Voice For Liberty

Tag: Economic development

  • Wichita mayor speaks on economic development

    At last week’s Wichita City Council meeting, Mayor Carl Brewer spoke in favor of the city’s economic development policy, specifically as it related to a downtown Wichita development partly financed with tax increment financing, or TIF.

    The mayor disagreed with those who have appeared at city council meetings to testify against the use of TIF. He told of how the city called mayors’ associations and the National League of Cities, and they said that most large cities use incentives. He learned that cities use some incentives that that Wichita has not yet heard of, which undoubtedly will give city staff some additional tools in the toolbox in the future.

    He said “Incentives are available, and we’re on the right track.”

    The mayor mentioned that Harvard and Yale experts said that Wichita had too much parking downtown. This is in agreement with the Goody Clancy proposal presented to the city last October. Wichita selected that firm to lead the planning process for the revitalization or redevelopment of downtown Wichita.

    He said that in a recent meeting of mayors he attended, he learned that the mayors of other cities are trying to figure out how to use incentives and recruit business. They’re not turning their backs on incentives, he said, adding that “What we’re doing is nothing new.”

    He told the audience that “We as a city are going to have to endure change, and we as a city are going to have to understand any time there’s change, there is going to be some pain.”

    He added that he appreciated input from those who oppose the various subsidies and incentives the city gives to developers, and the city did check to see if the information they provided to the city was correct.

    Commentary

    The National League of Cities, one of the organizations the mayor consulted with regarding the use of incentives for the purpose of economic development, promotes an expansion of the powers of cities to engage in taxpayer-funded economic development subsidies. Its mission statement sounds noble: “Its mission is to strengthen and promote cities as centers of opportunity, leadership, and governance.” But citizens should not be deceived. It promotes interventionist practices rather than economic freedom. An example is its celebration of the U.S. Supreme Court decision in Kelo v. City of New London, which the Wall Street Journal described as “one of the worst in recent years, handing local governments carte blanche to seize private property in the name of economic development.”

    The mayor’s refusal to embrace economic freedom — which he has described as a “philosophy” that is not viable in the real world — means that Wichita is likely to continue to engage in the same competitive practices as do almost all other cities. It means that deals like the subsidy granted to Real Development is a template for other taxpayers-funded giveaways. As Council Member Paul Gray has warned, the plans for the redevelopment of downtown Wichita are likely to require many millions — perhaps hundreds of millions of dollars — of public assistance or investment. Since there isn’t enough tax increment financing available to pay for this, we can expect to see proposals for tax increases, such as a new city sales tax of perhaps one cent on the dollar, to pay for downtown redevelopment.

    A sales tax is the model for economic development in Oklahoma City. This has been promoted to Wichita and Sedgwick County leaders as a good idea for Wichita to pursue.

    What Wichita is missing out on is a way to truly distinguish itself from all the other cities and counties that are all using the same economic development tools. Presently about all we can do is offer subsidies that are larger than what other cities offer. But if we decided to forgo the use of the usual economic development subsidies and incentives, that would be something very unusual. It could really put Wichita on the map as a place to locate to.

    Since these economic development incentives and subsidies require other taxpayers, both individuals and businesses, to pay for their cost, Wichita could reduce the cost of doing business in Wichita for everyone. A company considering locating to Wichita could be confident that it would be operating in a low-tax environment. It wouldn’t have to hope that it fits into the city’s economic development policy guidelines. It wouldn’t have to hope that politicians and bureaucrats view its application favorably.

    Further, once a company locates here, it wouldn’t have to worry that other companies will receive incentives and subsidies that it will have to pay for. It would not need to worry about the other costs that subsidies impose, such as subsidized companies having lower overhead and are therefore better able to compete for employees.

    Eliminating interventionist policies from city hall could have other benefits. Is there a “good ‘ol boy” network of insiders that use Wichita city hall as their personal piggy bank? By eliminating the practice of granting incentives and subsidies, we could reduce or eliminate the cynical attitude of many citizens towards city government.

    We wouldn’t have to worry whether the campaign contributions made by those seeking favor from city hall were made in the interest of good government, or made in the hopes of getting a TIF district or other subsidy passed through the council.

    These ideas, however, are not seriously considered by the mayor or any city council members, at least to my knowledge. Instead, we in Wichita are doomed to finance an escalating economic development arms race. The economic freedom of Wichitans will decline.

