Tag Archives: Economic development

WichitaLiberty.TV: Economic development incentives

In this episode of WichitaLiberty.TV: A look at some economic development incentive programs in Wichita and Kansas. First in a series. View below, or click here to view at YouTube. Episode 218, broadcast November 18, 2018.

Shownotes

Personal income in Wichita rises, but slowly

For 2017, personal income in Wichita rose, but slower than the national rate.

Today Bureau of Economic Analysis, an agency of the United States Department of Commerce, released personal income figures for metropolitan areas through the complete year 2017. For the Wichita metropolitan statistical area, personal income in 2017 rose from the 2016 level in nominal dollars, and is now slightly less than the 2104 level.

For all metropolitan areas in the United States, personal income rose by 4.5 percent. For the Wichita metro area, the increase was 2.3 percent. Of 383 metropolitan areas, Wichita’s growth rate was at position 342.

While the Wichita area has kept up with national personal income growth and even surpassed it in some years, that is no longer the case. Wichita’s income has stalled while national income continues to grow.

Click for larger.
Click for larger.

Wichita employment, September 2018

For the Wichita metropolitan area in September 2018, jobs are up, the labor force is up, and the unemployment rate is down, compared to the same month one year ago.

Data released today by the Bureau of Labor Statistics, part of the United States Department of Labor, shows an improving employment situation for the Wichita Metropolitan Statistical Area.

Click for larger.

The best numbers for Wichita are the total nonfarm employment series, which rose from 294,400 last September to 299,600 this September. That’s an increase of 5,200 jobs, or 1.8 percent. (This data is not seasonally adjusted, so month-to-month comparisons are not valid.)

The unemployment rate fell to 3.3 percent, down from 3.9 percent one year ago.

Considering seasonally adjusted data from the household survey, the labor force rose by 1,315 persons (0.4 percent) in September 2018 from August 2018, the number of unemployed persons fell by 398 (3.6 percent), and the unemployment rate fell to 3.5 percent from 3.6 percent. The number of employed persons not working on farms rose to 298,510 in September from 296,797 the prior month, an increase of 1,713 persons, or 0.6 percent.

Click for larger.

Click charts for larger versions.

The Pete Meitzner era in Wichita

Wichita City Council Member Pete Meitzner (district 2, east Wichita) is running for a position on the Sedgwick County Commission.

He’s running on his record of economic development. His website says: “Pete’s seven years on the City Council has proven to be a large part of the positive momentum we have recently experienced.”

Let’s take a look at the record. Click here to view a presentation of the numbers.

Example from the presentation. Click the chart to view the presentation.

From Pachyderm: Economic development incentives

A look at some of the large economic development programs in Wichita and Kansas.

Here’s video of a presentation I gave at the Wichita Pachyderm Club this week on economic development incentives. The video was produced by Paul Soutar of Graphic Lens. View below, or click here to view at YouTube.

Following, articles that address some of the topics I presented:

  • 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.
  • Wichita 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.
  • 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.
  • STAR bonds in Kansas: The Kansas STAR bonds program provides a mechanism for spending by autopilot, without specific appropriation by the legislature.
  • PEAK, or Promoting Employment Across Kansas: PEAK, a Kansas economic development incentive program, redirects employee income taxes back to the employing company.
  • Historic preservation tax credits, or developer welfare: A Wichita developer seeks to have taxpayers fund a large portion of his development costs, using a wasteful government program of dubious value.

Wichita employment, August 2018

For the Wichita metropolitan area in August 2018, jobs are up, the unemployment rate is down, and the labor force is smaller, compared to the same month one year ago.

Data released today by the Bureau of Labor Statistics, part of the United States Department of Labor, shows an improving employment situation for the Wichita Metropolitan Statistical Area.

Click for larger.

The best numbers for Wichita are the total nonfarm employment series, which rose from 291,300 last August to 296,000 this July. That’s an increase of 4,700 jobs, or 1.6 percent. (This data is not seasonally adjusted, so month-to-month comparisons are not valid.)

The unemployment rate fell to 3.8 percent, down from 4.6 percent from a year ago.

Considering seasonally adjusted data from the household survey, the labor force rose by five persons from July 2018, and the number of unemployed persons fell by 511 (4.7 percent), and the unemployment rate fell to 3.6 percent from 3.8 percent. The number of employed persons not on farms rose to 296,366 in August from 295,810 the prior month, an increase of 556 persons, or 0.2 percent.

Click for larger.

Click charts for larger versions.

Kansas agriculture and the economy

What is the importance of agriculture to the Kansas economy?

United States Representative Roger Marshall said: “My district is the largest ag-producing congressional district in the country, with 60 percent of the economy being ag related. Forty percent of the Kansas economy is ag related.” 1

The Kansas Hospital Association argues: “In Table 5, the total income impact of health care services resulted in an estimated $19.4 billion for the economy. Thus, health care is directly or closely related to about 11.6 percent of the state’s total income.” 2

The Kansas Department of Transportation produced a study that finds: “In 2017, $20.6 billion in annual economic benefit was supported by aviation and aviation-related activities in Kansas, supported nearly 91,300 jobs, and generated more than $4.4 billion in annual payroll.” 3 $20.6 billion is 14.9 percent of the $138.328 billion Kansas economy.

The nonalcoholic beverage industry says: “With a direct economic impact of $2.0 billion.” Then “Factoring in this retail impact further broadens the economic reach of the nonalcoholic beverage industry by an additional $1.7 billion beyond what our industry generates directly.” 4 The total of $3.7 billion is about 2.7 percent of the Kansas economy. That’s coming just from nonalcoholic beverages.

We can easily find other examples of industry groups emphasizing their importance to the Kansas economy. But these findings are almost always exaggerated, especially in the case of agriculture.

For example, the Kansas Department of Agriculture says “Using the most recent IMPLAN data available (2015) adjusted for 2017, 65 agriculture, food, and food processing sectors were analyzed to determine their overall contribution to the Kansas economy. These 65 sectors have a total direct output of approximately $47.9 billion and support 125,714 jobs in Kansas.” 5 The document says this is 31.6 percent of Kansas GDP.

Direct output is defined in the same document in this paragraph: “Direct, indirect, and induced effects sum together to estimate the total economic contribution in the state. Direct effects capture the contribution from agricultural and food products. Indirect effects capture the economic benefit from farms and agricultural businesses purchasing inputs from supporting industries within the state. Induced effects capture the benefits created when employees of farms, agricultural businesses, and the supporting industries spend their wages on goods and services within the state.”

Adding indirect and induced effects results in $67,461,102,358 ($67.5 billion) in economic contribution, which the Department of Agriculture says is 44.5 percent of Kansas economic output, also called gross domestic product (GDP).

It is true that agricultural workers spend money like anyone else. They spend on food, shelter, taxes, recreation, cars, clothing, and other things. Therefore, an agriculture industry support group might say “Farmers keep small town Kansas restaurants in business, providing jobs for restaurant workers.”

Then, a restaurant industry support group might say “By buying meats and produce locally, restaurants keep Kansas farmers in business.”

All this is true. But we need to be careful when counting contributions to the whole. Here, when farmers eat at restaurants, that is counted as induced effects of agriculture contributing to Kansas GDP. But, the restaurant industry counts the production and serving of these meals as its own direct output to Kansas GDP.

