven years later, should we be concerned about this incident?
If that was the only example of low-quality and deceptive data, we could say sure, that was long ago. Let’s forget this and go forward. Our city leaders are smarter now.
Except they’re not.
The oft-cited claim of 26,000 workers in downtown Wichita is another example of misuse of data, and in a very big way. It comes from the U.S. Census Bureau. This particular data set counts all Wichita school district employees as downtown workers, even though nearly all work at locations scattered throughout the city.2
If we accept this data as meaning what WDDC and the city says it means, we’d have to believe that 7,740 people work in a one square block area from First to Second Streets, and Wichita to Water Streets. That block is mostly surface parking, but it does hold the administrative offices of the Wichita school district. So all school district employees are counted as working in this block.
There is similar problem in another block. All City of Wichita employees are treated as though they work at city hall. But they don’t.
Does any of this matter? It ought to matter. The planners tell us they use data to make decisions. This week the city council decided to hire a consulting firm to investigate the feasibility of a refurbished or new convention center and performing arts center. I’m sure much data will be presented. Based on our past experience, we’ll have to carefully examine data for appropriate usage.
This week the Wichita City Council considers hiring a consulting firm to develop plans for a new performing arts and convention center.
Options from the City of Wichita.It’s no secret that many in Wichita want a new performing arts and convention center to replace Century II. Documents produced by the city sketch four possibilities ranging in price from $272 million to $492 million.12
The two least expensive scenarios keep the existing Century II structure, while two call for completely new buildings, including the possibility of a performing arts center located a few blocks to the east of the present Century II and proposed convention center site.
Apart from the financial desirability of these projects is the question of how to pay. The traditional approach would be for a city to build, own, and operate the project, paying for it through long-term borrowing. (Governments, including Wichita, often speak of “bonding” projects, a word which seems less foreboding than “borrowing.”)
This week’s business for the city council foreshadows the city using a different method. The firm the city wants to hire, Arup Advisory, Inc., is an advocate of “P3” or public-private partnerships. A report Arup prepared for the City of Los Angeles3 recommended that the city use a method known as Design Build Finance Operate and Maintain (DBFOM), which ARUP says is used interchangeably with P3.
In the DBFOM or P3 model as applied to Wichita, a third party — thought to be George Laham — would do all the work of designing, financing, building, and operating a convention center and possibly a performing arts center. Then, the city simply pays a fee each year to use the center. It’s called an “availability payment.” Most people call this rent or lease payments.
The Los Angeles document explains the potential benefits of using DBFOM or P3:
Here, the City as asset owner hires a developer team to take on the full project development responsibility (design, build, finance, operate, maintain) and pays them an annual service fee for the availability of the functioning capital asset (i.e. infrastructure as a service). The service fee is called an “availability payment” in the P3 industry; it is a contractually scheduled pay-for-performance arrangement where the private partner is paid to design, build, and finance a turnkey capital asset and then is responsible for the operation and maintenance of the asset according to performance standards set by the City. The availability payments are fixed at the time the P3 contract is signed and are only subject to indexation to an agreed inflation index (e.g., US or Los Angeles region CPI) and deductions for non-performance against the contractually defined performance standards. The availability payments, which are the only form of compensation by the owner to the P3 developer, start only when the P3 developer has satisfied all the conditions stipulated in the contract for successful completion of construction and start of operations. These features provide substantial incentives for the P3 developer to achieve on-schedule and on-budget construction, as well as optimized life-cycle maintenance over the long term that meets the owner’s needs.
A common strategy recommended by Arup is to “cross-subsidize” with real estate. This is vaguely defined as to “unlock significant land value” in city-owned real estate near the convention center. Specific to Wichita, the proposal from Arup to the city includes, “Assess potential revenue from the monetization of city’s owned land located in proximity to the Century II facility and determine the size of the cross subsidy to the project expansion design schemes 1 and 3.”4
What are the benefits to the city of pursuing the DBFOM/P3 path? The Los Angeles document gives these: “No impact on debt capacity; significantly reduced cost to the General Fund, structured as an obligation to pay a service fee (i.e. availability payment) to the private partner where the value of the service fee is less than the sum of all the relevant LACC costs [for other options].”
Should Wichita do this?
Convention business is on a long downward trend. The Arup report for Los Angeles recognizes this:
Over the last two decades, most large and medium size American cities have experienced a spur in convention center development. According to the Brookings Institution (2005), exhibit hall space in the US grew from 40 million square feet in 1990 to 85 million in 2014 distributed among 400+ facilities. There is a sense in the Convention business that the supply may be exceeding demand.
A commitment of this size needs public input in the form of a vote. The “availability payments” the city may commit to will be characterized in various ways, but they represent a long-term commitment by the city that it can’t escape. If promised revenues from expanded convention trade don’t cover these payments, taxpayers will have to pay. The city, unfortunately, doesn’t have a good record of honesty with citizens:
In 2014 the city told citizens that $250 million in new sales tax revenue was required to provide drought protection. After the vote on the tax failed, the city found less expensive ways to provide the same protection.5
Subsidized city projects have not delivered promised benefits.6
The city is not truthful in reporting the number of people working in downtown Wichita.7
Despite much investment in downtown Wichita, both public and private, business activity is declining.8
Despite much investment in downtown Wichita, both public and private, total property valuation is declining.9
While touting transparency, the city fails in many basic ways, even though the city communications staff has been expanded.101112
Citizens and taxpayers should insist the city address these issues before committing to any new project, much less one the size of a renovated or new performing arts and convention center.
And — most importantly — the people need to vote up or down on this project.
Update: On May 9 the city council decided to hire this firm.