    This is noteworthy in light of the mayor’s curious assertion in his remarks that we will have to “endure pain” caused by change. We’ve changed nothing.

  • On Wichita’s Exchange Place TIF, Janet Miller speaks

    Last week’s meeting of the Wichita City Council featured a message from Council Member Janet Miller that illustrated her firm belief in centralized government planning for the purposes of economic development. It also contained a material mistake in the understanding of the facts of the project.

    In her remarks from the bench, Miller disagreed with those who testify at council meetings against tax increment financing (TIF). She said there is much information that says this type of economic development incentive is effective.

    She said “Sometimes I wonder what city folks are living in when they talk about the negative, or the lack of results from TIFs.” She then named several Wichita TIF districts that she said performed well.

    If her remarks were aimed at me and some of the other people who have testified at city council meetings against the formation of TIF districts, council member Miller may not have been listening very carefully. We do not deny that TIF districts produce results — within the district itself. Things get built, buildings get renovated. It is the effect of TIF on the city as a whole that we are concerned with.

    It’s the observed effects of TIF, as economists Dye and Merriman have found and I have mentioned to the city council, including Miller, several times: “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.”

    It’s also the unobserved effects — the things that don’t happen because Wichita props up developers in politically-favored areas such as downtown. This form of centralized planning from Wichita city hall overrides the decisions that the citizens of Wichita make with their own pocketbooks, and concentrates power in the hands of bureaucrats and politicians.

    As Randal O’Toole has written: “TIF today is often part of a social engineering agenda that Americans should reject.”

    Miller praised the amount of office space Real Development has brought online in downtown Wichita. To the extent that this has been done without government assistance, this should be praised.

    She agreed with Vice Mayor Longwell’s assessment of this project, saying “This is not a tax abatement project.” She is just as wrong as is Longwell and other council members who believe this.

    In discussing the risk involved in this project, Miller told of how the disbursements from a HUD-guaranteed loan that will finance much of this project will made directly to contractors, not to Real Development. City of Wichita documents indicate that the City’s payments will be made in the same way. This is a quite peculiar arrangement: we are placing a huge bet of the success of downtown Wichita redevelopment in the hands of the principals behind Real Development, but evidently we don’t trust them enough to write them a check and be confident they will pay their bills.

    Miller also spoke of the jobs that will be created by this project. Implicit in her argument is that this project, or something similar, would not occur without the city’s subsidy. Her argument also ignores what economists tell us — that TIF districts simply transfer development from one part of town to another.

    What Wichitans should be most concerned about, however, is a misstatement by Miller that other council members may have relied on in making their decision on how to vote. Miller said: “The property tax increases, the increment that’s being calculated in this project, includes only the buildings in this project.”

    This statement directly contradicts the facts. In the Longhofer study, other properties owned by Real Development — the Petroleum Building, Sutton Place, 105 S. Broadway, and others — are used to support the TIF loan for the Exchange Place project. In response to my question, Wichita’s urban development director Allen Bell confirmed the same.

    In her message from the bench, Miller said that city staff and council members have had enough time to go over this proposal. Her mistaken remarks indicate, however, that the project is still not understood very well by the council, neither its mechanics or its economic effect.

  • Tax increment financing is not free money

    Cato Institute Senior Fellow Randal O’Toole has written extensively on the subject of urban planning, development, and tax increment financing (TIF) districts. The following article contains many points that the Wichita City Council may wish to consider as it considers expansion of a downtown Wichita TIF district at tomorrow’s council meeting.

    O’Toole was in Wichita earlier this year. Coverage of a lecture he delivered at that time is Randal O’Toole discusses urban planning in Wichita.

    The author of The Best-Laid Plans: How Government Planning Harms Your Quality of Life, Your Pocketbook, and Your Future, O’Toole’s latest book is Gridlock: Why We’re Stuck in Traffic and What to Do About It.

    TIF is Not “Free Money”

    By Randal O’Toole

    Originally created with good intentions, tax-increment financing (TIF) has become a way for city officials to enhance their power by taking money from schools and other essential urban services and giving it to politically connected developers. It is also often used to promote the social engineering goals of urban planners.

    TIF is based on the idea that public improvements to a neighborhood or district will lead developers to invest in that district. To finance such public improvements, cities are allowed to keep the “increment” or increased property taxes collected from the area. Typically, planners estimate in advance how much new property tax the city can collect and then sell bonds that will be repaid out of those taxes. The revenues from the bonds are used to pay for the improvements.

