Voice For Liberty

Tag: Economic development

  • Wichita perpetuates wasteful system of grants; feels good about it

    Wichita perpetuates wasteful system of grants; feels good about it

    While praising the U.S. Economic Development Administration for a grant to Wichita State university, Wichita city planners boost the growth of wasteful government spending.

    Tweet from Wichita city officials
    Tweet from Wichita city officials
    News that Wichita State University received a grant from the U.S. Economic Development Administration was praised by City of Wichita bureaucrats. Such praise only serves to perpetuate a federal agency that does more harm than good, entrenching the “You take yours, I’ll take mine” logic that leads to ever-rising spending.

    The tweet from Wichita city planners is designed to make us feel happy for Wichita State University. Having accepted these funds, now we have to tolerate grants like these made by the EDA:

      Harry Reid Research Park

    • In 2008, the EDA provided $2,000,000 to begin construction of the UNLV Harry Reid Research & Technology Park in Las Vegas, NV. For many years the UNLV Harry Reid Research & Technology Park featured a paved road and a website claiming the first anticipated tenant would move in in 2010. But there are signs of life now in 2015, according to the article Signs of life emerge at UNLV’s long-dormant technology park.)
    • In 2010, $25,000,000 was spent by the EDA for a Global Climate Mitigation Incentive Fund and $2,000,000 for a “culinary amphitheater,” wine tasting room and gift shop in Washington State.
    • In 2011, the EDA gave a New Mexico town $1,500,000 to renovate a theater.
    • In 2013, the EDA also gave Massachusetts $1.4 million to promote new video games.
    • Back in the 1980s, the EDA used taxpayer dollars to build replicas of the Great Wall of China and the Egyptian Pyramids in the middle of Indiana. They were never completed — it is now a dumping ground for tires.

    So in exchange for WSU receiving a few million dollars, we have to put up with the above. We have to wonder if Harry Reid being the number one Senate Democrat had anything to do with a grant for a facility named in his honor. We have yet another government agency staffed with a fleet of bureaucrats, including a chief who will travel to Wichita to promote and defend his agency. We have another government agency that believes it can better decide how to invest capital than the owners of the capital. We have another example of shipping tax dollars to Washington, seeing a large fraction skimmed off the top, then cities and states begging for scraps from the leftovers.

    Rep. Pompeo on the EDA

    U.S. Representative Mike Pompeo has sponsored legislation and offered amendments to end the EDA. In January 2012 he wrote an op-ed which explains the harm of the EDA. Here is an excerpt:

    Last week, Secretary Fernandez invited himself to Wichita at taxpayer expense and met with the Wichita Eagle’s editorial board. Afterwards, the paper accurately noted I am advocating eliminating the EDA even though that agency occasionally awards grant money to projects in South Central Kansas. They just don’t get it. Thanks to decades of this flawed “You take yours, I’ll take mine” Washington logic, our nation now faces a crippling $16 trillion national debt.

    I first learned about the EDA when Secretary Fernandez testified in front of my subcommittee that the benefits of EDA projects exceed the costs and cited the absurd example of a $1.4 million award for “infrastructure” that allegedly helped a Minnesota town secure a new $1.6 billion steel mill. As a former CEO, I knew there is no way that a taxpayer subsidy equal to less than one-tenth of one percent (0.1%) of the total capital needed made a difference in launching the project. That mill was getting built whether EDA’s grant came through or not. So, I decided to dig further.

    I discovered that the EDA is a federal agency we can do without. Similar to earmarks that gave us the infamous “Bridge to Nowhere” or the Department of Energy loan guarantee scandal that produced Solyndra, the EDA advances local projects that narrowly benefit a particular company or community. To be sure, the EDA occasionally supports a local project here in Kansas. But it takes our tax money every year for projects in 400-plus other congressional districts, many if not most of which are boondoggles. For example: EDA gave $2 million to help construct UNLV’s Harry Reid Research and Technology Park; $2 million for a “culinary amphitheater,” tasting room, and gift shop at a Washington state winery; and $500,000 to construct (never-completed) replicas of the Great Pyramids in rural Indiana.

    Several times in recent decades, the Government Accountability Office has questioned the value and efficacy of the EDA. Good-government groups like Citizens Against Government Waste have called for dismantling the agency. In addition, eliminating the EDA was listed among the recommendations of President Obama’s own bipartisan Simpson-Bowles Deficit Reduction Commission.