Weeks, Bob. 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. Available at https://wichitaliberty.org/wichita-government/wichita-phased-approach-water-supply-can-save-bundle/. ↩
Weeks, Bob. During Sunshine Week, here are a few things Wichita could do. The City of Wichita says it values open and transparent government, but the city lags far behind in providing information and records to citizens. Available at https://wichitaliberty.org/open-records/sunshine-week-wichita/. ↩
In this episode of WichitaLiberty.TV. Sedgwick County Commissioner Richard Ranzau joins Bob Weeks and Karl Peterjohn to discuss current issues in Sedgwick County government. View below, or click here to view at YouTube. Episode 150, broadcast May 7, 2017.
Sedgwick County to consider raising debt limit. The Sedgwick County Commission will consider raising its limit on borrowing for reasons which need to be revealed, and then carefully examined.
Tax rates in the city of Wichita:
City of Wichita 32 mills (27 percent of total)
Sedgwick County 29 mills (25 percent)
School district 54 mills (46 percent)
State 21.5 mills (18 percent)
Total 117 mills
Are the City of Wichita’s projections regarding subsidized development as an economic driver believable?
Map of STAR bond districts. Click for larger.This week the Wichita City Council will consider a project plan for a STAR bonds district near Downtown Wichita. These bonds divert future incremental sales tax revenue to pay for various things within the district.1
City documents promise this: “The City plans to substantially rehabilitate or replace Lawrence Dumont Stadium as a modern multi-sport stadium as part of a larger project to develop the river and stadium areas. … Combined, the museum, pedestrian bridge, waterfront improvements and multi-sport stadium will generate significant new visitor tourism as well as provide signature quality of life amenities for the citizens of Wichita and the region.”2
We’ve heard things like this before. Each “opportunity” for the public to invest in downtown Wichita is accompanied by grand promises. But actual progress is difficult to achieve, as evidenced by the lack of progress in Block One.3
Trends of business activity in downtown Wichita. Click for larger.In fact, change in Downtown Wichita — if we’re measuring the count of business firms, jobs, and payroll — is in the wrong direction, despite public and private investment.4
Perhaps more pertinent to a sports facility as an economic growth driver is the Intrust Bank Arena. Five years ago the Wichita Eagle noted the lack of growth in the area.5 Since then, not much has changed. The area surrounding the arena is largely vacant. Except for Commerce Street, that is, and the businesses located there don’t want to pay their share of property taxes.6
I’m sure the city will remind us that the arena was a Sedgwick County project, not a city project, as if that makes a difference. Also, the poor economic performance cited above is for Downtown Wichita as delineated by zip code 67202, while the proposed STAR bond project lies just outside that area, as if that makes a difference.
By the way, this STAR bonds district is an expansion of an existing district which contains the WaterWalk development. That development has languished, with acres of land having been available for development for many years.
“Ten years ago, Elizabeth Stevenson looked out at the neighborhood where a downtown arena would soon be built and told an Eagle reporter that one day it could be the ‘Paris of the Midwest.’ What she and many others envisioned was a pedestrian and bike-friendly neighborhood of quaint shops, chic eateries and an active arts district, supported by tens of thousands of visitors who would be coming downtown for sporting events and concerts. It hasn’t exactly turned out that way. Today, five years after the opening of the Intrust Bank Arena, most of the immediate neighborhood looks much like it did in 2004 when Stevenson was interviewed in The Eagle. With the exception of a small artists’ colony along Commerce Street, it’s still the same mix of light industrial businesses interspersed with numerous boarded-up buildings and vacant lots, dotted with ‘for sale’ and ‘for lease’ signs.” Lefler, Dion. 5 years after Intrust Bank Arena opens, little surrounding development has followed.Wichita Eagle. December 20, 2014. Available at http://www.kansas.com/news/local/article4743402.html. ↩
Even if we accept the measure of jobs used by the City of Wichita, the trend is in the wrong direction. Citizens should ask for truth and accountability.
Click for larger.Click for larger.Click for larger.The City of Wichita and its surrogates tell us there are 26,000 daytime workers in downtown Wichita, defined as zip code 67202. There is a serious problem with that number, as it includes workers whose “administrative home” is downtown, even though they work somewhere else.1 The largest example of this is the counting of all Wichita school district employees as downtown workers, even though almost all work in schools and other locations throughout the city.
But even if we use the statistic promoted by the Wichita Downtown Development Corporation, the trend in jobs is in the wrong direction. WDDC promotes the large investment in downtown Wichita, by both private and public sources. But employment is trending in the opposite direction.
As Wichita considers other large downtown investments, such as STAR bond financing for the west bank of the Arkansas River or a new convention center and performing arts center, we should ask at least two questions:
Can we depend on the city to use meaningful and truthful data?
Will the city recognize the lackluster results of its economic development efforts?
Shouldn’t we insist on progress in projects like Block One before proceeding elsewhere?2
Downtown Wichita brochure.It is cited by our chief economic development agency.2
State of Downtown Report, 2016. Click for larger.The city’s downtown development agency uses this number in brochures and annual reports.34
It appears in a federal grant application made by the city.5
It appears in our state’s largest newspaper, as reported by a journalist billed as a data specialist.6
Promotional material on the former Henry’s building. Click for larger.It appears in a Wichita specialty business newspaper quoting a Wichita business leader.7
It’s advertised on a vacant downtown building, the former Henry’s store at Broadway and William.
The Wichita Downtown Development Corporation states the data for workers in downtown Wichita, which is defined for these purposes as zip code 67202, comes from the United States Census Bureau, specifically an application called “OnTheMap Application and LEHD Origin-Destination Employment Statistics.”8 The data is commonly known as LODES. Using this application and focusing analysis on zip code 67202 produces the figure 25,850 primary jobs. Round that to 26,000, and that’s the source of the job claims for downtown Wichita.