    Read the rest of the article at the North Dakota Policy Council.

  • Tax increment financing questions topic at Wichita city council meeting

    On Tuesday the Wichita city council heard a request by Real Development for a $2.5 million increase in tax increment financing on a downtown project. Discussion during the meeting revealed how little is known about the numbers that the city uses in deciding whether to participate in the project. Numbers that don’t make sense, plus the fact that the applicant has not responded to the city’s request for new numbers, indicate that this proposal should be rejected.

    A question that I asked referred to some numbers presented by in the materials supplied to council members in the public, specifically the total investment and market value for the project. When the project was revised for the first time in 2008, the plan called for total investment of $27,800,000, producing a project with market value of $33,803,000. In this plan the market value is greater than investment, which seems like a good thing.

    In the second revision presented to the council this week, here are the values: Total investment is $46,491,728, while the market value is $41,695,000. Now the market value is less than investment. In fact, it is ten percent less than the amount invested.

    I asked how are these market values determined, and is it wise to have investment that is so much greater than market value? In the video below, I think we can agree that a satisfactory answer was not provided.

    In particular, the city’s economic development chief Allen Bell said that he had asked the applicants for updated information on these figures, but had not received it. This was revealed at the time the council was being asked to make an investment of some ten million dollars of taxpayer funds.

    The fact that there was confusion, and data not made available to the city, at the time the council is being asked to make a decision casts quite a bit of doubt on the entire decision-making process.

    A second question I asked had to do with the fact that the TIF district is quite a bit larger than the specific buildings that are the subject of the TIF financing request, and not all the property in the district is owned by the applicants. I asked that as property values — and therefore tax payments — in the other property in the district rises, does its increased valuation go towards paying off the TIF bonds? The answer from Bell was no.

    A second question was what if these other property owners in the TIF district wanted to obtain TIF financing of their own. Does the fact that their property is already in a TIF district prevent them from receiving TIF financing? The answer from Bell was no.

  • Sweatshops best alternative for workers in many countries

    While sweatshops are not the place most Americans would choose to work, they are often the best alternative available to workers in some countries. Pay is low compared to U.S. standards because worker productivity is low, and the process of economic development will lead to increases in productivity and pay. But most policies promoted to help the purported plight of sweatshop workers actually lead to harm.

    That’s the message of Benjamin Powell, who spoke to a group of university students and citizens last night in Emporia on the topic “In Praise of Sweatshops.” Powell is a professor of economics at Suffolk University in Boston and is affiliated with The Beacon Hill Institute. His appearance was part of the Emporia State University “Lectures on Liberty” series.

    “Often when people say there’s something wrong with sweatshops, implicitly what they’re saying is ‘while this is bad, the alternative must be better.’ Often the alternatives in these countries are much, much worse.” The alternatives are often subsistence agriculture and working in farm fields, Powell said.

    A sweatshop, according to Powell, is a workplace with low wages (compared to U.S. standards), and poor, possibly unsafe, working conditions and benefits, again compared to U.S. standards. The sweatshops that Powell is defending are those where people voluntarily choose to work. Sweatshops where workers are forced to work under the threat of violence constitute slave labor, which cannot be defended. These are not better than the alternatives available to the forced workers, the evidence being that the workers are forced to work in these sweatshops.

    As evidence of non-sweatshop working conditions is some countries, Powell mentioned the case of a Cambodian girl and her working conditions, as reported by Nicholas D. Kristof in the New York Times in 2004:

    Nhep Chanda is a 17-year-old girl who is one of hundreds of Cambodians who toil all day, every day, picking through the dump for plastic bags, metal cans and bits of food. The stench clogs the nostrils, and parts of the dump are burning, producing acrid smoke that blinds the eyes.

    The scavengers are chased by swarms of flies and biting insects, their hands are caked with filth, and those who are barefoot cut their feet on glass. Some are small children.

    Nhep Chanda averages 75 cents a day for her efforts. For her, the idea of being exploited in a garment factory — working only six days a week, inside instead of in the broiling sun, for up to $2 a day — is a dream.

    Generally, sweatshop workers are paid much more than most other workers in the country, and their working conditions are much better. Powell mentioned that working inside — rather than outside — is very desirable in most countries. The fact that sweatshops pay higher wages and have better working conditions than the workers’ alternatives is important to remember.