    So why hasn’t it been shut down already? Politics. The EDA spreads taxpayer-funded project money far and wide and attacks congressmen who fail to support EDA grants. Soon after that initial hearing, Secretary Fernandez flew in his regional director — again at taxpayer expense — to show me “all the great things we are doing in your home district” and handed me a list of recent and pending local grants. Hint, hint. You can’t say I wasn’t warned to back off. Indeed, Eagle editors missed the real story here: Secretary Fernandez flew to Wichita because he is a bureaucrat trying to save his high-paying gig. The bureaucracy strikes back when conservatives take on bloated, out-of-control, public spending, so I guess I’m making progress.

    Please don’t misunderstand. I am not faulting cities, universities, or companies for having sought “free” federal money from the EDA. The fault lies squarely with a Washington culture that insists every program is sacred and there is no spending left to cut.

    A federal agency run at the Assistant Secretary level has not been eliminated in decades. Now is the time. My bill to eliminate the EDA (HR 3090) would take one small step toward restoring fiscal sanity and constitutional government.

    Last year Pompeo offered an amendment to H.R. 4660, the Commerce, Justice, Science, and Related Agencies Appropriations Act for Fiscal Year 2015, to eliminate the Economic Development Administration (or the “Earmark Distribution Agency”). The amendment would send EDA’s total funding — $247 million in FY 2015 — to the Deficit Reduction Account, saving up to $2.5 billion over 10 years based on current levels.

    “We need to solve America’s debt crisis before it is too late, and that means reducing wasteful spending, no matter the agency or branch of government,” said Rep. Pompeo. “The EDA should be called the ‘Earmark Distribution Agency,’ as it continues to spend taxpayer dollars on local pet projects in a way similar to congressional earmarks — which have already been banned by the House.”

    Following, Pompeo’s remarks on the floor of the United States House of Representatives.

  • In search of a level playing field

    In search of a level playing field

    A national survey finds that small business leaders overwhelmingly believe that state economic development incentives favor big businesses, that states are overspending on large individual deals, and that state incentive programs are not effectively meeting the needs of small businesses seeking to grow. From Good Jobs First.

    Survey: Small Business Group Leaders Say States Favor Big Businesses at the Expense of Small Firms Seeking to Grow

    Washington, DC, September 29, 2015 — A national survey of 41 leaders of small business organizations representing 24,000 member businesses in 25 states reveals that they overwhelmingly believe that state economic development incentives favor big businesses, that states are overspending on large individual deals, and that state incentive programs are not effectively meeting the needs of small businesses seeking to grow.

    In Search of a Level Playing Field coverA large majority also say small businesses interests in economic development are not well represented in their state capitols. The credit crunch is a critical problem, and many also emphasize that public goods that benefit all employers-such as job training, education, and transportation-deserve to be a higher priority.

    The study was funded by the Ewing Marion Kauffman Foundation. It is available on the Good Jobs First website here.

    “Our findings are absolutely consistent with what we have heard for years from small business leaders,” said Good Jobs First executive director Greg LeRoy. “Despite their pro-small business rhetoric, state officials’ programs are perceived as biased in favor of large companies that receive big tax-break packages.”

    Specifically:

    • 92 percent believe that the spending balance on incentives between small and large businesses in their state is biased toward big businesses (69 percent strongly believe).
    • 79 percent believe that their state is overspending on big incentive deals, hurting state finances (56 percent strongly).
    • 87 percent say that small business interests in economic development issues are not effectively represented in their state’s capital (36 percent strongly).
    • 85 percent believe that economic development incentives in their state are not effectively addressing the current needs of small businesses that are seeking to grow (36 percent strongly).
    • 72 percent do not believe their state’s current incentive policies are effective in promoting economic growth (23 percent strongly).

    The respondents lead groups from 25 states, including all but one of the 15 most-populous. They belong to networks formed in the past 15 years, many with economic development missions. None is contracted by state or local governments to perform economic development functions such as outside-firm recruitment.

    “Our next study will examine in great detail how well or poorly state incentive programs treat small, local and/or entrepreneurial businesses versus large, multistate companies” added LeRoy.

    Good Jobs First is a non-profit, non-partisan resource center on economic development. Founded in 1998, it is based in Washington DC.

  • James Chung in Wichita, September 23, 2015

    James Chung in Wichita, September 23, 2015.

  • Another week in Wichita, more CID sprawl

    Another week in Wichita, more CID sprawl

    Shoppers in west Wichita should prepare to pay higher taxes, if the city approves a Community Improvement District at Kellogg and West Streets.

