Tag Archives: Economic development

Wichita downtown boom could be over before it starts

As Wichita moves towards the release of the plan for the revitalization of its downtown, urban planners — both local and out-of-town — tell us that there’s a big demand for downtown living. People are tired of suburban living, they say. The recent draft presentation by the city’s planning firm Goody Clancy contained bullet points like “who favor living and working in vibrant downtowns” and “and they are part of broad demographic trends that are much more ‘downtown friendly’ …e.g., almost two-thirds of Wichita’s households include just one or two people.”

Or, as “uber-geographer” Joel Kotkin wrote in the Wall Street Journal this week: “Pundits, planners and urban visionaries — citing everything from changing demographics, soaring energy prices, the rise of the so-called ‘creative class,’ and the need to battle global warming — have been predicting for years that America’s love affair with the suburbs will soon be over.”

But as Kotkin later writes: “But the great migration back to the city hasn’t occurred.”

Kotkin cites some figures showing the decline in the market for downtown condos in a few cities, and concludes “Behind the condo bust is a simple error: people’s stated preferences.” He shows some figures that support his contention that “Demographic trends, including an oft-predicted tsunami of Baby Boom ’empty nesters’ to urban cores, have been misread.”

These demographic trends are behind the analysis that Goody Clancy uses to promote its vision for downtown Wichita. Kotkin’s research ought to give us concern that downtown visionaries are leading Wichita down a path that really isn’t there.

Kotkin issues a note of caution for urban planners: “The condo bust should provide a cautionary tale for developers, planners and the urban political class, particularly those political ‘progressives’ who favor using regulatory and fiscal tools to promote urban densification. It is simply delusional to try forcing a market beyond proven demand.”

What does this mean for Wichita? Wichita’s planners and leaders are promoting a light-handed approach to downtown development, saying, for example, that public financing will be only for public purposes. But Wichita has a history of heavy-handed interventionism in markets, using economic development tools of all types. And as the mayor recently said at a council meeting, he’s recently learned of new types of incentive programs that other cities are using.

So I think Wichita’s leaders definitely will use the “regulatory and fiscal tools” that Kotkin warns of. It’s only without government intervention that we’ll know whether Wichitans really prefer suburban, downtown, or other forms of living. Urban planners and city hall bureaucrats can’t tell us that.

The Myth of the Back-to-the-City Migration

The condo bust should lay to rest the notion that the American love affair with suburbia is over.

Pundits, planners and urban visionaries—citing everything from changing demographics, soaring energy prices, the rise of the so-called “creative class,” and the need to battle global warming—have been predicting for years that America’s love affair with the suburbs will soon be over. Their voices have grown louder since the onset of the housing crisis. Suburban neighborhoods, as the Atlantic magazine put it in March 2008, would morph into “the new slums” as people trek back to dense urban spaces.

But the great migration back to the city hasn’t occurred. Over the past decade the percentage of Americans living in suburbs and single-family homes has increased. Meanwhile, demographer Wendell Cox’s analysis of census figures show that a much-celebrated rise in the percentage of multifamily housing peaked at 40% of all new housing permits in 2008, and it has since fallen to below 20% of the total, slightly lower than in 2000.

Continue reading at the Wall Street Journal (subscription required) or at Kotkin’s website.

In Kansas Legislature, a bad year for freedom and liberty

It was a bad year for economic freedom in the Kansas Legislature. There were the big votes that most people know of — the big-spending budget, the increase in the sales tax, and the statewide smoking ban — but the legislature passed — and the governor signed — many other laws that chip away at personal liberty and economic freedom. The following list contains many of these bills.

This list was produced by Bob Corkins of Kansas Votes, a project of the Kansas Policy Institute. It contains only bills that were enacted into law. There were, of course, some bad bills that didn’t make it all the way through the lawmaking process.

Corkins said that 2010 was the worst session for personal liberty that he could think of in more than two decades of working in the Kansas Statehouse. In many cases these bills had broad support among conservatives.

Some of these bills are concerned with what people might consider to be minor, unimportant matters. But the legislature thought they were important enough to be the subject of legislation. And while some might seem to chip away at personal liberty and economic freedom in small, insignificant ways, taken together over years, it all adds up.

Further, when lawmakers pass laws like this and no one complains, and when they get re-elected year after year, it emboldens them to take on bigger challenges to personal liberty and economic freedom, like increasing sales or other taxes. It hardens their resolve to block expansions of economic freedom like school choice programs.

An example of a bill contrary to personal liberty and economic freedom is House Bill 2130, which requires every occupant of a car to wear a safety belt. Now I happen to think seat belts are a great idea. I always wear mine and ask everyone in my car to wear theirs. But it’s a different matter when the state requires their use. It’s an example of lawmakers trying to protect us from ourselves. Once they start down this road, it’s very difficult for them to stop.