Similarly, when the restaurant buys food from a farmer, the purchase counts as indirect effects of the restaurant industry as they purchase inputs and contribute to Kansas GDP. The farmer, of course, considers that as his direct output, again contributing to Kansas GDP.

This economic activity is good and natural, and the more, the better. But we can’t count it twice when allocating GDP to industries.

Consider the industry category “Dog and cat food manufacturing,” said by the Department of Agriculture to employ 2,183.7 people in Kansas, producing $3,125,350,139 ($3.1 billion) in contribution to the Kansas GDP. That’s 2.2 percent of Kansas GDP. Should all the output of this industry be considered part of Kansas agriculture? The manufacturing industry counts this as part of its contribution to GDP. It’s true that the inputs to the manufacturing are agricultural products, but we don’t know if they are ag products that are produced in Kansas and should be counted as part of Kansas GDP.

Kansas GDP by Industry

The nearby table shows that for 2017, agriculture counted for 3.2 percent of the Kansas economy. For the period 1997 to 2017, it was 2.7 percent. There are many industry groups with greater output than agriculture.

How are the GDP numbers for agriculture inflated to 44.5 percent? IMPLAN, that’s how. It is an economic model used to estimate contributions of economic activity to the larger economy. 6

It’s true that when an industry produces economic activity, it spawns other economic activity. These are the indirect and induced effects that IMPLAN produces. But these numbers are hugely inflated. When considering all industries, economic activity is counted more than once.

When it suits their needs, industry groups, like other special interest groups, use IMPLAN to boost their importance. Consider manufacturing, which at 16.4 percent of GDP is the second-largest industry in Kansas. When manufacturing companies appeal to state or local government for subsidies, they use IMPLAN or related mechanisms to inflate their importance. Almost everyone does this. It’s standard procedure.

Except: When multiple industries the same indirect and induced economic activity, such analysis becomes meaningless. If we added up the IMPLAN-calculated value of each industry to the Kansas economy, we’d end up with a value several times larger than the actual value. This is what the Kansas Department of Agriculture has done. We expect this behavior from companies or local economic development agencies when they appeal for economic development incentives and other forms of special treatment. They need to inflate their importance to gullible government bureaucrats and elected officials. But government agencies should not do this.

On the other hand, what is the harm in overstating the importance of an industry? The harm is that policy decisions are made using false evidence.


Notes

  1. Quoted in the Wichita Eagle. Available at http://www.kansas.com/news/business/article125840694.html.
  2. John Leatherman. The Importance of the Health Care Sector to the Kansas Economy. Available at http://kha-net.org/dataproductsandservices/stat/economicimpact/.
  3. Kansas Department of Transportation. Kansas Aviation Economic Impact Study. Available at https://www.ksdot.org/Assets/wwwksdotorg/bureaus/divAviation/pdf/2016EISExecutiveSummary.pdf.
  4. American Beverage Association. Available at https://www.ameribev.org/files/resources/kansas-2.pdf.
  5. Kansas Department of Agriculture. Estimated Economic Impact of Agriculture, Food, and Food Processing Sectors. Available at https://agriculture.ks.gov/docs/default-source/ag-marketing/ag-contribution-2017.pdf.
  6. University of Wisconsin Center for Cooperatives. IMPLAN Methodology. Available at http://reic.uwcc.wisc.edu/implan/.

Wichita economy shrinks, and a revision

The Wichita economy shrank in 2017, but revised statistics show growth in 2016.

Statistics released today by the Bureau of Economic Analysis, an agency of the United States Department of Commerce, show gross domestic product (GDP) figures for metropolitan areas. Also included are revised statistics for previous years.

For 2017, the Wichita metropolitan area GDP, in real dollars, fell by 1.4 percent. Revised statistics for 2016 indicate growth of 3.8 percent for that year. Last year BEA reported growth of -1.4 percent.

In the revised statistics released today, GDP in 2012 was 28,346 million in chained 2009 dollars. In 2017 it was 29,610 million, a change of 1,264 million or 4.4 percent. For all U.S. metropolitan areas, the same statistic increased from 13,692,212 million to 15,224,212 million, an increase of 1,532,000 million or 11.2 percent.

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.

Wichita Wingnuts settlement: There are questions

It may be very expensive for the City of Wichita to terminate its agreement with the Wichita Wingnuts baseball club, and there are questions.

As the City of Wichita prepares to build a new stadium for a new baseball team, there is the issue of the old stadium and the old team. The city has decided that the old stadium will be razed. On Tuesday the city council will consider what to do about the old team.

The old team, the Wichita Wingnuts, has a lease agreement with the city. The lease is from January 2015 and is for a period of ten years. The documents, both the lease from 2015 and the proposed settlement to be considered this week, appear in full in Wichita city council agenda packets. I’ve extracted the relevant pages for easier access. Click on lease or proposed settlement.

According to the settlement, the Wingnuts will receive either $2.2 million or $1.2 million, the smaller amount applying in the case the city is “unable to reach an agreement with an affiliated minor league baseball team in the year 2018.” The payment is scheduled to be made in installments over the next several years. (Section 2c)

Reading the lease, I can’t find anything regarding the need to pay for terminating the lease. So why the need to pay up to $2.2 million to terminate?

Here’s a possible answer: City documents hold this: “This negotiated settlement resolves all claims and potential claims that the parties have or may have, including breach of the Lease, loss of revenue, injunctive relief, specific performance, other contract breaches, tort assertions, and claims for equitable relief without the uncertainly of litigation.”

So there may be disputes that need to be resolved. Now the question becomes this: What did the city do? What could be so bad that the remedy is to pay the Wingnuts up to $2.2 million? Citizens ought to know the answer to this question.

Further, why is the amount of the settlement contingent on what happens in Wichita in the future? (Remember, the settlement is $2.2 million if the city lands a new team, but only $1.2 million if it doesn’t.) If the purpose of the settlement is to compensate the Wingnuts for harm caused by the city, how and why is the magnitude of harm dependent on future events?

Such a large settlement is especially surprising given the low rent the Wingnuts paid and the city’s history with the Wingnuts as a tenant. Consider:

The Wingnuts didn’t always pay their rent. The city charged the Wingnuts just $25,000 annual rent, and the team was $77,000 behind in rent in January 2015. The proposed settlement agreement states: “As of the Effective Date, the 2018 rent payment in the amount of Twenty-five Thousand Dollars ($25,000) due and payable by WIB to the City shall be waived and no longer due and payable by WIB.” (Section 2c) (WIB is the company that owns the Wingnuts.)

There have also been disputes over utility payments. But, the city will forgive the water and sewer bill: “The City shall pay all utility payments due to the Department of Public Works and Utilities that are assessed for 2018.” (Section 2d)

It’s clear that the Wingnuts haven’t always lived up to the basics of its agreement with the city. Why, then, does the city feel such a large obligation upon termination? Paragraph 13 of the lease says “Lessor agrees not to utilize termination for convenience for the purpose of placing any professional baseball franchise at the Lawrence-Dumont Stadium site.” This is what the city is doing. But, in paragraph 23: “The parties agree that upon a violation of any provision of this lease, the aggrieved party may, at its option, terminate this lease by giving the breaching party not less than 30 days written notice of termination.” Non-payment of rent seems like it ought to be a violation of the lease, giving the city the right to terminate the lease for cause.