    Next week the Wichita City Council will consider the formation of a Community Improvement District (CID) surrounding the intersection of Kellogg and West Streets.

    CIDs are a relatively recent creation of the Kansas Legislature. In a CID, merchants may charge additional sales tax, up to an extra two cents per dollar. For more about their mechanism, see Community improvement districts in Kansas. In the present case, the developer proposes to charge an extra one cent per dollar in tax. This extra sales tax, minus a handling fee, will be periodically remitted to the developer. It’s important to note that CID proceeds do not flow to the merchants who collect them.

    This CID is “pay-as-you-go,” meaning the city is not issuing bonds or loaning money.

    This CID, should the council approve, will contribute to CID sprawl. This is a condition in which more and more of the city is overtaken by CIDs and their higher taxes. In effect, a sales tax increase is taking effect. Because of the city’s weak protection of shoppers from these CID taxes, many Wichitans and visitors will pay higher taxes than they expected. This harms the reputation of Wichita.

    (Of note, Kansas raised the statewide sales tax this year. Because Kansas is one of the few states that tax groceries at the full rate, low-income families are harmed most by the higher sales and CID taxes. See Kansas sales tax has disproportionate harmful effects for analysis.)

    This CID is likely to be sold to citizens as contributing to public infrastructure. It’s true that a traffic signal on West Street and widening of that street are listed as uses of CID funds. But the amount budgeted is $350,000, which means that the improvements will not be substantial. This inclusion of public infrastructure is likely part of a strategy of sweetening the deal. It’s not all about greedy developers, the city will say. Some of the funds are going to public infrastructure. This strategy was used to justify the Cabela’s CID, in which part of the CID funds are paying for improvements to the intersection of K-96 and Greenwich Road.

    This CID proposal contains two new provisions that may help blunt some of the criticism of CIDs as harmful to other business firms in the city. First is this condition: “Allow the City to review and approve or deny the relocation of any business within three miles of the district, for the first three years, on any property in which the developer requests reimbursement for the land acquisition.” This seems designed to restrict “poaching” of merchants from other nearby landlords who are not being subsidized by a CID. Whether this condition has any real meaning is unknown. In practice, the city has been reluctant to enforce restrictions similar to this.

    Some of the first buildings to be demolished on West Street, according to a city schedule of milestones. Click for larger.
    Some of the first buildings to be demolished on West Street, according to a city schedule of milestones. Click for larger.
    Also there is this condition: “Demolition or rehabilitation of three identified structures and additional investment within the district within the timeframe below.” Following this is a schedule of milestones. This may be in response to instances where the city has authorized a subsidy program, but nothing happened, or happened slowly. The Exchange Place project at Douglas and Market is one example. Another is the CID at Central and Oliver. Principals of the Kellogg and West CID are also involved in the Central and Oliver CID, and little has happened there since its formation.

    Another important public policy issue regarding CIDs is this: If merchants feel they need to collect additional revenue from their customers, why don’t they simply raise their prices? We can easily see their rationalization: It’s better for us that unwitting customers pay higher sales taxes rather than higher prices. We can blame government for the taxes, but we get the money. 1

    Customers of merchants in CIDS ought to know in advance that an extra tax is charged. Some have recommended warning signage that protects customers from unknowingly shopping in stores, restaurants, and hotels that will be adding extra sales tax to purchases. Developers who want to benefit from CID money say that merchants object to signage, fearing it will drive away customers.

    State law is silent on this. The City of Wichita requires a sign indicating that CID financing made the project possible, with no hint that customers will pay additional tax. The city also maintains a website showing CIDs. This form of notification is so weak as to be meaningless, but this was the decision the city council made. 2

    CIDs allow property owners to establish their own private taxing district for their exclusive benefit. This goes against the grain of the way taxes are usually thought of. Generally, 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 participating in — benefiting from — police protection.

    But CIDs allow taxes to be collected for the benefit of one specific entity. This goes against the principle of broad-based taxation to pay for an array of services for everyone. But in this case, the people who benefit from the CID are quite easy to identify: the property owners in the district. We shouldn’t let private parties use a government function for their exclusive benefit.