    Powell explained the factors that determine how much workers are paid. The upper bound that employers are willing to pay workers is based on the amount of value that a worker can create. In economic terms, this is called the marginal productivity of labor.

    The lower bound, the minimum employers can pay, is the value of workers’ next best alternative.

    If we want to increase the earnings of sweatshop workers, we have to create policies that raise both the upper and lower bounds, Powell said, adding that about three-fourths of the variation in earnings across countries is explained by the upper bound. This points to the importance of increasing worker productivity.

    In one debate, Powell said his opponent wanted to take the question of sweatshop wages off the table, admitting that pay is higher in sweatshops. Instead, she wanted to focus on worker health and safety. But it’s important to remember, Powell told the audience, that working conditions, even those related to health and safety, are part of a total compensation package. Wages and working conditions are interconnected and can’t be separated.

    Sometimes people ask why apparel companies — the largest users of sweatshops — can’t simply pay the workers more, pointing to large profits and highly paid executives at these companies. But Powell said that apparel companies usually aren’t excessively profitable.

    Additionally, businesses are not charities. Forcing them to pay workers more means that companies will begin to look at ways to reduce the amount of labor they use. They may replace workers with machines, or use more productive workers in other countries. The result is sweatshop workers will lose their jobs.

    Powell reminded the audience that it’s important to remember that in most countries where sweatshops are used, these jobs are much better — both in terms of pay and working conditions — than what the workers face as alternatives. Anything that causes companies to shut down sweatshops or employ fewer workers, then, means that workers lose these better jobs and return to harder work at lower wages, or perhaps no work at all.

    In discussing the anti-sweatshop movement, Powell said that some groups sincerely want to help sweatshop workers, but don’t understand the economic realities in sweatshop-using countries. But labor unions such as UNITE do understand economics. The policies they advocate to help sweatshop workers — international labor standards and minimum or “living” wages, for example — increase the cost of sweatshop labor, causing companies to use less of it. It also makes unionized garment workers more attractive, and may lead to more employment in developed countries like the United States.

    “So unions advocate this not out of love for third world workers. They do it quite maliciously, actually, to unemploy third world workers for the benefit of already relatively wealthy union members in the United States and Western Europe countries.”

    The worst thing that advocates for sweatshop workers can do is to call for boycotts of products produced in sweatshops. If a boycott decreases demand for a product, the company must reduce its price, and the upper bound of what sweatshop workers can earn goes down. Then workers either have their wages reduced, or they lose their jobs.

    Powell presented the results of his research examining sweatshop wages. In many countries that use sweatshops, wages are very low, compared to U.S. wages. But that isn’t the appropriate comparison. Instead, when comparing the wages of sweatshop workers to the average income in the workers’ own country, we find that sweatshop workers do very well, often earning from two to seven times as much as the average worker in each country.

    Powell said that “ethical branding” is an idea that might help sweatshop workers. This is a marketing strategy where a company uses the fact that products are produced in sweatshops as a way to increase demand and prices. This, in turn, would increase the demand for sweatshop workers and increase their wages. But this has to be a voluntary strategy, Powell said. Companies must see this as a business success. If it is not successful in increasing demand but companies are forced to implement this strategy, it will lead to less sweatshop employment.

    Also, demand — in terms of the number of units sold — must not fall. This is a problem with “fair trade” coffee, where people purchase less of the more expensive fair trade coffee.

    The real solution for improving sweatshop wages and working conditions, Powell said, is the process of economic development. Sweatshops existed in Great Britain and the United States at one time. As capital is accumulated, better technologies are developed, and workers become more educated, workers become more productive and earn more, both in income and better working conditions.

    This process took over a century in the U.S., but countries like Hong Kong, Singapore, and South Korea, which were sweatshop countries in the 1950s and 1960s, made very rapid improvements in wages and working conditions. Capital and technology is available from abroad, Powell said, and this process can be repeated. But anti-sweatshop policies risk stalling this development, resulting in a permanent sweatshop country with low incomes.

    The real question, Powell said, is not why some countries are poor, but why some countries are rich. Rule of law, respect for property rights, and respect for individual liberty and economic freedom are policies that promote rapid economic growth. Countries that do not have these stagnate and do not increase their standard of living.