What is the source of the $2.2 million? City documents state the source is “management agreement payments paid by the new AAA baseball team.” The meaning of “management agreement payments” is unclear and a question that needs an answer. But presumably this is money that the city would receive from the new team. If not paid to the Wingnuts, these funds might be available for other purposes.

And: If the city is not able to land a new team, the city will have to pay the Wingnuts $1.2 million without any compensating revenue source.

Repairs, replacements, and improvements

Here’s a puzzling aspect of the settlement: How was the dollar amount determined? City documents state: “The value of the severance is based on the number of years remaining in the existing lease and the anticipated City financial cost of capital repairs, replacements and improvements over those same remaining years.” (emphasis added)

What? “Repairs, replacements and improvements” to a stadium that will be demolished soon? Why is this a consideration?

Questions, but little time

There are questions, but little time for answers. The agenda packet was posted on the city’s website on Friday September 7, at 12:03 pm. The council will consider this item Tuesday morning.

Do council members have answers to these questions? Some of these matters may have been discussed in executive session. Now that the matters have been settled, it’s time to let citizens know the details.

But if council members don’t have answers, I don’t think they can make an informed vote.

Wichita, not that different

We have a lot of neat stuff in Wichita. Other cities do, too.

In New York Magazine, Oriana Schwindt writes in “The Unbearable Sameness of Cities: What my journey across the United States taught me about indie cafés and Ikea lights.”

I couldn’t stop noticing. I’d go on to see the same in Colorado Springs, in Fresno, in Indianapolis, in Oklahoma City, in Nashville.

And it wasn’t just the coffee shops — bars, restaurants, even the architecture of all the new housing going up in these cities looked and felt eerily familiar. Every time I walked into one of these places, my body would give an involuntary shudder. I would read over my notes for a city I’d visited months prior and find that several of my observations could apply easily to the one I was currently in.

In his commentary on this article, Aaron M. Renn wrote: “While every company tries its hardest to convince you of how much different and better it is than every other company in its industry, every city tries its hardest to convince you that it is exactly the same as every other city that’s conventionally considered cool.”

Later in the same piece, he wrote:

A challenge these places face is that the level of improvement locally has been so high, locals aren’t aware of how much the rest of the country has also improved. So they end up with an inflated sense of how much better they are doing versus the market. … People in these Midwest cities did not even know what was going on in the next city just 100 miles down the road. They were celebrating all these downtown condos being built. But the same condos were being built everywhere. … But even today people in most cities don’t really seem to get it that every city now has this stuff. Their city has dramatically improved relative to its own recent past, but it’s unclear how much it’s improved versus peers if at all.

Does this — the sameness of everywhere — apply to Wichita? Sure. Everyone thinks Wichita is different from everywhere else. We have a flag! A warehouse district! A Frank Lloyd Wright house! The NCAA basketball tournament! We’re (probably) getting a new baseball team and stadium!

We even have, as Schwindt does in cataloging what you’ll find in every single city mid-size and above, “Public murals that dare you to pass them without posing for a pic for the ‘gram.”

So many other places have this stuff, too.

It isn’t bad that Wichita has these things. But the danger, as Renn notes, is that these things don’t distinguish Wichita. As much as we wish otherwise, these things are probably not going to reverse the course of the declining Wichita economy. If you don’t believe the Wichita economy is declining, consider that our GDP in 2016 was smaller than in the year before. Wichita metro employment growth was nonexistent during 2017, meaning it’s unlikely that GDP grew by much. (In January 2017 total non-farm employment in the Wichita MSA was 295,000. In January 2018 it was the same. See chart here.)

Even things that might really have a positive effect on the economy, like the Wichita State University Innovation Campus, are far from unique to Wichita. But developments like this are pitched to Wichitans as things that will really put Wichita on the map. A prosperous future is assured, we are told.

It’s great to love your city. But we can’t afford to be lulled into complacency — a false recognition of achievement — when all the data says otherwise.

We need a higher measure of honesty from our leaders. It might start with the mayor and the chair of the county commission, but the mayor seems terribly misinformed, as is the commission chair. Institutions that we ought to respect, like the local Chamber of Commerce, have presided over failing economic development but refuse to accept responsibility or even to acknowledge the facts. Worse, the Chamber spends huge amounts of money on blatantly dishonest campaigns against those candidates that don’t support its programs. Those programs, by the way, haven’t worked, if the goal of the Chamber is to grow the Wichita economy.

Sedgwick County jobs, first quarter 2018

For the first quarter of 2018, the number of jobs in Sedgwick County grew, but at a rate slower than the nation.

Data released today from the Bureau of Labor Statistics, part of the United States Department of Labor shows an improving labor picture in Sedgwick County, but one growing at one-fifth the rate of the nation.

For the first quarter of 2018 there were 12,500 establishments in Sedgwick County employing 247,800 workers. That is an increase in jobs of 0.3 percent from the same time the previous year, a rate which ranked 293 among the nation’s 350 largest counties. For the same period, the national job growth rate was 1.6 percent.

(Ranked by labor force, Sedgwick County is the 120th largest county.)

The average weekly wage was $967, an increase of 2.4 percent over the year, that change ranking 228 among the same 350 largest counties. The U.S. average weekly wage increased 3.7 percent over the same period.

Business improvement district proposed in Wichita

The Douglas Design District proposes to transform from a voluntary business organization to a tax-funded branch of government (but doesn’t say so).

Update: On August 21, the council approved the formation of the planning committee.

This week the Wichita City Council will consider taking the first step in forming a business improvement district (BID) in east-central Wichita. Some explanation from the agenda packet for the meeting: 1

First, there already exists a voluntary organization: “The Douglas Design District (DDD) is a voluntary organization of over 300 local businesses located near Douglas Avenue between Washington Avenue and Oliver Avenue. In 2017, the DDD established a five-year strategic plan to become a financially self-sustaining organization that is not reliant on elective membership.”

The purpose of a business improvement district: “A BID provides for the administration and financing of additional and extended services to businesses within the district and is funded by the City levying a mandatory service fee on the businesses within the district.”

Who will collect, and who will spend? “While the City levies the service fee, it can contract with a third-party organization such as the DDD to operate the BID. The approach is similar to that used by the City to contract with the Wichita Downtown Development Corporation in downtown.”

The action on the agenda this week is to establish a planning committee to develop things like district boundaries, services to be provided, and a budget. Although city documents aren’t specific, it’s likely this “service fee” will be levied as a property tax.

Are BIDs a good idea? Most information about them is provided by their boosters, that is, those who directly benefit from the service fee, which is really a tax. But there are some doubters. The New Republic, by no means a conservative publication, printed a piece arguing against BIDs, stating: “But too often BIDs have turned against the businesses they were meant to serve, making the cost of entry into a new area even higher for local merchants, or lacking the transparency needed to instill trust from the community.” 2

A larger and more balanced look at BIDs comes from Washington Monthly this summer:

The privatized structure of BIDs may raise liberals’ hackles, but it’s clear that BIDs can be a useful tool to remake neighborhoods into places where people actually want to spend their time. Many big-city mayors — who are overwhelmingly Democratic — have thrown their weight behind them. D.C. Mayor Muriel Bowser recently doled out grants totaling $300,000 to five neighborhoods thinking about forming their own BIDs. (One of the grantees, Dupont Circle, with the decaying park, will start collecting taxes from business owners in the fall.)