    1. The premise of this question is not accurate, as it is not the merchants who receive CID funds. Landlords do. The more accurate question is why don’t landlords raise their rents? ↩
    2. Weeks, B. (2014). Wichita City Council fails to support informing the taxed. Online. Voice For Liberty in Wichita. Available at: http://wichitaliberty.org/wichita-government/wichita-city-council-fails-support-informing-taxed/ Accessed 31 Aug. 2015. ↩
  • Wichita CID illustrates pitfalls of government intervention

    Wichita CID illustrates pitfalls of government intervention

    A proposed special tax district in Wichita holds the potential to harm consumers, the city’s reputation, and the business prospects of competitors. Besides, we shouldn’t let private parties use a government function for their exclusive benefit.

    This week the Wichita City Council will consider the formation of a Community Improvement Districts to benefit a proposed hotel in west Wichita.

    CIDs are a relatively recent creation of the Kansas Legislature. In a CID, merchants may charge additional sales tax, up to an extra two cents per dollar. For more about their mechanism, see Community improvement districts in Kansas. In the present case, the developer proposes to charge hotel guests an extra two cents per dollar in tax. If retail stores are developed, their customers will pay the CID tax too. This extra sales tax, minus a handling fee, will be periodically remitted to the developer.

    From Google Earth, a view of the restaurant and hotel on the subject property. If a house this blighted had been owned by a poor inner-city resident, the city would have long ago condemned and demolished the building, at the homeowner's expense.
    From Google Earth, a view of the restaurant and hotel on the subject property. If a house this blighted had been owned by a poor inner-city resident, the city would have long ago condemned and demolished the building, at the homeowner’s expense.
    One reason to oppose the formation of this CID is it contributes to Wichita’s reputation as a city of high taxes. The nearby table gives an example of what a hotel bill will look like. There’s the existing guest tax of 6 percent. The city started collecting the 2.75 percent “tourism fee” this year. 1 (How many cities charge visitors a fee for visiting?) There’s the combined state and county sales tax of 7.5 percent, and then the CID tax of 2 percent. The total of these taxes is 18.25 percent.

    A sample hotel bill in Wichita.
    A sample hotel bill in Wichita.
    The mayor and city council members note that these taxes are paid by people from out of town. They think it’s a smart strategy. But some significant fraction of these taxes are paid by Wichitans, particularly the many companies that have their scattered employees travel to Wichita. And, has anyone ever paid a hotel bill for visiting friends and relatives?

    Welcome to Wichita Tourism Fee billboardBesides this, do we really want to punish our guests with these taxes? A city tourism fee? Welcome to Wichita, indeed.

    Another important public policy issue regarding CIDs is this: If merchants feel they need to collect additional revenue from their customers, why don’t they simply raise their prices? We can easily see their rationalization: It’s better for us that unwitting customers pay higher sales taxes rather than higher prices. We can blame government for the taxes, but we get the money. 2

    There is the competitive effect on other hotels in the area to consider. Some hotel owners feel the ability of one hotel to collect the CID tax for its own benefit gives an unfair competitive advantage.

    Customers of merchants in CIDS ought to know in advance that an extra tax is charged. Some have recommended warning signage that protects customers from unknowingly shopping in stores, restaurants, and hotels that will be adding extra sales tax to purchases. Developers who want to benefit from CID money say that merchants object to signage, fearing it will drive away customers.

    State law is silent on this. The City of Wichita requires a sign indicating that CID financing made the project possible, with no hint that customers will pay additional tax. The city also maintains a website showing CIDs. This form of notification is so weak as to be meaningless, but this was the decision the city council made. 3

    CIDs allow property owners to establish their own private taxing district for their exclusive benefit. This goes against the grain of the way taxes are usually thought of. Generally, 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 participating in — benefiting from — police protection.

    But CIDs allow taxes to be collected for the benefit of one specific entity. This goes against the principle of broad-based taxation to pay for an array of services for everyone. But in this case, the people who benefit from the CID are quite easy to identify: the property owners in the district. We shouldn’t let private parties use a government function for their exclusive benefit.

    1. Weeks, B. (2014). Wichita seeks to add more tax to hotel bills. Online. Voice For Liberty in Wichita. Available at: http://wichitaliberty.org/wichita-government/wichita-seeks-add-tax-hotel-bills/ Accessed 31 Aug. 2015. ↩
    2. The premise of this question is not accurate, as it is not the merchants who receive CID funds. Landlords do. The more accurate question is why don’t landlords raise their rents? ↩
    3. Weeks, B. (2014). Wichita City Council fails to support informing the taxed. Online. Voice For Liberty in Wichita. Available at: http://wichitaliberty.org/wichita-government/wichita-city-council-fails-support-informing-taxed/ Accessed 31 Aug. 2015. ↩
  • Wichita Business Journal reporting misses the point

    Wichita Business Journal reporting misses the point

    Reporting by the Wichita Business Journal regarding economic development incentives in Wichita makes a big mistake in overlooking where the real money is.