    In conclusion, Powell said that sweatshop wages and working conditions are better than what many workers face as alternatives, and that’s why people voluntarily choose to work in them. While wages are low compared to developed countries, this is because productivity is low. The process of economic development is the way to raise productivity and wages. Much of the work of anti-sweatshop groups risks undermining the economic development processes that will raise living standards.

    A question from the audience asked about the proliferation of sweatshops abroad leading to the loss of American jobs. Powell replied that sweatshops lead to the decline of the American apparel industry. But it is in the interest of America, he said, to get garments at lower cost overseas, freeing up high-skilled U.S. labor and capital to do what we’re relatively better at. This increases the wealth of America.

    Another question referred to the human costs of sweatshop labor, contrasting those workers to Nike executives who earn millions. What is the cost in terms of damage to human dignity? Powell replied that businesses are not charities, and they don’t pay executives high salaries simply because they want to. The extremely high pay of the top executive serves as an incentive for underlings to work harder in jobs that are hard to observe quality of effort. Most people do not understand this, Powell said.

    He also said that if we’re concerned about the dignity of sweatshop workers in third world countries, we should be even more concerned about those who don’t have sweatshop jobs. These people either have no jobs, or jobs with much lower pay and worse working conditions than sweatshop workers.

    Another question asked if it would help the economies of third world countries if we simply raised the wages of sweatshop workers, referring to companies that are making millions in profits. Powell said that laws mandating higher wages will change the behavior of sweatshop companies, resulting in a loss of sweatshop jobs. But voluntary programs like ethical branding could work.

    Related material on this topic by Powell includes a Christian Science Monitor op-ed Don’t get into a lather over sweatshops, a working paper titled Sweatshops and Third World Living Standards: Are the Jobs Worth the Sweat?, and an article In Defense of “Sweatshops.”

    The ESU Lectures on Liberty was conceived by Greg Schneider, professor of History at Emporia State University, to bring in important academics who support the idea of research and scholarship on critical issues regarding liberty in American history. The lecture series is underwritten by the Fred C. and Mary R. Koch Foundation in Wichita.

  • Wichita economic development incentives discussed

    At today’s meeting of the Wichita city council, economic development incentives were a topic of discussion.

    In his remarks, Wichita Mayor Carl Brewer ignores evidence that targeted economic development incentives — the type being considered — don’t produce economic growth for the community. He also expresses his disdain for free market concepts and those who believe in them.

    It was a bad day for economic freedom in Wichita. Not a single council member voted in favor of economic freedom over corporate welfare.

    Related: Wichita targeted economic development should end, Wichita Warren Theater IRB a TIF district in disguise.

  • Wichita targeted economic development should end

    Is the City of Wichita able to choose which companies are worthy of taxpayer assistance for the purposes of economic development?

    This week and next, the Wichita City Council will attempt to do this several times. It starts tomorrow with a theater owner’s request to avoid paying millions in property taxes. A food processing company is asking for similar treatment.

    Several downtown buildings are receiving special assessment financing for improvements. An ordinance allowing a downtown hotel to keep its guest tax collections for its own exclusive benefit will be voted on.

    The city will also decide whether to implement community improvement districts. These districts let a business add up to two cents on the dollar of sales tax, and keep that extra revenue for its own benefit. (One wonders why the business doesn’t simply increase its prices by two percent.)

    That’s all in one day’s work.

    The question Wichitans need to ask is simply this: Do these targeted economic development incentives work? The answer is, almost always, no.

    In 2008 the Kansas Legislative Division of Post Audit looked at the use of economic development incentives in Kansas, examining some $1.3 billion in spending over five years. In examining the literature, the auditors found: “Most studies of traditional economic development incentives suggest these incentives don’t have a significant impact on economic growth.”

    It also found: “The majority of research concludes there is a lack of demonstrated impact from the typical types of economic development assistance, and that incentives aren’t cost-effective.” The audit can be read at Economic Development: Determining the Amounts the State Has Spent on Economic Development Programs and the Economic Impacts on Kansas Counties.

    Recently Alan Cobb wrote of the harm that targeted incentives cause, using Detroit as an example: “While state and local government poured incentives into the Big Three’s trough, the marginal costs of doing business for everyone else crept up.”

    Wichita is taking the same path. Instead of competing in the market, businesses look to city hall for special treatment. When applicants ask government for special treatment at the expense of others, the economic term for that activity is rent seeking.