Still, there are real downsides to BIDs for renters and small business owners, who will not benefit from rising property values and may ultimately be pushed out of the area. Luckily, this isn’t a hugely difficult problem to remedy. The best, and easiest, way to revamp how BIDs are run is through city halls; they’re the ones who legislate what BIDs can and can’t do, while holding them accountable to the public. But too often, they renege on that responsibility. 3

From Canada, harsh criticism:

In this paper, we propose and develop the concept of “socio-economic hygiene” to denote the ways in which neoliberal Western urban space is spatially regulated and re-oriented towards consumption in a way that reinforces social exclusion. … We conclude by tracking how sociological strategies of “hygiene” have moved from racial and biological features to features of place and socioeconomic status, and how BIDs, resembling genocidal states in certain ways, use these strategies to continually justify their own existence. 4

Civil society, or government?

What should trouble everyone is the replacement of civil society with political society. Edward H. Crane explains: “There are basically only two ways to organize society: Coercively, through government mandates, or voluntarily, through the private interaction of individuals and associations. … In a civil society, you make the choices about your life. In a political society, someone else makes those choices.”

Right now DDD is a voluntary organization. Civil society, in other words. But now it is proposed to replace it with political society.

Why trade voluntary cooperation for the force of government? The annual report of the DDD (included in the city council agenda packet) explains: “Approximately 1/3 of businesses in DDD’s project area are DDD members yet ALL businesses benefit from DDD’s efforts. A BID eliminates this ‘free rider’ problem and, if implemented, would allow DDD to have a singular focus on implementing the BID business plan rather than always chasing membership.” For emphasis, the report notes: “THE PAYMENT OF THE BID ASSESSMENT WILL REPLACE MEMBERSHIP DUES.”

Another term for chasing membership is selling your product by showing how it creates value. If the formation of the BID is successful, the Douglas Design District will be relieved of this necessity. Will having a guaranteed source of revenue make DDD more or less responsive to its members?

Also, the DDD annual report states: “A BID assessment is not a tax.” I wonder what will happen to anyone who decides to skip paying this tax. After a few years, they will experience the blunt power of government tax collection.

Taxation without transparency

The agenda packet states this about the relationship between the city and the district: “While the City levies the service fee, it can contract with a third-party organization such as the DDD to operate the BID.”

Wichita has similar organizations. One is the Wichita Downtown Development Corporation, now known as Downtown Wichita. This organization is funded nearly entirely by tax revenue from an improvement district. Yet, it refuses to make its spending records public, and the city supports that decision. 5

Another similar taxpayer-funded organization is the city’s convention and tourism bureau, which has gone by several names over the years. Regarding it, in 2012 I wrote:

We’ve learned that city council members rely on — as Randy Brown told the council last year — facile legal reasoning to avoid oversight: “It may not be the obligation of the City of Wichita to enforce the Kansas Open Records Act legally, but certainly morally you guys have that obligation. To keep something cloudy when it should be transparent I think is foolishness on the part of any public body, and a slap in the face of the citizens of Kansas. By every definition that we’ve discovered, organizations such as Go Wichita are subject to the Kansas Open Records Act.” 6

Of interest is a segment from the KAKE Television public affairs program “This Week in Kansas” where the failure of the Wichita City Council, especially council member Pete Meitzner (district 2, east Wichita), to recognize the value of open records and open government is discussed. Video is here.

Since this time, the city has formed a business improvement district known as a TBID. It covers all hotels in the city and imposes an additional 2.75 percent tax to hotel bills, although the city and hotels call it a “City Tourism Fee.” 7 I’ve not asked for records of this spending, but I am sure the request would be rejected.

Will the Douglas Design District follow the standard set by Wichita’s other improvement districts and evade accountability and transparency?

Results from current improvement districts

The Washington Monthly piece mentions that city halls can hold BIDs accountable. But lack of transparency works against oversight and accountability.

Then, if anyone wonders what about the results of Wichita’s improvement districts, here are a few findings:

  • For the past decade business activity in downtown Wichita has been on a downhill trend. The data for 2016 (the most recent year for data) is a bit of good news, with the decline stopping and business activity remaining mostly unchanged. It isn’t the vibrant growth we’ve been told is happening in downtown Wichita, but at least things are not getting worse. 8
  • Truthfulness is in short supply. The Downtown Wichita organization has been caught in either a huge lie or gross incompetence regarding its claim of the number of people working in downtown Wichita. After brought to its attention, the number is no longer used. 9
  • Wichita economic development officials use a circuitous method of estimating the population of downtown Wichita, producing a number much higher than Census Bureau estimates. 10
  • Looking at hotel guest tax receipts, which are a surrogate for total hotel room revenue, we observe that of the largest markets in Kansas, Wichita has experienced the least growth in hotel guest tax collections since 2010. 11

Despite this record, Wichita City Hall seems satisfied with these results.


Notes

  1. City of Wichita. Agenda for August 21, 2018, Item IV-1. Available at http://www.wichita.gov/Council/Agendas/08-21-2018%20City%20Council%20Agenda%20Packet.pdf.
  2. Max Rivlin-Nadler. Business Improvement Districts Ruin Neighborhoods. The New Republic, February 19, 2016. Available at https://newrepublic.com/article/130188/business-improvement-districts-ruin-neighborhoods.
  3. Saahil Desai. One Landlord, One Vote. Available at https://washingtonmonthly.com/magazine/july-august-2018/one-landlord-one-vote/.
  4. Sanscartier, Matthew D.; Gacek, James. Out, Damned Spot: Socio-economic Hygienic Practices of Business Improvement Districts. Canadian Journal of Urban Research. Winter 2016, Vol. 25 Issue 2, p73-85.
  5. Weeks, Bob. Wichita’s open records policy is contrary to the interests of citizens. Available at https://wichitaliberty.org/wichita-government/wichita-open-records-policy-contrary-interests-citizens/.
  6. Weeks, Bob. Wichita, again, fails at open government. Available at https://wichitaliberty.org/open-records/wichita-again-fails-at-open-government/.
  7. Weeks, Bob. Wichita seeks to add more tax to hotel bills. Available at https://wichitaliberty.org/wichita-government/wichita-seeks-add-tax-hotel-bills/.
  8. Weeks, Bob. Downtown Wichita business trends. Available at https://wichitaliberty.org/wichita-government/downtown-wichita-business-trends-2016/.
  9. Weeks, Bob. Downtown Wichita jobs, sort of. Available at https://wichitaliberty.org/wichita-government/downtown-wichita-jobs/.
  10. Weeks, Bob. Living in downtown Wichita. Available at https://wichitaliberty.org/wichita-government/downtown-wichita-business-trends-2016/.
  11. Weeks, Bob. Kansas hotel tax collections. Available at https://wichitaliberty.org/kansas-government/kansas-hotel-tax-collections/.