    In a recent article discussing economic development incentives, the Wichita Business Journal looks at the situation in North Texas. (Incentives have meant big business in North Texas, Aug 24, 2015.)

    Wichita Business Journal reporting misses the pointAn example used in the article is Toyota’s decision to move its North American headquarters to Plano. Toyota received incentives in conjunction. The article quotes Jim Lentz, CEO of Toyota North America, as saying “The incentives are really important.” But that hasn’t always been the line from Toyota.

    At the time of the announcement last year, Forbes reported that incentives were a small part of Toyota’s decision, and that other cities likely offered more. Similar reporting came from the Houston Chronicle.

    We can easily imagine Lentz coming to his senses, realizing that he needs to credit the incentives with at least some role in Toyota’s decision. Otherwise the local taxpayers — who have to pay for the incentives — might feel duped.

    But a serious problem with the article is the claim that “But incentives now seem to be off the table in Wichita.” This is an assertion made by others, including our mayor and city council members. Usually it’s qualified that cash incentives are off the table.

    But incentives are far from gone in Wichita. Cash incentives — most commonly forgivable loans — may be gone, but these loans amounted to just a small fraction of the value of incentives used. (Would you like to be able to reference a database of incentives granted in Wichita? Many people would. But to my knowledge, no such list or database exists.)

    Instead, the incentives most commonly used — where the real money is — are tax abatements.

    Earlier this month I reported about an incentive considered and passed by the Wichita City Council. Through the city’s Industrial Revenue Bonds program, WSF developers avoid paying sales tax on $4,500,000 of building materials. City documents didn’t mention this number, but with the sales tax rate in Wichita at 7.5 percent, this is a savings of $337,500. It’s as good as a grant of cash. Better, in fact. If the city granted this cash, it would be taxable as income. But forgiveness of taxes isn’t considered income. 1 2 3

    The sales tax abatement granted was on top of other incentives, most notably STAR bond financing of $7,525,000. These bonds will be repaid by sales tax collections from the project and surrounding merchants. The beneficiaries will pay nothing. 4

    The incentives illustrated above are common in Wichita. Again, with the city failing to track the award of incentives, it’s difficult to know just how common.

    But we can safely say that the assertion by the Wichita Business Journal that “Incentives now seem to be off the table in Wichita” is incorrect. Worse than that, it’s irresponsible to make such a statement.

    1. Stateandlocaltax.com, (2015). IRS Addresses Federal Tax Treatment of SALT Incentives : SALT Shaker : State & Local Tax Attorneys : Sutherland Asbill & Brennan Law Firm. Online. Available at: http://www.stateandlocaltax.com/policy-and-legislation/irs-addresses-federal-tax-treatment-of-salt-incentives/ Accessed 26 Aug. 2015. ↩
    2. Journal of Accountancy, (2009). Location Tax Incentive Not Federal Taxable Income. Online. Available at: http://www.journalofaccountancy.com/issues/2009/apr/locationtaxincentive.html Accessed 26 Aug. 2015. ↩
    3. American Institute of CPAs, (2015). Federal Treatment of State and Local Tax Incentives. Online. Available at: http://www.cpa2biz.com/Content/media/PRODUCER_CONTENT/Newsletters/Articles_2008/CorpTax/Federaltreat.jsp Accessed 26 Aug. 2015. ↩
    4. Weeks, Bob. (2015). In Wichita, an incomplete economic development analysis. Online. Voice For Liberty in Wichita. Available at: http://wichitaliberty.org/wichita-government/in-wichita-an-incomplete-economic-development-analysis/ Accessed 26 Aug. 2015. ↩
  • Wichita property tax delinquency problem not solved

    Wichita property tax delinquency problem not solved

    Despite a government tax giveaway program, problems with delinquent special assessment taxes in Wichita have become worse.

    It’s surprising to read reporting in the Wichita Eagle that the city is owed millions in delinquent special assessment taxes. (City of Wichita owed $4.8 million in delinquent special assessments, August 15, 2015)

    That’s because in 2012 the city adopted a program that rebated property taxes to buyers of new homes. The goal of the program was twofold: To help builders sell homes, and to help the city collect delinquent special assessment taxes.