But: Census documentation for this data gives the definition of the place of work and a cautionary note: “A place of work is defined by the physical or mailing address reported by employers in the QCEW (formerly ES-202) or Multiple Worksite Reports. An address from administrative data may or may not be the actual location that a worker reports to most often.”
The Census Bureau continues with another warning regarding this data: “Nonreporting of multiple worksites is especially common with state and local governments and school districts. In such a case, LEHD infrastructure files assign all workers for that employer (within the state) to the main address provided.”9
Census block 201730043001036Census block 201730043001036, satellite view.This is highly relevant and important in the case of downtown Wichita. When using the OnTheMap application for zip code 67202, there are two large bright blue dots that stand out from all others. These represent the two highest concentrations of workers in downtown Wichita. One is Census block 201730043001036, which has 7,740 employees. This is a one square block area from First to Second Streets, and Wichita to Water Streets. The block consists mostly of surface parking lots, although there are three buildings. One building is the Wichita school district administration building, and there’s the problem with the way the city uses this data. The school district has thousands of employees. Only a small fraction, however, work in the downtown administrative building at First and Water Streets. The rest are dispersed throughout the city in school buildings and other sites such as the large facility at 37th Street North and Hydraulic.
But this Census data counts all these employees in one census block. This is an example of the warning the Census Bureau supplies with the data: Nonreporting of multiple worksites is especially common with state and local governments and school districts.
There’s another example. The second largest concentration of workers in downtown Wichita appears in Census block 201730043001023, which has 3,437 employees. This is the block that holds Wichita city hall. In 2014 the city had 3,270 employees. But they don’t all work at Main and Central. They’re dispersed throughout the city in police stations, fire stations, and other sites.
(By the way, the 26,000 number is often qualified as daytime workers. But we know that many police officers and firefighters work at night. The same is true for people working at the many hotels, restaurants, and bars in downtown. They aren’t all daytime workers.)
Here’s something to consider: The Wichita school district is moving its administrative offices to the former Southeast High School building at Lincoln and Edgemoor. That’s in zip code 67218. What will happen to the reporting of jobs in downtown Wichita when some seven thousand workers start receiving their paychecks from an office in that zip code, and the Census Bureau adjusts it data accordingly?
So how many people do actually work in downtown Wichita, zip code 67202? A different set of Census data gives the number 13,593 for 2014.10 This data is much more representative of the number of people actually working in a location, although it includes private-sector workers only. Se we might add a few to that number. But it’s clear that the claim of 26,000 workers is far from true.
We’re told that the city makes decisions based on data and analysis. In the city manager’s policy message in the current city budget, the manager wrote: “In 2016, the City was selected by Bloomberg Philanthropies as a What Works City for making a public commitment to use data for informed decision making.” The same document also states: “Departmental goals and data drive decision making within each department.”
The use of data for decision making is especially important for downtown planning, we’ve been told. In selling the plan for downtown Wichita in 2010, the city’s consultants told us that the plan is “grounded in data and hard analysis.”11 But I showed that data the consultants relied on — a “walk score” — was based on nonsensical data.
We’re left with a few observations:
The claim of 26,000 workers in downtown Wichita is true. But as we’ve seen, it is not true in the way it is used, which is as an indication of the number of human beings actually working in downtown.
Did the person who gathered this data about downtown workers know what it means? If not, why not?
Did the person who decided to use this data in marketing downtown Wichita know what it means? If not, why not?
If someone knew the meaning of this data and decided to use it anyway: What does that tell us?
Did no one at Wichita city hall look at this data? As I’ve shown, it’s easy to see that the mapping application says 3,437 people work in the block holding city hall. Did no one look at the big blue dot and that number and realize that it is not real?
What if you opened a lunch counter in downtown Wichita based on the claim of 26,000 daytime workers, and then you learn there are really only half that many, with some of those working at night?
We want to trust our city leaders. We want downtown Wichita and the entire metropolitan area to succeed so that people may prosper and be happy. But episodes like this destroy trust and breed well-deserved cynicism. We can — we must — do better than this.
—
Notes
City of Wichita. Proposed Budget 2017 – 2018. Page 2. “Over 26,000 workers also populate downtown every day, working in industries such as education, finance, manufacturing, health care, government, and retail. ↩
Greater Wichita partnership. Living & Working. “With a highly trained pool of talent and a deeply rooted entrepreneurial spirit, Downtown Wichita is work central, boasting 26,000 daytime workers in the financial, healthcare, education, oil & gas and creative services industries.” Available at http://greaterwichitapartnership.org/living_working/downtown_wichita. ↩
“For LODES, a place of work is defined by the physical or mailing address reported by employers in the QCEW (formerly ES-202) or Multiple Worksite Reports. An address from administrative data may or may not be the actual location that a worker reports to most often. The distinction of worksite and administrative address may be especially significant in some industries such as construction, where work is often carried out at temporary locations. In some cases, employers do not provide a multiple worksite report when it would be appropriate to do so. Nonreporting of multiple worksites is especially common with state and local governments and school districts. In such a case, LEHD infrastructure files assign all workers for that employer (within the state) to the main address provided. Bureau of Labor Statistics (BLS) data show a national noncompliance rate of 5.61 percent of multiunit employers responsible for about 4.45 percent of multiunit employment.” Matthew R. Graham, Mark J. Kutzbach, and Brian McKenzie. Design comparison of LODES and ACS commuting data products. Available at ftp://ftp2.census.gov/ces/wp/2014/CES-WP-14-38.pdf. ↩
Whatever the mechanism, tax increment financing is meant to spur economic growth. But in one of Wichita’s largest TIF districts, economic activity, much less growth, is difficult to find.