Wichita employment, June 2018

For the Wichita metropolitan area in June 2018, jobs are up, the unemployment rate is down, and the labor force is smaller, compared to the same month one year ago.

Data released this week by the Bureau of Labor Statistics, part of the United States Department of Labor, shows an improving employment situation for the Wichita Metropolitan Statistical Area.

Click for larger.

The best numbers for Wichita are the total nonfarm employment series, which rose from 294,900 last June to 297,900 this June. That’s an increase of 3,000 jobs, or 1.0 percent. (This data is not seasonally adjusted, so month-to-month comparisons are not valid.)

Of note, the same series of data for the nation rose from 147,578,000 to 150,057,000 over the same time, an increase of 1.7 percent.

The unemployment rate fell to 4.0 percent from a year ago. Part of the improvement in the unemployment rate is due to a slightly smaller labor force.

Considering seasonally adjusted data from the household survey, the labor force rose slightly from May 2018, and employment was unchanged. This is a slowdown of a positive trend in the previous three months.

Click charts for larger versions.

The Wichita Mayor on employment

On a televised call-in show, Wichita Mayor Jeff Longwell is proud of the performance of the city in growing jobs.

On the inaugural episode of Call the Mayor on KPTS, Wichita’s public television station, Wichita Mayor Jeff Longwell said this:

Three years ago the biggest concern in this community is we need jobs. Jobs, jobs, jobs. And today, we need people. And so keeping Cargill in Wichita and seeing Spirit grow and seeing companies invest is far different than what we had just three years ago when people were so concerned about the opportunity to find meaningful employment in our city.

What the mayor said sounds good. Now. here are statistics from Bureau of Labor Statistics, civilian labor force and nonfarm employment by metropolitan area, seasonally adjusted, for the Wichita Metropolitan Statistical Area:

May 2015
Civilian labor force: 311,294
Employment: 296,249
Unemployment rate: 4.8 percent

May 2018
Civilian labor force: 306,574 (down by 1.5 percent)
Employment: 295,012 (down by 0.42 percent)
Unemployment rate: 3.8 percent (down by 1.0 percentage point, or 20.8 percent)

These are statistics from the Local Area Unemployment Statistics (LAUS) data set, also known as the household survey.

Here are some other statistics, again from Bureau of Labor Statistics, state and area employment, seasonally adjusted, for the Wichita Metropolitan Statistical Area:

May 2015
Employment: 295,500

May 2018
Employment: 298,600 (up by 1.0 percent)

These are statistics from the Current Employment Statistics (CES) data set, sometimes called payroll data.

These are two different sets of data. One shows employment rising, and one shows it declining. The difference comes from the fact that one set of data comes from households, and the other from employers. For a full explanation of the data and how there can be these differences, see Visualization: Metro area employment and unemployment.

The important thing is that Mayor Longwell said, in a roundabout way, that there are plenty of jobs in Wichita, and there are not enough workers to fill them.

If there are not enough workers in Wichita, it’s because the labor force (the number of people working plus those looking for work) shrank over the time period the mayor mentioned. That’s why there are not enough people to meet Wichita’s job growth (such as it is).

And while the number of jobs in Wichita rose in the employer survey, it rose by 1.0 percent over three years. The same statistic for the entire United States rose by 5.1 percent over the same period. This doesn’t seem like much of an accomplishment, Wichita growing jobs at a rate one-fifth of the nation.

But Mayor Longwell is proud. Good for him.

An endorsement from the Wichita Chamber of Commerce

When the Wichita Regional Chamber of Commerce Political Action Committee endorses a candidate, consider what that means.

If you’ve been following analyst James Chung — and it seems like everyone has — he’s delivered a sobering message: The Wichita economy has not been growing. “[Wichita has been] stuck in neutral for about three decades, with basically no growth, amidst the landscape of a growing U.S. economy,” he said. (In fact, in 2016 the Wichita economy shrank from the previous year, and numbers for 2017 don’t look much better.)

Chung says we need to change our ways. In his June visit he said, and the Chung Report wrote, “Every market signal points to the same conclusion: The manner in which Wichita is operating during this critical point in our history is just not working.”

So what needs to change? Chung won’t say, but here are two things:

First, there are some elected officials and bureaucrats who have presided over the stagnation of Wichita. These people need to go.

Second, there are also institutions that are problems, with one glaring example. In one way or another, the Wichita Regional Chamber of Commerce has taken the lead in economic development for many years. In recent years the Chamber ran Greater Wichita Economic Development Coalition. Now the effort has been split off to a non-profit corporation, the Greater Wichita Partnership.

That sounds good, but under the hood it’s the same leadership and the same methods, although with a few new hired hands.

So when James Chung (and others) says our manner of operation is not working, it’s the Wichita Chamber of Commerce and its ecosystem that must assume a large portion of blame.

Not only has the Wichita Chamber manner of operation not been working, its leadership hasn’t been working, either. In 2014 the Chamber showed charts of Wichita job growth as compared to the nation and other cities, and Wichita was near the bottom. The Chamber’s response was to advocate for a Wichita city sales tax, some to be used for economic development, but also for water supply enhancement, street repair, and bus transit improvement.

The Chamber managed the political campaign for the sales tax, and in November 2014, 62 percent of Wichita voters said no.

After this, what did the Chamber do? It had told Wichitans that an economic development fund fed by sales tax revenue was essential. Then, the sales tax vote failed. But that isn’t the only way to fund what the Chamber said we needed. The Chamber could have asked the Wichita city council to raise property taxes, and the council could have done that with a simple majority vote of its members. (Since then it has become more difficult, but still possible, to raise local property taxes.)

Or, the city could have raised franchise fees. These are like a sales tax added to utility bills. This could also have been accomplished with a simple majority vote of the council. The council could do it today, if its members wanted to.

None of these possibilities were pursued, at least to my knowledge. The Wichita Chamber of Commerce, after advocating for a sales tax it said was essential, gave up after defeat. It recommended that Wichitans vote to impose a sales tax themselves, but when it came to something it could have accomplished — new taxes through city council votes — the Chamber backed away.

The Chamber then formed the Greater Wichita Partnership. But many of the people who supported the Chamber’s sales tax are directing the operations of GWP, serving its strategic advisory team and the more-exclusive executive board.

This includes the president and CEO of the Wichita Chamber, who was also president during the sales tax campaign.

The Chamber endorsements

So when the Wichita Regional Chamber of Commerce PAC supports candidates, spends money on their behalf, and issues endorsements, what should voters think?

Voters should remember that the Wichita Chamber has presided over the wreckage of the Wichita economy, its leaders still call the shots, and still wants to raise taxes, I believe.

Plus, these people will not accept responsibility for the harm they have caused.

This is a shame, because we want to be proud of our civic leadership. We want to have faith in our elected officials and bureaucrats.

But that isn’t the case in Wichita. Keep this in mind when considering candidates endorsed by the Wichita Regional Chamber of Commerce PAC.

Wichita business press needs to step up

If a newspaper is going to write a news story, it might as well take a moment to copy and paste information from a city council agenda packet. Especially when what is missing from the story is perhaps the most important information.