    In February of that year, according to city documents, “Current delinquent specials on vacant lots within the City of Wichita are an estimated $3.3 million.”

    Now the delinquent taxes have risen to $4.8 million.

    This wasn’t supposed to happen. At the council meeting Wes Galyon, president of the Wichita Area Builders Association, told the council, according to meeting minutes: “This program will also aid in eliminating current delinquencies on lots and new home subdivisions in the City and contribute to the developers and builders being able to keep taxes and specials current on buildable lots that they own and plan to build on.”

    The city manager told the council, according to meeting minutes: “The other issue was the ability to collect on delinquent taxes and special assessments. Stated that is becoming a growing problem for us as we look at what is happening with the economy and home builders.”

    A program that should not have been adopted

    In his remarks to city council members in February 2012, Wichita city manager Robert Layton told the council, according to meeting minutes: “Stated they took a businesslike approach as they went through this and designed the program. Stated they consulted Wichita State University and the report references a 1.48 return on our investment just in terms of the present value of the direct and indirect jobs that are created as well as the construction expenditures, which was important to them.”

    The manager was referring to an analysis prepared by Wichita State University Center for Economic Development and Business Research, titled Economic Impact of Proposed WABA Incentives, February 1, 2012.

    In these analyses, the city attempts to estimate costs and benefits of a program, and adopt only those programs that have a positive ratio of benefits over costs. (Generally the city requires that the ratio be 1.3 to 1 or greater.) Benefits are, according to the study, “sales tax revenues, from construction worker spending and construction material purchases, and property tax revenues.” The costs are the lost revenue due to the tax rebates. Following is an excerpt from a table that presents the results of analysis.

                       No Incentives    Incentives
Public Benefits       $2,364,429    $3,004,315
Public Costs                  $0    $2,032,312
Net Public Benefits   $2,364,429      $730,457
Return on Investment      N/A           1.48

    Some, like the Wichita city manager, focused on the return on investment (ROI) ratio of 1.48 if the tax rebate incentive is used. (There is no such ratio if there are no incentives, as there is no investment.) The study explained the ratio this way: “For every dollar invested, the city will receive the initial dollar plus an additional 48 cents in return.”

    That sounds like a good deal, and the ratios like this that are calculated by CEDBR are often used by the city to justify incentives.

    But there is another way to look at this deal: the net value to the city. In this case, if the city did not offer the incentives, the benefits to the city would be $2,364,429. If incentives were used, the benefits would be $730,457. This means that if the city does nothing, it is $1,633,972 to the better.

    That’s right: Even though the city had an opportunity to make an investment with a purportedly high ROI, it would be better off, dollar-wise, if it did not make the investment.

    This illustrates the caveats of working with ratios. They are simply “the relation between two similar magnitudes with respect to the number of times the first contains the second.” A ratio says nothing about the absolute magnitude of the numbers.

    For more about the problems CEDBR study found with the program, see Wichita new home tax rebate program: The analysis.

  • Wichita’s WaterWalk apartment deal

    From August 2012, an episode of cronyism in Wichita.

    On Tuesday the Wichita City Council will consider the type of taxpayer-funded giveaway that voters have shown they don’t like. How council members vote may set the stage for city elections next March and April.

    Tuesday’s item involves a proposed apartment development on the west bank of the Arkansas River across from the downtown WaterWalk development. The apartment developer is WaterWalk LLC, whose manager is Jack P. DeBoer.

    The highlights of the deal include:

    1. The lease of 4.4 acres of city-owned land for $1 per year, for the next 93 years. City documents say the land is valued by Sedgwick County at $479,000. The city paid $919,695 to acquire the land in 1994 and 1995. It’s listed as for sale with an asking price of $1,153,344. The city is, however, asking the apartment developer to pay the full $93 in advance.

    2. Development of an amphitheater, which was part of the WaterWalk master plan. Originally planned to be just west of WaterWalk Place, the condominium development on Main Street, the amphitheater will now be implemented as a floating stage in the Arkansas River. A $247,500 Economic Development Initiative (EDI) grant from the U.S. Department of Housing and Urban Development (HUD) will pay for a portion of the cost. Tuesday’s agenda item asks authorization to issue a request for proposal (RFP) for this stage.

    Besides the sweetheart land lease, there are two other components of this deal that are troubling. One will undoubtedly be presented to city council members and the public as a big benefit to taxpayers, something that will actually profit the city. This is a provision that requires the apartment developer to pay “Additional Annual Rent.” Under this concept, each year the apartment developer will calculate “Adjusted Net Cash Flow” and remit 25 percent of that to the city.