    The term rent, or more precisely, economic rent is somewhat unfortunate, as the common usage of the term — paying someone money for the use of an asset for a period of time — contains no sinister connotation. But economic rent does carry baggage.

    So what is rent seeking? Wikipedia defines it like this: “In economics, rent seeking occurs when an individual, organization or firm seeks to earn income by capturing economic rent through manipulation or exploitation of the economic environment, rather than by earning profits through economic transactions and the production of added wealth.”

    This explanation doesn’t do full justice to the term, because it doesn’t mention the role that government and politics usually play. The Concise Encyclopedia of Economics adds this: “The idea is simple but powerful. People are said to seek rents when they try to obtain benefits for themselves through the political arena. They typically do so by getting a subsidy for a good they produce or for being in a particular class of people, by getting a tariff on a good they produce, or by getting a special regulation that hampers their competitors.”

    It’s thought that Wichita needs to dish out economic development subsidies so that we can attract new companies to our town, or, as is often the case, retain existing companies. So we grant special tax treatment — usually through industrial revenue bonds, but also in other ways such as tax increment financing — to these companies. Or sometimes we may dispense with these cumbersome processes and simply give companies money or make loans that don’t need to be repaid.

    These benefits — representing economic rent and rent seeking behavior — are great for the lucky companies that received them. But what about considering the city or region as a whole? In that case, something different emerges. Here’s an excerpt from “Rent Seeking and Economic Growth: Evidence From the States,” Harold J. Brumm, Cato Journal, Vol. 19, No. 1 (Spring/Summer 1999):

    The present study finds the growth rate of real gross state product (GSP) per capita to be negatively correlated with the initial level of real GSP per capita, the burden of state tax structure, and — most notably — the level of rent-seeking activity in the state. On the basis of the estimates obtained for the standardized coefficients of the explanatory variables in the growth rate equation, the conclusion reached here is that rent-seeking activity has a relatively large negative effect on the rate of state economic growth. An implication of this finding is that a state government which promulgates policies that foster sustained artificial rent seeking does so at considerable expense to its economic growth.

    In simple terms, rent seeking activity harms economic growth.

    This study also states: “The private returns of rent seekers come from the redistribution of wealth, not from wealth creation. The tax that rent seeking imposes on the productive sector reduces the output growth rate by reducing the incentives of entrepreneurs to produce and innovate.”

    This study looked at state governments and their activities, but there’s reason to suspect that the findings apply to cities and counties, too.

    So should we simply give up and not grant preferential tax treatment and other subsidies to companies to induce them to locate in Wichita? No. Instead, as I’ve outlined in Wichita universal tax exemption could propel growth, we should offer preferential tax treatment to all new investment in Wichita.

    A broad policy like this, where everyone benefits, eliminates the harmful effects of rent seeking. All companies can benefit, not only those that fit into certain categories or make special pleadings to politicians or bureaucrats. All companies can plan with certainty on receiving the benefit — there won’t be the risk whether the city council and bureaucrats will approve the benefit.

    This is the type of policy we should follow to increase economic growth in Wichita.

  • Wichita Warren Theater IRB a TIF district in disguise

    On Tuesday the Wichita City Council will consider an economic development incentive for a local business. The process the city is using to grant this incentive bypasses the scrutiny that accompanies the formation of TIF districts while providing essentially the same benefit.

    The proposal provides Industrial Revenue Bond financing to American Luxury Cinemas, Inc., d.b.a. 21st Street Warren Theatre, a company owned in part by Wichita theater operator Bill Warren. Under the city’s IRB program, no city money is lent to Warren, and the city does not provide any guarantee that the bonds will be repaid.

    Instead, the benefit of the IRB to Warren is that he will escape paying property taxes on the new theater. Also, he will likely avoid paying sales taxes on purchases made with the bond money. (The city-supplied material doesn’t mention the sales tax exemption, but this incentive is commonly granted, and mention of it was likely omitted by mistake from the agenda report.)

    This project is a TIF district in effect. It has the same economic benefit to the applicant. But the way this deal is structured means it doesn’t have to go through the normal approval process of a TIF district. Specifically, the Sedgwick County Commission will not have a chance to consider approval of these incentives. That approval would probably not be granted.

    The process being used also allows the city to bypass the 30 day notice of a public hearing required for formation of a TIF district.