When the Wichita City Council approved an Industrial Revenue Bond issue at its July 10, 2018 meeting, the city’s business press covered the matter. In the Wichita Eagle, the story fails to mention the motivation for the item. 1

The meeting agenda packet for this item, very near its start, states plainly the benefits of the IRBs: “Cargill Incorporated (Cargill) is requesting a Letter of Intent (LOI) for the issuance of Industrial Revenue Bonds (IRBs) in an amount not to exceed $38,000,000 and an 81.5% five-plus-five-year tax abatement and a sales tax exemption for the construction of a new biodiesel facility in north Wichita.” 2

There it is, in plain sight and language: Cargill will save a lot of money in taxes by using these bonds. How much? The same city document details some of the savings:

Based on the current mill levy, the estimated tax value of exempted property for the first full year is $337,904. The value of an 81.5% real property tax exemption (assuming the property is appraised at 80% of the capital investment) as applicable to taxing jurisdictions is:

City $94,109
County $84,677
State $4,321
USD 259 $154,797

The agenda packet doesn’t give an amount for the value of the sales tax exemption, but if all $38,000,000 in bond proceeds was spent on taxable items, sales tax would be $2,850,000. The actual sales tax savings will likely be less than that, but still a lot. (We’ll likely never know, as the Kansas Department of Revenue won’t release the value of sales tax exemptions associated with bond issues.)

Why didn’t the Eagle report this? I don’t know. But the property and sales tax exemptions are the driving motivation behind almost all requests for IRBs. 3

It’s not the case that the company can’t obtain financing on the market. Many IRBs are purchased by the requesting company, as is the case with these bonds, according to the agenda packet: “The bonds will be privately placed with Cargill.”

Instead, Kansas law requires, in most cases, that to issue property and sales tax abatements, IRBs must be used. Again, from the agenda packet: “To insure that all of the real property improvements are receiving the tax abatement, the improvements must be bond financed.” 4

Why can’t the city council simply wave a magic wand and absolve Cargill of paying millions of dollars in property and sales taxes? This is what the city council did, but in a roundabout way.

But because the tax giveaway is mixed with confusing details of bonds, many citizens don’t notice the giveaway. Especially when our city’s leading newspaper does not report this.

Wichita Business Journal reporting was a little better, mentioning the property and sales tax exemptions, but not their monetary value. 5

This article also contains this: “With IRBs, the city serves as a pass-through entity for developers to obtain a lower interest rate on projects. IRBs require no taxpayer commitment.” This is language the newspaper often includes when reporting on IRB issues, and it is simply not true. In this case, a portion of this project qualifies for tax-exempt financing, as it is a solid waste processing facility. 6

But for the remainder of the project, as is the case for most IRB-funded projects, it is not likely the facility will save on interest costs with IRBs. The article is correct in that IRBs require no taxpayer commitment. The city makes no guarantee as to the bond repayment. If the city did guarantee repayment, that would help the borrower obtain a lower interest rate. But there is no guarantee.


Notes

  1. Finger, Stan. Wichita City Council approves bonds for Cargill expansion. Available at https://www.kansas.com/news/business/article214622565.html.
  2. Wichita City Council Agenda packet for July, 10, 2017. Item IV-1.
  3. Weeks, Bob. Industrial revenue bonds in Kansas. Available at https://wichitaliberty.org/kansas-government/industrial-revenue-bonds-kansas/.
  4. As noted below, there is a slight wrinkle in this IRB issue, as some of the financed property is exempt from federal income taxes on interest payments and requires IRBs for that particular property. This is an unusual factor, and does not require that all the plant be financed with IRBs.
  5. Daniel McCoy and Bryan Horwath. City Council approves IRBs for Cargill biodiesel plant. Available at https://www.bizjournals.com/wichita/news/2018/07/10/city-council-approves-irbs-for-cargill-biodiesel.html.
  6. “The solid waste processing component qualifies under Internal Revenue Service (IRS) regulations for tax exempt financing, which can save the company interest expense. Of the total project, approximately $30,000,000 would qualify as a Solid Waste Processing Facility, and therefore, eligible for tax-exempt financing.” Agenda Packet for July 10, 2018.

Project Wichita survey

The Project Wichita survey is about to end. Will it have collected useful data?

Project Wichita is “a community engagement process to identify the future we want for our home and the steps necessary to achieve it.” 1 So far it has held focus groups that collected ideas for the future of Wichita, in which “an astounding 3,800+ people 2 shared their vision in 239+ focus groups,” according to the project’s Facebook page. The survey, which is ending on July 6, is another component of the “listen” phase of the project, with “focus” and “share” phases still to come.

The survey may be taken on-line or by paper. The online survey is implemented as a number of pages, each concerning a topic. The first page is titled “Vision for Our Region: Please indicate your level of agreement with the following for developing a vision for the Wichita region. Our region should be a place that:” Following are several items like “all children have the chance to succeed.” Respondents are asked to select one of these responses for each item:

  • Strongly Disagree
  • Disagree
  • Undecided
  • Agree
  • Strongly Agree

The second page is titled “Strong Neighborhoods. Please indicate the importance of investing resources (time, human resources, money) in the following for developing and supporting safe and strong neighborhoods throughout our region.” A sample item is “Repair deteriorating homes to improve neighborhoods.” Respondents may choose from these responses:

  • Not important investment
  • Slightly important investment
  • Moderately important investment
  • Very important investment
  • Essential investment

There is no opportunity to answer in any way other than these responses. There is no possibility of leaving a comment.

The question of the importance of investment continues with slight variation for six more pages on these topics:

  • Economic Advantage and Opportunity
  • Transportation
  • Cultural Arts
  • Attractions and Entertainment
  • Education; Community Wellness
  • Wichita Riverfront and Downtown Development

Then a page titled Regional Perspectives: “Please tell us your thoughts about the following regional questions” where participants are asked to indicate their degree of agreement or disagreement with the following:

  • I think an increase in population would make the Wichita region thrive.
  • I am optimistic about the future of the Wichita region.
  • I think the Wichita region has to be willing to change to keep and attract the next generation.

Then there are some demographic questions.

Problems

First, the responses that the project will collect are from a self-selected group of respondents. There is no way to guarantee or know that the respondents are a representative sample of area residents. The focus groups had the same problem. This has been a problem with Wichita’s outreach in the past. In 2014 the city was quite proud of its engagement and positive response regarding the proposed city sales tax. Then, on election day, 62 percent of voters said no. 3 (Of course, those who vote are also a self-selected group of respondents. On the sales tax question, 103,290 people cast a vote. 4 For that year, the Census Bureau estimated there were 283,780 people of voting age in Wichita. 5 So 36.4 percent of the eligible voters made the decision for the rest, voters and non-voters, and also for those too young or ineligible to vote. But when we ask to settle issues by voting, voters are the people who make the decisions.)

Another problem has to do with the preface to the many questions asking about the importance of making investments in various things. What is missing is whose resources are to be invested? Yours? Mine? Someone we don’t know?

Related is that almost all the items participants are asked to rate are things that almost everyone agrees are good. Who could not strongly agree with investing so that “all children have the chance to succeed?” I suppose that some people might select “Very important investment” instead of “Essential investment” for some items. That might produce a shade of difference in the importance of items.