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

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

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

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

    Then, there’s this: The city has agreed to allow its ownership of the land (remember, the city is leasing the land to the apartment developer) to be subordinated to other debt the apartment developer may take on, such as the mortgage that will certainly be obtained. This means that if the apartment complex doesn’t succeed and there is foreclosure, the lender takes ownership of the city’s land.

    Last week the city council passed a revision to its economic development policy that states that economic development incentives should have a cost-benefit ratio of at least 1.3 to one. No such number is given for this project.

    Waterwalk, a problematic development

    This deal is another chapter in the history of the troubled WaterWalk development. So far, WaterWalk has received some $41 million in public spending, and we have little to show for that investment.

    Three years ago the Wichita Eagle editorialized: “Seven years into a project that was supposed to give Wichita a grand gathering place full of shops, restaurants and night spots as well as offices and condos, some City Council members and citizens remain skeptical at best about WaterWalk’s ability to deliver on its big promises. … True, the skepticism to date is richly deserved.” When our newspaper’s editorial board is critical of a government spending project in downtown Wichita, that’s a red letter day.

    In 2009, after DeBoer took over the management of WaterWalk, the Wichita Eagle reported: “‘I’m not going down to City Hall with my hand out,’ DeBoer said. ‘I can’t. The city has put their money in it, and I’m happy with that. We’ve put a lot of our own money in and that’s OK. Now, time to deliver.’”

    Leasing land worth $479,000 or $1,153,344 for one dollar per year: To me, that smells like a handout. It doesn’t sound like delivering on promises.

    Around the time DeBoer took over the management of WaterWalk, Wichita city manager Robert Layton said no more public money would be put in to WaterWalk, according to Eagle reporting. Later he said those remarks were misinterpreted, with the Eagle reporting “[Layton] said the city won’t spend more on infrastructure, and that specific developments would be analyzed case by case to make sure they offer a return on investment for taxpayers and fit with the master plan.”

    Wichita, home to cronyism

    Measures like the city council will consider on Tuesday are what leads to cynicism regarding city government. It reinforces that notion that there is a network of insiders — the “good ol’ boy network” — that gets what it wants from city staff and officeholders. This deal — the sweetheart land giveaway, the deceptive appearance of profit sharing, the subordination of the city’s interests — doesn’t generate prosperity for Wichita and citizen confidence in its government. Instead, this deal contributes to the stench of cronyism that permeates and infests Wichita City Hall.

    Two recent elections have shown that Wichitans don’t much care for this culture of giveaways to the politically connected class. People don’t like crony capitalism. They know it doesn’t work. The city defends these giveaways by saying they create jobs. But Wichita economic development is failing. Our city is not doing well, in spite of all the money spent on economic development efforts.

    Additionally, when it is apparent that a “good ol’ boy” network of insiders exists at Wichita City Hall, it creates a toxic and corrosive political and business environment. Companies are reluctant to expand into areas where they don’t have confidence in the integrity of local government. Will I find my company bidding against a company that made bigger campaign contributions than I did? If I don’t make the right campaign contributions, will I get my zoning approved? Will my building permits be slow-walked through the approval process? Will my projects face unwarranted and harsh inspections?

    Last year Charles Koch, chairman of the board and CEO of Wichita-based Koch Industries, wrote in the pages of the Wall Street Journal this regarding cronyism: “Government spending on business only aggravates the problem. Too many businesses have successfully lobbied for special favors and treatment by seeking mandates for their products, subsidies (in the form of cash payments from the government), and regulations or tariffs to keep more efficient competitors at bay. Crony capitalism is much easier than competing in an open market. But it erodes our overall standard of living and stifles entrepreneurs by rewarding the politically favored rather than those who provide what consumers want.”

    WaterWalk and Jack DeBoer have already received generous financial assistance ($41 million) from the taxpayers of Wichita. That the city would consider even one dollar more is a scandal.

    Amendments to Wichita WaterWalk Developer Agreements

  • Wichita Chamber speaks on county spending and taxes

    Wichita Chamber speaks on county spending and taxes

    The Wichita Metro Chamber of Commerce urges spending over fiscally sound policies and tax restraint in Sedgwick County.

    Today the Wichita Metro Chamber of Commerce issued a “key vote” alert. This procedure, used by political groups of all persuasions, alerts elected officials that the Chamber prefers a certain outcome on an issue. Those who vote in harmony with the Chamber are likely to receive support in their next election, while the noncompliant are implicitly threatened with opponents the Chamber will support.