    In a TIF district, the city borrows money and spends it immediately for the benefit of the TIF district. What the city spends money on isn’t important, as long as it’s spent on things that the owners of the property in the TIF district would have to pay for themselves, if not for the city. This is important to remember, as defenders of TIF districts say that the city money is spent “only on infrastructure,” as if most developers don’t have to pay for their own infrastructure.

    As improvements to property in the TIF district are made — buildings being built or renovated, etc. — the property taxes on the property go up. This increase in the tax payments — that’s the increment in TIF — goes to pay off the borrowed money that was spent on the TIF district.

    Since the TIF district spending was for the exclusive benefit of of the TIF district applicant, and the increased property taxes are paying off the bonds that provided that spending, TIF districts, in effect, let the applicants keep the increase in their own property taxes for their exclusive benefit.

    Whenever anyone else improves their property and has to pay higher taxes, those taxes go to fund the general operations of government.

    (If this sounds confusing and complicated, it is. It is confusing by design. A while back I told the council: “I’ve come to realize that this confusion serves a useful purpose to this council, because if the people of Wichita knew what was really happening, they’d be outraged.”)

    In the Warren deal that the council will consider on Tuesday, no TIF district is being created. But because the property is in the IRB program, property taxes will be forgiven. Warren is agreeing to make payments equal to the present tax bill on the property (plus a small annual increase).

    The net effect is that the Warren group will not pay property taxes on the value of the new project. It’s the same economic effect as a TIF district, without the scrutiny that accompanies formation of a TIF district.

    Some city politicians and bureaucrats — particularly Mayor Carl Brewer, council member Jeff Longwell, and the city’s economic development chief Allen Bell — have complained that the city doesn’t have enough “tools in the toolbox” when it comes to dishing out economic development incentives.

    This applicant has been the recipient of economic development incentives, including a TIF district formed for its benefit. When that business was failing, the city created a special tool for Warren’s benefit: a no-interest and low-interest loan.

    Here we see another new tool being created — the formation of what is, in effect, a TIF district without accompanying scrutiny.

    Warren IMAX Theater Project

  • Amtrak, taxpayer burden, should not be expanded in Kansas

    Recently the Kansas legislature and governor decided to authorize the Kansas Secretary of Transportation to establish and implement a passenger rail service program in the state. This service would most likely be implemented through Amtrak, the federal passenger rail authority.

    This service, true to the nature of Amtrak, would require subsidy from taxpayers in order to survive. Most of the arguments of rail supporters boil down to “other things get subsidy, so we want ours too.” The proper response to this is to advocate for ending all subsidy to all forms of transportation. In this way, we can fully learn which forms of transport are truly valued, and by what relative margin. Then private sector investment can be channeled to where people — not politicians, government bureaucrats, and rail enthusiasts — value it most.

    Rail supporters — we should be accurate and call them taxpayer-funded rail supporters — argue that the total dollar volume of taxpayer funds redirected to support Amtrak is small. That, however, ignores the context of the passenger mile. In this context, government funding of rail travel is truly alarming.

    In 2008, a Cato Institute report stated “In 2006, subsidies to Amtrak totaled just over $1 billion, or about 22 cents per passenger mile.” The subsidy to highways was about one-half cent per mile.

    Subsidyscope, an initiative of the Pew Charitable Trusts, has a recent study about the taxpayer subsidy flowing into Amtrak. For the Heartland Flyer route, which runs from Fort Worth to Oklahoma, and is proposed by taxpayer-funded rail supporters to extend into Kansas through Wichita and Kansas City, we find these statistics about the finances of this operation:

    Amtrak reports a profit/loss per passenger mile on this route of $-.02, meaning that each passenger, per mile traveled, resulted in a loss of two cents. Taxpayers pay for that.

    But this number, as bad as it is, is totally misleading. Subsidyscope calculated a different number. This number, unlike the numbers Amrak publishes, includes depreciation, ancillary businesses and overhead costs — the types of costs that private sector businesses bear and report. When these costs are included, the Heartland Flyer route results in a loss of 13 cents per passenger mile, or a loss of $26.76 per passenger for the trip from Fort Worth to Oklahoma City.

    This isn’t the type of business we should import into Kansas for economic development purposes. Hopefully Kansans will realize the tremendous burden to taxpayers that is Amtrak.