What would really be useful, however, is asking participants to rank the importance of investing in each item, from most important to least important, with no ties allowed. Instructions might be worded like “Rank the importance of investing in the following five areas. 1 is the most important investment, while 5 is the least important. You must assign a rank to each item, and there may be no ties.”

Then, to make things really useful: Ask participants to produce rankings for the importance of public sector investment, and separate rankings for the importance of private sector investment.

Understanding and distinguishing the difference between public and private investment is vital. When people believe that others will be paying, there is no limit to what people want. Milton Friedman knew this: “When a man spends his own money to buy something for himself, he is very careful about how much he spends and how he spends it. When a man spends his own money to buy something for someone else, he is still very careful about how much he spends, but somewhat less what he spends it on. When a man spends someone else’s money to buy something for himself, he is very careful about what he buys, but doesn’t care at all how much he spends. And when a man spends someone else’s money on someone else, he doesn’t care how much he spends or what he spends it on. And that’s government for you.” (For more, see Friedman: The fallacy of the welfare state.)

People recognize this. Remarks left on Facebook on the Project Wichita page 6 included this by one writer:

Just took survey! One would think “they” want to convert Wichita or Kansas to socialism. I’m a liberal conservative Democrat and yet questions are very concerning and disturbing.

Following up, the same person wrote:

Applaud the effort however many of the questions concerning me as it relates to governments role in community and well-being of such. … At what point should community and individuals be primarily responsible for many of the topics you address in your survey?

Another Facebook user wrote:

Your survey is great but you left out a very important piece of information. WHO is going to provide the money for the investments that are queried in your survey? A lot of areas need investment of funds but, those funds should come from the private sector, not public sector. As a result of the inability to discern a difference in the source of required investments, the survey is somewhat useless.”

Yet another from Facebook:

Each of your questions should be followed by the question, “How much are you personally willing to pay for this line item” or “Which government service should be eliminated to pay for this line item”. Your list will get quite short when people are asked to spend their own money rather than other people’s money.

These basic defects preclude this effort as being serious social science research. Yet, that is likely how it will be presented, especially since a university agency is involved.

Of note: Project Wichita has no official opinion as who should pay for these investments. Cynics — that is, realists — believe that programs like Project Wichita are designed to convince citizens to support increased taxes or debt issues to be repaid with future taxes, with those future taxes undoubtedly higher.

One reason for this suspicion is that portions of the Project Wichita process are being managed by Wichita State University’s Public Policy and Management Center. 7 Its director and its associated academics have a clear preference for higher taxes, at one time writing a paper advising cities to create “more willing taxpayers.” 8

Other people and companies that Project Wichita identifies as part of the “Vision Team” (or “funders”) also made large contributions to the campaign for a Wichita City sales tax in 2014:

  • Allen Gibbs & Houlik, L.C.
  • Jon Rolph and his company Sasnak
  • The Chandler family and Intrust Bank
  • GLMV Architecture
  • Emprise Bank
  • Spirit Aerosystems
  • Commerce Bank
  • Equity Bank
  • Cox Machine
  • Westar Energy
  • Professional Engineering Consultants
  • Star Lumber
  • Bothner & Bradley and its principals
  • Envision
  • Lubrication Engineers
  • Jeff Fluhr, head of Downtown Wichita and now also Greater Wichita Partnership

Some of these companies regularly receive economic development incentives from the City of Wichita or do business with the city. Some are subject to the city’s regulations such as zoning and permitting.

It’s difficult to digest all this without concluding that Project Wichita project is designed to develop a case — an appetite — for higher taxes. That’s even before realizing that the driving force behind Project Wichita — according to word on the street — is Jon Rolph, who was the chair of the campaign for the Wichita city sales tax in 2014. Further, Project Wichita is sharing offices with the Greater Wichita Partnership and Downtown Wichita, two organizations always in favor of the expansion of government.

Individual questions

Besides general problems with the survey instrument, there are these problems with individual items:

“Improve the current public transit system (e.g. expand routes, expand hours).” There may be support for spending public funds on this, even if it means raising taxes. This was one of the uses for the proposed Wichita city sales tax in 2014. It was bundled with other items, and voters defeated the tax.

“Make flights from Wichita Eisenhower National Airport more affordable.” We’ve spent a lot doing this. The city and the airport say the programs have been successful.

“Increase direct flights from Wichita Eisenhower National Airport.” This is an area that could use improvement. The number of departures and the number of available seats on departing flights has been underperforming the nation, despite much investment in the forms of tax-funded subsidies for airlines. There is also a new airport terminal.

“Offer more diverse entertainment options (e.g. music festivals, restaurants, theme parks).” There are many people trying to figure out what type of restaurants are wanted in Wichita, and where. These people are motivated by profit. It’s difficult to believe that government could do a better job of deciding upon, and operating, restaurants.

“Support entrepreneurial opportunities.” There is an organization doing this, e2e. More broadly, when the city offers economic development incentives, it makes it harder for young, entrepreneurial companies to survive as they must bear the cost of incentives and compete with incentivized companies for labor and capital. 9

Under education, a topic that is glaringly omitted is school choice. Parents like having the possibility of school choice, especially parents who can’t afford private school tuition. Plus, school choice, like charter schools, could help control “sprawl,” something that is often seen as a negative factor. If parents who want to live in central Wichita could have access to school choice in nearby schools, it might counter the commonly-held perception that if you want good schools for your children, you must buy a home outside the Wichita school district.

“Provide modern performing arts center (e.g. symphony, music theater, opera) that meets the region’s needs.” and “Provide a modern convention center that attracts more conventions and events.” These are topics that Wichita will likely be grappling with soon, and in a real way. Wichita has already hired a consultant to study this issue. (More information is at Century II resource center.) A task force is studying the issue. Soon, it is quite likely that residents of Wichita or Sedgwick County may be asked to approve a sales tax to fund a convention center and possible a performing arts center. Or, citizens suffer the implementation of Design Build Finance Operate and Maintain (DBFOM), or P3. In this model as applied to Wichita, a third party 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, called an “availability payment.” This is simple a way to disguise long-term debt. See Wichita about to commit to more spending. Bigly. for more about this.

Cynics — that is, realists — believe that programs like Project Wichita are designed to convince citizens to support these taxes or debt issues. (By the way, the convention center business is a poor way to build a city’s economy. See Should Wichita expand its convention facilities?.)