In particular, “Block One” — a square block bounded by Douglas and William, Broadway and Topeka — has benefited from TIF money, but has stumbled. There is the Ambassador Hotel, which received many millions in taxpayer subsidy in addition to TIF benefits. There is also the Kansas Leadership Center, a handsome new building.
Block One retail space sits mostly empty, despite the benefit of tax increment financing. Click for larger.But on William Street, progress is harder to find.
The former Henry’s building remains empty. Promotional materials in its display windows have been fading in the sun for four years. Across the alley to the east is 8,400 square feet of retail space, all empty for four years except for a used book store. It’s not for lack of parking that this space is empty, as it lies underneath a taxpayer-funded parking garage. There’s plenty of on-street parking too, as little happens on this block.
Some of the surrounding property is not doing well, either. The Broadway Plaza building features a large ground floor office or retail space that has been empty for years. South of that, the former State Office Building — directly across Broadway from the former Henry’s building — faces possible demolition.
Block One ribbon cutting, March 2013.Has there been lack of promotion for Block One? No. The downtown development agency uses it as an example of the success of its efforts in downtown Wichita. It has called it “the first complete city block of development along the core of Douglas Avenue.”
But the legacy of this, at least along William Street, is empty storefronts and a hulking vacant building.
Now the City of Wichita has approved the formation of yet another tax increment financing district. Sedgwick County and the Wichita School District have an opportunity to veto its formation. Before approving any new tax increment financing districts, we might want to ask for some progress in what we have.
There has been much investment in Downtown Wichita, both public and private. What has been the trend in business activity during this time?
Trends of business activity in downtown Wichita. Click for larger.According to the 2016 report from the Wichita Downtown Development Corporation, over the past decade there has been $602 million in private investment and $369 million in public investment in downtown. An additional $190 million investment is in the form of the Intrust Bank Arena. The total, according to WDDC, is $1,161 million.1
What has been the result of this investment? If you expected business growth in downtown Wichita, you may be disappointed.
Business activity in zip code 67202, Downtown Wichita. Click for larger.The United States Census Bureau tracks business data by zip code.2 The data that is available includes the number of business establishments, the number of employees, and the annual payroll, expressed in thousands of dollars not adjusted for inflation. It includes private-sector workers only, so it does not count all workers.
Nearby are results for zip code 67202, which has nearly the same boundaries as the Self-Supporting Municipal Improvement District (SSMID). This is a district that pays extra property tax for supporting the WDDC. Its boundaries are from Kellogg north to Central, and the Arkansas River east to Washington. It is greater Downtown Wichita plus Old Town.
Zip Code 67202.The results since 2007 show fewer business establishments, fewer people working downtown, and lower earnings generated in downtown Wichita. In all cases, the trend is lower.
This is movement in the wrong direction, the opposite of progress. There may be good news in that the number of people living downtown may be rising. But business activity is declining.
Trends in business establishments, employment, and payroll for zip code 67202, which is Downtown Wichita. Click for larger.
Details of the subsidy programs used to keep Cargill in Wichita are starting to take shape.
This week the Wichita City Council will consider one of the (potentially many) subsidy programs offered to keep Cargill in Wichita.
Cargill Protein Group is currently located at 151 N. Main. The plan is for Cargill to purchase and demolish the Wichita Eagle building at 825 E. Douglas, then build a new office building in its place. The subsidy program to be considered this week is the Industrial Revenue Bond program1. The city won’t be lending Cargill money. Instead, IRB’s are a (convoluted) method whereby local governments are able to forgive the payment of property taxes. For the case of Cargill, city documents state the tax forgiveness could be worth $1,359,531 per year.2 This would be shared by these taxing jurisdictions, again according to city documents.
City of Wichita: $378,450
Sedgwick County: $340,958
USD 259, the Wichita Public School District: $622,723
State of Kansas $17,400
Of note, the city is in a hurry to handle this matter. Pending legislation would reduce the amount of property tax able to be exempted.3
In addition to the property tax exemption, the IRBs also carry a sales tax exemption for purchases related to construction. City documents give an estimated value of $2,026,291 for the sales tax Cargill will not have to pay.
Not the entire subsidy package
The action to be considered this week is likely just a portion of total subsidy package. For example, at one time it was speculated that the City of Wichita would build a parking garage and let Cargill use it as their own. With a proposed capacity of 750 parking spots, this would cost many millions.4
Now, the city plans to let Cargill construct the garage, and the city will, according to city documents, “purchase a parking easement from Cargill to obtain public access to the parking structure Cargill will complete as part of this project.” It sounds like the city will rent spaces in the garage. It will be interesting to see the rate the city will agree to pay.
From the state of Kansas Cargill is likely to receive PEAK benefits. Under this program, the Kansas state withholding tax deducted from Cargill employees’ paychecks will be routed back to Cargill.5 (Well, only 95 percent goes back to Cargill. The state keeps five percent.)
City of Wichita. Council agenda packet for April 18, 2017. ↩
Kansas Legislature. SB 146: Continuation of 20 mill statewide levy for schools and property tax exemption of certain portion of property used for residential purposes from such levy.http://www.kslegislature.org/li/b2017_18/measures/sb146/. ↩
Recently the city paid $4.73 million (not including change orders) to build a downtown garage with 270 parking spaces, a cost of about $17,500 per stall. Applying that to a 750 stall garage results in a cost of $13.1 million). ↩
There’s been much investment in downtown Wichita, we’re told, but the assessed value of property isn’t rising.