    Here’s what the Chamber sent to commissioners:

    From: Barby Jobe
    Sent: Tuesday, August 11, 2015 2:47 PM

    TO: SEDGWICK COUNTY BOARD OF COUNTY COMMISSIONERS

    FROM: WALTER BERRY, Vice Chair, Wichita Metro Chamber Government Relations Committee

    RE: KEY VOTE ALERT

    While we have not recently had many “key votes” at the local level, the Wichita Metro Chamber would like to alert you that we will be key voting the 2016 Budget.

    The Chamber would like to encourage the Commission to consider a compromise by leaving the property tax rate as it is currently and reducing the amount of cash-funded roads thus allowing a reallocation of funds for economic development and education, culture and recreation, city partnerships, and health and human services.

    Thank you for your consideration.

    Wichita Pavement Condition Index, from the city's 2012 Performance Measure Report
    Wichita Pavement Condition Index, from the city’s 2012 Performance Measure Report
    It’s unclear precisely what the Wichita Chamber is asking commissioners to do. It seems likely the Chamber is asking for support of “Plan C.” That is the plan drafted by commissioners Tim Norton and Dave Unruh, which proposes deferring road maintenance in order to free funds for current spending. That plan sets the county on the course chosen by the city of Wichita some years ago. That is, defer maintenance on streets and other infrastructure to support current spending. That policy lead to declining quality of streets and a large backlog of other maintenance, with a recent report from the city finding that the “cost to bring existing deficient infrastructure up to standards” is an additional $45 to $55 million per year.

    This deferral of maintenance needs is a form of deficit spending. It’s curious that a purportedly conservative organization like the Wichita Chamber of Commerce would support that.

    Well, it’s not really surprising. The Wichita Chamber has long advocated for more taxation and spending, taking the lead in promoting the one cent per dollar sales tax proposal in Wichita last year. The Chamber has supported big-spending Republicans over fiscal conservatives for office at several levels.

    Your chamber of commerce radio buttonsIn Wichita, and across the country, local chambers of commerce support crony capitalism instead of pro-growth policies that allow free enterprise and genuine capitalism to flourish.

    That may be surprising to read. Most people probably think that local chambers of commerce — since their membership is mostly business firms — support pro-growth policies that embrace limited government and free markets. But that’s usually not the case. It’s certainly is not the case in Wichita, where the Chamber supports higher taxes, more government spending, more business welfare, more government planning and control, more cronyism — and less economic freedom. The predictable result is less prosperity, which has been the case in Wichita under the leadership of the Wichita Chamber, its policies, and the politicians and bureaucrats it supports.

    Here, in an excerpt from his article “Tax Chambers” economist Stephen Moore — formerly of the Wall Street Journal and now with Heritage Foundation — explains the decline of the local chamber of commerce:

    The Chamber of Commerce, long a supporter of limited government and low taxes, was part of the coalition backing the Reagan revolution in the 1980s. On the national level, the organization still follows a pro-growth agenda — but thanks to an astonishing political transformation, many chambers of commerce on the state and local level have been abandoning these goals. They’re becoming, in effect, lobbyists for big government.

    …

    In as many as half the states, state taxpayer organizations, free market think tanks and small business leaders now complain bitterly that, on a wide range of issues, chambers of commerce deploy their financial resources and lobbying clout to expand the taxing, spending and regulatory authorities of government. This behavior, they note, erodes the very pro-growth climate necessary for businesses — at least those not connected at the hip with government — to prosper. Journalist Tim Carney agrees: All too often, he notes in his recent book, “Rip-Off,” “state and local chambers have become corrupted by the lure of big dollar corporate welfare schemes.”

    …

    In the states, chambers have come to believe their primary function is to secure tax financing for sports stadiums, convention centers, high-tech research institutes and transit boondoggles. Some local chambers have reportedly asked local utilities, school administrators and even politicians to join; others have opened membership to arts councils, museums, civic associations and other “tax eater” entities.

    …

    “I used to think that public employee unions like the NEA were the main enemy in the struggle for limited government, competition and private sector solutions,” says Mr. Caldera of the Independence Institute. “I was wrong. Our biggest adversary is the special interest business cartel that labels itself ‘the business community’ and its political machine run by chambers and other industry associations.”

    From Stephen Moore in the article “Tax Chambers” published in The Wall Street Journal February 10, 2007. The complete article is here.