Notes

  1. Project Wichita. Available at https://www.projectwichita.org/.
  2. With the population of the city of Wichita at about 388,000, (U.S. Census Bureau. 2012-2016 American Community Survey 5-Year Estimates), nearly one percent participated.
  3. Sedgwick County Election Office. Available at https://www.sedgwickcounty.org/elections/election-results/2014-general/.
  4. Ibid.
  5. U.S. Census Bureau. 2010-2014 American Community Survey 5-Year Estimates.
  6. Available at https://www.facebook.com/ProjectWichita/.
  7. “Volunteers wanted the regional 10-year vision and action plan Project Wichita process to include big discussions from as many people as possible. So Wichita State University’s (WSU) Public Policy and Management Center team built a custom process for gathering input across the region. The process includes focus groups with individuals and organizations, gathering feedback at diverse community events, online surveys and robust social media engagement.” Project Wichita. Process. Available at https://www.projectwichita.org/process.
  8. Misty Bruckner is the Director. A few years ago Brucker she and her colleagues co-authored a paper titled “Citizen Attachment: Building Sustainable Communities. See http://www.gfoa.org/sites/default/files/GFR_OCT_10_24.pdf. My reporting on it was titled Wichita needs more, and willing, taxpayers. An excerpt: “Increasingly, citizens are retreating from their responsibilities to community and demanding more from government than they are willing to pay for. But changes in local government behavior can be instrumental in reversing this trend, by strengthening citizens’ commitment to the well-being of their communities. Citizens who are committed to community are more willing to accept responsibility for the well-being of their fellow citizens and are also more likely to join with government and other parties to improve their communities. Citizens who are committed to community are also more willing taxpayers — that is, when government demonstrates that it can be trusted to invest public resources in ways that strengthen the community. The central thrust of this model is getting citizens and governments to work together, but realistically, many communities will require new revenue — including additional tax dollars — if they are to assemble the critical mass of resources necessary for meaningful change. Accordingly, citizens who are willing to pay increased taxes are an important component of building sustainable communities.” (emphasis added)
  9. See Weeks, Bob. Job creation at young firms declines. https://wichitaliberty.org/economics/job-creation-at-young-firms-declines/. Also: “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.” Weeks, Bob. Wichita to grant property and sales tax relief. Available at https://wichitaliberty.org/wichita-government/wichita-grant-property-sales-tax-relief/.

Wichita jobs up

Wichita employment trends are positive for three consecutive months.

Seasonally adjusted data from the Bureau of Labor Statistics, part of the United States Department of Labor, shows a rise in the Wichita metropolitan area labor force and job count. This data is through May 2018 and shows three consecutive months of rising employment.

This is a reversal of the long term trend for Wichita, in which the labor force and employment have been falling or trending steady while the nation’s economy has been growing. An interactive visualization of employment data for all metropolitan areas is available here.

While the upward trend is welcome, it is not known whether Wichita can sustain positive growth.

In May, the forecast for Wichita from Center for Economic Development and Business Research (CEDBR) at Wichita State University was pessimistic: “The production sectors are projected to remain approximately flat in 2018. Natural resources and construction employment is forecast to increase by less than 100 jobs while manufacturing employment is projected to decline by less than 100 jobs.”

This decline in manufacturing employment is forecast even after the new Spirit Aerosystems jobs are accounted for. In its reporting on this forecast, the Wichita Eagle wrote:

Late last year, Spirit, the city’s largest employer, announced plans to hire an additional 1,000 mostly production workers over two years, with the bulk of the hiring expected in 2018. Bombardier announced plans to add 100 jobs when it moves its Global 5000 business jet interior completions work from Canada to Wichita later this year.

“I’m not so sure all of the positive news means we’re growing,” [CEDBR director Jeremy] Hill said.

He said the gains at Bombardier and Spirit are offset by contraction and consolidation by smaller manufacturers that supply parts to Spirit and other aircraft manufacturers. In some cases, work the smaller firms have done has been taken back by larger manufacturers, who are now doing it themselves. Retirements in aircraft manufacturing may also be affecting the numbers, Hill said, but he doesn’t have the data to confirm that.

“It is hard to get your hands on,” he said. “It’s definitely not showing up in the (employment) numbers, not showing up in output in durables manufacturing.”

Wichita and U.S. employment. Click for larger.

Wichita and Midwest income

A look at income in Wichita compared to other Midwest cities.

How much do Wichitans earn at their jobs, compared to other cities?

Click for larger.
This data is of interest as recently James Chung told an audience that “average income” is $10,000 higher in Midwest comparable cities than in Wichita. He didn’t define the term “income,” he didn’t define the comparable cities, and he didn’t provide any sources of data. But mention of this is a good time to look at income in Wichita and other cities.

Occupational salaries

The Bureau of Labor Statistics, part of the United States Department of Labor, collects data regarding salaries of occupations in different cities in a program called Occupational Employment Statistics. More information about this program may be found here.

One way to examine income in different cities is to compare the salaries for different jobs using the OES data collected by BLS. I selected some cities to compare with Wichita: Cedar Rapids, IA; Colorado Springs, CO; Des Moines-West Des Moines, IA; Fayetteville-Springdale-Rogers, AR-MO; Kansas City, MO-KS; Oklahoma City, OK; Omaha-Council Bluffs, NE-IA; and Tulsa, OK. (The data is collected for Metropolitan Statistical Areas (MSAs), not cities. But it seems more natural to use the term city.)

The OES dataset is large, holding data on over 800 occupations, and it’s unwieldy to make apt comparisons. Besides what I report below, I’ve also created an interactive visualization of the OES data. In the interactive visualization, you may select any cities and occupations for comparison. Click here to learn more and use it.

Occupational salary example. Click for larger.
Considering all occupations for this sampling of cities, the annual salary in Wichita is $43,880, while it is $50,600 in Des Moines. That’s $6,720 lower in Wichita, or 13 percent.

Considering a few semi-random occupations: For buyers and purchasing agents, the highest salary is in Cedar Rapids at $75,830. The Wichita salary is $9,640 less, while the Des Moines salary is $15,070 less.

For food service managers, the highest salary is in Colorado Springs at $66,300. The Wichita salary is $1,520 less, while the Des Moines salary is $21,270 less.

For police officers, the highest salary is in Colorado Springs at $68,980. The Wichita salary is $21,670 less, while the Des Moines salary is $4,310 less.

For telemarketers, the highest salary is in Fayetteville at $27,760. The Wichita salary is $1,860 less, while the Des Moines salary is $2,100 less.

For the broad category of architecture and engineering occupations, Wichita is the leader in the sample at $82,710. Des Moines is at $71.930, which is $10,780 lower.

For the broad category of production workers, Wichita again leads the sample at $44,950, while Des Moines is at $35,190, which is $9,760 lower.

Personal income

Another set of data that can help is personal income. For Des Moines, personal income per person is $50,677 (complete year 2016). For Wichita, the value is $47,395, which is $3,282 less. (For an interactive visualization of personal income, see Visualization: Personal income by metropolitan area.)

Click for larger.

Difficulties

Comparing average salaries for groups of occupations in different cities has problems. One is the number of workers in occupations. Considering management occupations, there are few chief executive officers but many other managers. The weight of the number of workers needs to be considered.

Also, the magnitude of salaries is an issue. Chief executive officer salaries vary widely, by tens of thousands of dollars. The data tells us that a CEO in Wichita earns $65,400 less than in Des Moines. That variation is greater than the average salary across all occupations, and provides little insight into the salaries of the majority of workers.

The per capita personal income figures overcome these obstacles.

$10,000

Do Wichitans earn $10,000 less than in comparable Midwest cities, as James Chung recently presented? Based on per capita personal income, the answer is no. Not even close to that, although Wichita’s per capita income is not encouraging.

Based on occupational salaries, Wichitans earn less than many comparable Midwest cities, but nothing near $10,000 less when all occupations are considered. In specific occupations, Wichita salaries are much less, but in some cases Wichita salaries are highest.