Wichita city leaders have promoted public investment in downtown Wichita as wise because it will increase the tax base. Over the past ten years, we’re told that there has been one billion dollars in investment in downtown Wichita, including projects in progress.1
To evaluate the success of the city’s efforts, we might look at the change in assessed property valuation in downtown Wichita over past years. A way to do that is to look at the valuations for property in the Wichita downtown self-supporting municipal improvement district (SSMID). This is a region of the city that pays an additional property tax to fund the activities of the Wichita Downtown Development Corporation. Its boundaries are roughly the Arkansas River east to Washington, and Kellogg north to Central.
Assessed valuation is the basis for levying property tax. The process starts with an appraised value, which is targeted to be fair market value for the property, or for commercial property sometimes an income-based method is used. Then, that is multiplied by 25 percent for commercial property, or by 11.5 percent for residential property. This produces the assessed value. Multiply that by the sum of the several mill levy rates that apply to the property, and you have the total property tax for that property.
Click for larger.With all the new projects coming online in downtown Wichita, we should expect that the assessed valuation is rising. As someone converts an old, dilapidated property into something more valuable, appraised and assessed values should rise. As new buildings are built, new appraised and assessed value is created where before there was none (or very little).
So what has happened to the assessed valuation of property in downtown Wichita, using the SSMID as a surrogate?
The answer is that after a period of increasing values, the assessed value of property in downtown has been declining. The peak was in 2008. The nearby table holds the figures.
This is the opposite of what we’ve been promised. We’ve been told that public investment in downtown Wichita builds up the tax base.
Some might excuse this performance by noting there’s been a recession. That’s true. But according to presentations, there has been much activity in downtown Wichita. Hundreds of millions of dollars over the last ten years, we are told.
Click for larger.A few years ago the city said that the decline was due to the legislature exempting business equipment and machinery from the property tax rolls. Undoubtedly this was true when the law took effect, which was in 2006. It could also explain the some of the drop for a few years after that.
But for the last several years this factor is gone. At any rate, I believe its effect was small compared to the value of real property.
Also: How how does the assessed valuation in the SSMID compare to the city as a whole? Nearby is a chart of the percent change in assessed valuation for each year, comparing the SSMID with the city as a whole less the SSMID. In other words, Wichita minus downtown. The SSMID is underperforming the city.
So why isn’t the assessed valuation rising? Why is it falling during the time of huge successes?
I don’t have enough data to answer this question. But we need to know.
In this episode of WichitaLiberty.TV: Wichita sells a hotel, more subsidy for downtown, Kansas newspaper editorialists fall for a lobbyist’s tale, how Kansas can learn from Arizona schools, and government investment. View below, or click here to view at YouTube. Episode 131, broadcast October 30, 2016.
Shownotes
Article: 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.
Article: 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.
Article: Kansas and Arizona schools. Arizona shows that Kansas is missing out on an opportunity to provide better education at lower cost.
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.
The true state of the finances of the Intrust Bank Arena in downtown Wichita are not often a subject of public discussion. Arena boosters cite a revenue-sharing arrangement between the county and the arena operator, referring to this as profit or loss. But this arrangement is not an accurate and complete accounting, and hides the true economics of the arena. What’s missing is depreciation expense.
There hasn’t been much talk of the arena’s finances this year. But in February 2015 the Wichita Eaglereported: “The arena’s net income for 2014 came in at $122,853, all of which will go to SMG, the company that operates the facility under contract with the county, Assistant County Manager Ron Holt said Wednesday.” A reading of the minutes for the February 11 meeting of the Sedgwick County Commission finds Holt mentioning depreciation expense not a single time.
In December 2014, in a look at the first five years of the arena, its manager told the Wichita Eagle this: “‘We know from a financial standpoint, the building has been successful. Every year, it’s always been in the black, and there are a lot of buildings that don’t have that, so it’s a great achievement,’ said A.J. Boleski, the arena’s general manager.”
I didn’t notice the Eagle opinion page editorializing this year on the release of the arena’s profitability figures. So here’s an example of incomplete editorializing from Rhonda Holman, who opined “Though great news for taxpayers, that oversize check for $255,678 presented to Sedgwick County last week reflected Intrust Bank Arena’s past, specifically the county’s share of 2013 profits.” (Earlier reporting on this topic in the Eagle in 2013 did not mention depreciation expense, either.)
All of these examples are deficient in some way, and contribute only confusion to the search for truthful accounting of the arena’s finances. As shown below, recognizing depreciation expense is vital to understanding profit or loss, and the “net income” referred to above doesn’t include this. In fact, the “net income” cited above isn’t anything that is recognized by standard accounting principles.
The problem with the reporting of Intrust Bank Arena profits
There are at least two ways of looking at the finance of the arena. Most attention is given to the “profit” (or loss) earned by the arena for the county according to an operating agreement between the county and SMG, a company that operates the arena.1
This agreement specifies a revenue sharing mechanism between the county and SMG. For 2105, the accounting method used in this agreement produced a profit of $1,150,206, to be split (not equally) between SMG and the county. The county’s share was $375,103.
While described as “profit” by many, this payment does not represent any sort of “profit” or “earnings” in the usual sense. In fact, the introductory letter that accompanies these calculations warns readers that these are “not intended to be a complete presentation of INTRUST Bank Arena’s financial position and results of operations and are not intended to be a presentation in conformity with accounting principles generally accepted in the United States of America.”2
That bears repeating: This is not a reckoning of profit and loss in any recognized sense. It is simply an agreement between Sedgwick County and SMG as to how SMG is to be paid, and how the county participates.
A much better reckoning of the economics of the Intrust Bank Arena can be found in the 2015 Comprehensive Annual Financial Report for Sedgwick County.3 This document holds additional information about the finances of the Intrust Bank Arena. The CAFR, as described by the county, “… is a review of what occurred financially last year. In that respect, it is a report card of our ability to manage our financial resources.”
Regarding the arena, the CAFR states:
The Arena Fund represents the activity of the INTRUST Bank Arena. The facility is operated by a private company; the county incurs expenses only for certain capital improvements or major repairs and depreciation, and receives as revenue only a share of profits earned by the operator, if any, and naming rights fees. The Arena Fund had an operating loss of $4.1 million. The loss can be attributed to $4.4 million in depreciation expense.
Financial statements in the same document show that $4,443,603 was charged for depreciation in 2015, bringing accumulated depreciation to a total of $30,791,307.
Depreciation expense is not something that is paid out in cash. Sedgwick County didn’t write a check for $4,443,603 to pay depreciation expense. Instead, depreciation accounting provides a way to recognize and account for the cost of long-lived assets over their lifespan. It provides a way to recognize opportunity costs, that is, what could be done with our resources if not spent on the arena.
But not many of our public leaders recognize this. In years past, Commissioner Dave Unruh made remarks that show the severe misunderstanding that he and almost everyone labor under regarding the nature of the spending on the arena: “I want to underscore the fact that the citizens of Sedgwick County voted to pay for this facility in advance. And so not having debt service on it is just a huge benefit to our government and to the citizens, so we can go forward without having to having to worry about making those payments and still show positive cash flow. So it’s still a great benefit to our community and I’m still pleased with this report.”
Earlier in this article we saw examples of the Sedgwick County Assistant Manager, the Intrust Bank Arena manager, and several Wichita Eagle writers making the same mistake.
Intrust Bank Arena commemorative monumentThe contention — witting or not — of all these people is that the capital investment of $183,625,241 (not including an operating and maintenance reserve) in the arena is merely a historical artifact, something that happened in the past, something that has no bearing today. There is no opportunity cost, according to this view. This attitude, however, disrespects the sacrifices of the people of Sedgwick County and its visitors to raise those funds. Since Kansas is one of the few states that adds sales tax to food, low-income households paid extra sales tax on their groceries to pay for the arena — an arena where they may not be able to afford tickets.
Any honest accounting or reckoning of the performance of Intrust Bank Arena must take depreciation into account. While Unruh is correct that depreciation expense is not a cash expense that affects cash flow, it is an economic fact that can’t be ignored — except by politicians, apparently. The Wichita Eagle aids in promoting this deception.
We see our governmental and civic leaders telling us that we must “run government like a business.” Without frank and realistic discussion of numbers like these and the economic facts they represent, we make decisions based on incomplete and false information.
—
Notes
Management Agreement between Sedgwick County and SMG. August 1, 2007. Available here. ↩
The Operations of INTRUST Bank Arena, as Managed by SMG. December 31, 2015. Available here. ↩
Sedgwick County. Comprehensive Annual Financial Report of the County of Sedgwick, Kansas for the Year ended December 31, 2015. Available here. ↩
In this episode of WichitaLiberty.TV: Wichita’s economic development, Sedgwick County spending, editorials ignoring facts, your house numbers, Kansas governors, taxpayer-funded political campaigns, and the nature of economic competition. View below, or click here to view at YouTube. Episode 127, broadcast August 21, 2016.
A proposal for a community improvement district in downtown Wichita includes a public hearing, but much information the public needs is missing.
This week the Wichita City Council will consider starting the process of creating a community improvement district and other economic development incentives. The action the council will consider Tuesday is to accept the petition of the property owners and set September 6 as the date for the public hearing. Also, on September 6, “a development agreement defining the City and Developer’s responsibilities will be presented to the City Council.”1
A community improvement district, or CID, is a geographical district in which merchants add extra sales tax, known as the CID tax. This extra tax is then routed to the property owners. CIDs may be of two types. In one, the city borrows money to give to the developers, and the CID tax repays the bonds. In the second, no money is borrowed. Instead, the CID tax is periodically remitted to the developers as it is collected. The proposed CID is of the latter type. It is proposed to collect a CID tax of 1.5 percent for up to ten years, with a limit of $930,000. (For more information about how CIDs work, see Community improvement districts in Kansas.)
City documents also state the developers will request industrial bond financing. In this case, according to city documents, the purpose of the IRBs is to avoid paying sales tax on property purchased. The developers are also requesting use of the nearby state office building parking garage, but no details are given.
A public hearing?
The September 6th meeting will include a public hearing regarding the CID, industrial revenue bonds, parking agreement, and development agreement. As of today, we have information about the CID. But we have little or no information about the other items to be considered that day, which is billed as a public hearing.
If a public hearing is to include meaningful input from the public, the city needs to provide citizens with information about these items, and soon.
Rationale
What is the need for these economic development incentives? No reason is given. Some incentive programs require that the applicant demonstrate financial necessity. In other words, if the incentive is not given, it is impossible to proceed. No such argument has been advanced for this project. And if such an argument were to be made, we have to ask why are incentives needed to develop in downtown Wichita?
Since these incentives are proposed for a hotel, supporters argue that the cost of the incentives — at least the CID — will be borne by visitors to Wichita. This development, however, will contain a rooftop bar and ground floor commercial space. To the extent that Wichitans patronize these business firms, they will pay the CID tax. Even considering only the hotel, there are many Wichita-based companies whose employees travel to Wichita, staying in hotels at their companies’ expense. Wichita companies will be paying the CID tax in these cases. They will also pay the tourism fee, even though their employees are not tourists.
Besides, we shouldn’t view visitors to Wichita as a cash cow. Visitors staying in this hotel will pay these taxes:
State of Kansas sales tax, 6.5%
Sedgwick County sales tax, 1.0%
Wichita hotel tax, 6%
City tourism fee, 2.75%2
CID tax, 1.5%
The total of these taxes is 17.75%. (Yes, Wichita does charge visitors a “tourism fee.” If Wichita voters had followed the recommendation of the city, its bureaucrats, and the political class, there would be an additional tax of one percent.3)
Finally: As with all CIDs, why don’t the merchants simply raise their prices? Part of the answer is that the CID tax goes to benefit the landowners, which may not be the same party as the merchants who collect the tax.
Other than that, it’s convenient to have someone to blame higher prices on.
In this episode of WichitaLiberty.TV: Was it “Trump” or “Bernie” that incited a fight, and how does the Wichita Eagle opine? Economic development in Wichita. Blight and property rights. Teachers unions. Explaining capitalism. View below, or click here to view at YouTube. Episode 117, broadcast April 24, 2016.
Once embraced by Wichita officials as heroes, real estate listings for two floors of a downtown Wichita office building illustrate the carnage left behind by two developers.
A decade ago the “Minnesota Guys” were the darlings of downtown Wichita. With a controversial form of real estate ownership — tenancy in common — they promised to revive downtown Wichita. City officials and civic leaders praised them. The city council found them so endearing that it awarded the Minnesota Guys over $10 million in tax increment financing — later increased at their request — although the developers were never able to tap into those funds. Now the two developers are facing numerous felony charges relating to securities violations.
This week the Wichita Business Journalreports that two floors of a prominent downtown office building are for sale at very low prices. The building is Broadway Plaza at 105 S. Broadway.
In 2007 the fourth floor of this building had an appraised value of $388,000, according to Sedgwick County records. The value fell to $210,900 the next year and stayed at that value for five years. Now the appraised value is $98,000.
The value of the eleventh floor followed a similar trajectory, being valued at $399,000 in 2007, falling to $160,100 for four years, and now appraised at $82,300.
Now the asking price for each floor is $65,000. At attempt at sale at auction earlier this year failed to produce any bids. The asking price represents a cost of about $13 per square foot. That’s less than the annual rent for class A office space in Wichita, downtown and suburban.
In 2011 I reported on how some downtown Wichita properties are plummeting in value:
A strategy of Real Development — the “Minnesota Guys” — in Wichita has been to develop and sell floors of downtown office buildings as condominiums. Some of these floors have been foreclosed upon and have come back on the market. Some once carried mortgages of $400,000 or more, meaning that at one point a bank thought they were worth at least that much. But now four floors in the Broadway Plaza Building, three floors of the Petroleum Building, two floors of Sutton Place, and one floor of the Orpheum Office Center are available for sale at prices not much over $100,000, ranging from $14 to $25 per square foot. Other downtown office buildings — very plain properties — are listed at much higher prices. For example, one downtown property is listed at $82 per square foot. … Some of these floors have had declining appraisals. According to the Sedgwick County Treasurer, the fifth floor of Sutton Place, which is listed for sale at $135,000, was appraised in 2008 for $530,900. In 2009 the appraised value dropped to $215,000.
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. But no one wants to talk about this.
The true state of the finances of the Intrust Bank Arena in downtown Wichita are not often a subject of public discussion. Arena boosters promote a revenue-sharing arrangement between the county and the arena operator, referring to this as profit or loss. But this arrangement is not an accurate and complete accounting, and hides the true economics of the arena. What’s missing is depreciation expense.
In February the Wichita Eaglereported: “The arena’s net income for 2014 came in at $122,853, all of which will go to SMG, the company that operates the facility under contract with the county, Assistant County Manager Ron Holt said Wednesday.” A reading of the minutes for the February 11 meeting of the Sedgwick County Commission finds Holt mentioning depreciation expense not a single time. Strike one.
Last December, in a look at the first five years of the arena, its manager told the Wichita Eagle this: “‘We know from a financial standpoint, the building has been successful. Every year, it’s always been in the black, and there are a lot of buildings that don’t have that, so it’s a great achievement,’ said A.J. Boleski, the arena’s general manager.” Strike two.
I didn’t notice the Eagle opinion page editorializing this year on the release of the arena’s profitability figures. So here’s an example of incomplete editorializing from Rhonda Holman, who opined “Though great news for taxpayers, that oversize check for $255,678 presented to Sedgwick County last week reflected Intrust Bank Arena’s past, specifically the county’s share of 2013 profits.” (Earlier reporting on this topic in the Eagle in 2013 did not mention depreciation expense, either.) Strike three in the search for truthful accounting of the arena’s finances.
The problem with the reporting of Intrust Bank Arena profits
There are at least two ways of looking at the finance of the arena. Most attention is given to the “profit” (or loss) earned by the arena for the county according to an operating and management agreement between the county and SMG, a company that operates the arena.
This agreement specifies a revenue sharing mechanism between the county and SMG. For 2103, the accounting method used in this agreement produced a profit of $705,678, to be split (not equally) between SMG and the county. The county’s share, as Holman touted in her Eagle op-ed, was $255,678. (Presumably that’s after deducting the cost of producing an oversize check for the television cameras.)
For 2014, the arena’s profit was $122,853. All that goes to SMG, based on the revenue-sharing agreement.
While described as “profit” by many, this payment does not represent any sort of “profit” or “earnings” in the usual sense. In fact, the introductory letter that accompanies these calculations warns readers that these are “not intended to be a complete presentation of INTRUST Bank Arena’s financial position and results of operations and are not intended to be a presentation in conformity with accounting principles generally accepted in the United States of America.”
That bears repeating: This is not a reckoning of profit and loss in any recognized sense. It is simply an agreement between Sedgwick County and SMG as to how SMG is to be paid, and how the county participates.
A much better reckoning of the economics of the Intrust Bank Arena can be found in the 2014 Comprehensive Annual Financial Report for Sedgwick County. This document holds additional information about the finances of the Intrust Bank Arena. The CAFR, as described by the county, “… is a review of what occurred financially last year. In that respect, it is a report card of our ability to manage our financial resources.”
Regarding the arena, the CAFR states:
The Arena Fund represents the activity of the INTRUST Bank Arena. The facility is operated by a private company; the county incurs expenses only for certain capital improvements or major repairs and depreciation, and receives as revenue only a share of profits earned by the operator, if any, and naming rights fees. The Arena had an operating loss of $5.0 million. The loss can be attributed to $5.2 million in depreciation expense.
Financial statements in the same document show that $5,157,424 was charged for depreciation in 2014, bringing accumulated depreciation to a total of $26,347,705.
Depreciation expense is not something that is paid out in cash. Sedgwick County didn’t write a check for $5,157,424 to pay depreciation expense. Instead, depreciation accounting provides a way to recognize and account for the cost of long-lived assets over their lifespan. It provides a way to recognize opportunity costs, that is, what could be done with our resources if not spent on the arena.
But not many of our public leaders recognize this. In years past, Commissioner Dave Unruh made remarks that show the severe misunderstanding that he and almost everyone labor under regarding the nature of the spending on the arena: “I want to underscore the fact that the citizens of Sedgwick County voted to pay for this facility in advance. And so not having debt service on it is just a huge benefit to our government and to the citizens, so we can go forward without having to having to worry about making those payments and still show positive cash flow. So it’s still a great benefit to our community and I’m still pleased with this report.”
Earlier in this article we saw examples of the Sedgwick County Assistant Manager, the Intrust Bank Arena manager, and several Wichita Eagle writers making the same mistake.
Intrust Bank Arena commemorative monumentThe contention — witting or not — of all these people is that the capital investment of $183,625,241 (not including an operating and maintenance reserve) in the arena is merely a historical artifact, something that happened in the past, something that has no bearing today. There is no opportunity cost, according to this view. This attitude, however, disrespects the sacrifices of the people of Sedgwick County and its visitors to raise those funds. Since Kansas is one of the few states that adds sales tax to food, low-income households paid extra sales tax on their groceries to pay for the arena — an arena where they may not be able to afford tickets.
Any honest accounting or reckoning of the performance of Intrust Bank Arena must take depreciation into account. While Unruh is correct that depreciation expense is not a cash expense that affects cash flow, it is an economic fact that can’t be ignored — except by politicians, apparently. The Wichita Eagle aids in promoting this deception.
We see our governmental and civic leaders telling us that we must “run government like a business.” Without frank and realistic discussion of numbers like these and the economic facts they represent, we make decisions based on incomplete and false information.
Despite a policy change, the Wichita city council still votes for no-bid contracts paid for with taxpayer funds.
In the current campaign for Wichita mayor, one candidates says he never has voted for no-bid contracts: “[Longwell] also takes issue with the claim he has ever voted for any no-bid contract, something he says his voting record will back up. ‘That’s the beauty of having a voting record,’ he says.” Mayoral candidate Williams decries ‘crony capitalism’ of critics, Wichita Business Journal, March 12, 2015
We don’t have to look very hard to find an example that contradicts Longwell’s claim of never voting for a no-bid contract. Minutes from the August 9, 2011 meeting of the city council show that there was discussion about the no-bid contract for the garage benefiting the Ambassador Hotel. Then-council member Michael O’Donnell questioned if the city was getting the best deal for taxpayers, since the garage was to be built with public funds. O’Donnell was told that the no-bid contract was at “the developer’s request.” These developers include principals and executives of Key Construction and Dave Burk, all who have been generous and consistent funders of Longwell’s campaigns.
But we don’t have to go back that far to find voting for no-bid contracts paid for with taxpayer funds. Longwell has voted several times in favor of the Exchange Place project, starting when it was a project of the Minnesota Guys. The latest such vote was on March 3, 2015, when Longwell voted in favor of a project that contained this benefit, according to city documents: “The City will also provide TIF funding in an amount not to exceed $12,500,000 for the acquisition of land and construction of the parking structure.”
This garage, to be paid for through public funds, was not competitively bid. Despite the garage being pitched as a public good, most parking spaces are for the exclusive benefit of Exchange Place.
Impetus for change
The votes by Longwell and others for no-bid contracts sparked the city manager to ask for a change in policy. The Wichita Eagle reported in 2012:
The days of awarding construction projects without taking competitive bids might be numbered at City Hall if City Manager Robert Layton has his way, especially with public projects such as parking garages that are part of private commercial development.
Layton said last week that he intends to ask the City Council for a policy change against those no-bid contracts.
Three years later, Longwell and others are still voting to spend taxpayer funds on no-bid contracts.
— Minutes from August 8, 2011 meeting
Council Member O’Donnell stated and we will not being going out to bid to find the best
deal on that and are just awarding.
Allen Bell Urban Development Director stated that is the developer’s request. Council Member O’Donnell asked if that is City precedent and that with a government project in the tune of $6 million dollars, does not have to be sent out for bid?
Gary Rebenstorf Director of Law stated we have Charter Ordinance No. 203 that has been adopted by the City Council, which provides a procedure to exempt these types of projects from the bidding requirements from the City and has to meet certain requirements in order for it to be used by the Council. Stated the most significant is that there has to be a public hearing and has to be a 2/3 vote by the Council to approve this development agreement that sets up this type of project.
Council Member O’Donnell stated he is glad the media is here to pick up on that because he thinks that $6 million dollars is a lot of money and to just award that to a contractor that has special ties to campaign finance reports of everyone on the City Council except himself, seems questionable.
Wichita city leaders have promoted public investment in downtown Wichita as wise because it will increase the tax base. Over the past ten years, we’re told that there has been one billion dollars in investment in downtown Wichita, including projects in progress.
In December 2014, in a look at the first five years of the arena, its manager 