I’m aware of the argument that says because automobile accidents produce serious and costly injuries that drive up the cost of health care for everyone, and seat belt use reduces the severity of these injuries, we ought to regulate the behavior of people by requiring use of seat belts. We can expect to see arguments made like this more often as our nation moves towards greater collectivization of health care and its costs. What we ought to do, however, is reverse this trend in health care.

An example of a move away from a uniform tax system is House Bill 2554, authorizing the PEAK (Promoting Employment Across Kansas) program. This program allows certain employers to keep most of the withholding tax their employees pay. Programs like this are contrary to economic freedom because, in this case, we have the state deciding how to direct resources. An alternative that is in harmony with economic freedom is to rely on free markets for this guidance. Besides being contrary to economic freedom, there is scant evidence that economic development programs like this work, in terms of increasing overall prosperity.

Don’t think for a moment, however, that conservative Kansas legislators rose in opposition to this bill and its intervention into free markets. In the Senate, the bill passed 40 to zero. In the House, the bill passed 109 to 12. Of the 12 votes in opposition, eleven were from Democrats who mostly have far-left voting records. Brenda Landwehr was the only Republican to vote against this bill.

Another example of government intervention in markets is Senate Bill 430, which restored and boosted a historic preservation tax credit program. In my testimony to a House committee on this bill, I said “We must recognize that a tax credit is an appropriation of Kansans’ money made through the tax system. If the legislature is not comfortable with writing a developer a check for over $1,000,000 — as in the case with one Wichita developer — it should not make a roundabout contribution through the tax system that has the same economic impact on the state’s finances.”

Principles of economic freedom and personal liberty contend that the state should not be spending this money, whether through direct appropriations or the tax system. Very few conservatives voted against this bill on these principles.

The following list of enacted bills is ordered, Corkins says, from the “most atrocious to the merely very bad.” Each bill is linked to its page on Kansas Votes.

Senate Bill 572 (Propose state budget for 2011)
to approve a state budget that would authorize total spending for the current 2010 fiscal year of $5.416 billion in State General Fund spending (SGF, that portion of the budget paid primarily with state-imposed sales and income taxes) and $14.414 billion from All Funds (including SGF, federal aid, and state agency fees), and for spending $5.621 billion SGF and $13.685 from All Funds in fiscal year 2011.

House Bill 2360 (Increase state sales, income taxes)
to enact a state sales tax increase from the current 5.3 percent up to 6.3 percent, amend the Kansas Taxpayer Transparency Act, expand the food sales tax rebate program, and expand the state earned income tax credit (EITC) program.

House Bill 2221 (Ban smoking in public and workplaces)
to ban smoking in enclosed areas, including all public places, any placy of employment, taxicabs, hallways and more, but would not apply to outdoor areas, private residences, hotel or motel rooms, tobacco shops, certain private clubs and casino gaming floors.

House Bill 2320 (Impose nursing home tax)
to create a provider assessment tax on nearly all licensed beds within skilled nursing care facilities in the state of Kansas; deem the Kansas Health Policy Authority to be the state agency to calculate and implement the provider assessment; establish a Quality Care Fund where all assessments and penalties collected through the assessment program would be deposited; and, establish a Quality Care Improvement Panel.

House Bill 2356 (Increase state inspections of child care facilities)
to adopt “Lexie’s law” requiring the Department of Health and Environment to inspect every child care facility once every 15 months. The inspection frequency of a family child care home following an initial inspection will be at intervals that the department determines to be appropriate to assess the health, safety and well-being of children being cared for in the family child care home. In addition, to open certain records to the public regarding the identity of maternity center, family day care home, and child care facility licensees, but would allow the state to withhold such information if necessary to protect public health and safety or that of the facility’s patients or children.

House Bill 2130 (Mandate seat belts, allow traffic stops)
to amend state law to require every occupant of a passenger care to wear a safety belt. A law enforcement officer would now be permitted to stop a passenger car for any violation of the seat belt requirement by anyone in the front seat or anyone under 18. The fine for violations would be $5 until July 1, 2011, when it would increase to $10.

House Bill 2650 (Launch new state transportation works program)
to initiate a new state transportation works program, providing for the construction, improvement and maintenance of the state highway system; authorizing financial transfers between the State Highway Fund and the Rail Service Improvement Fund; increasing vehicle registration fees; increasing the borrowing authority of the Kansas Department of Transportation; and, pledging $8 million in transportation projects for each county in Kansas over the next 10 years.

Senate Bill 409 (Development of passenger rail service in Kansas)
to authorize the Kansas Secretary of Transportation to establish and implement a passenger rail service program in the state. To establish the program, the Secretary would enter into agreements with Amtrak and other rail operators to develop passenger rail service serving Kansas and other state. The agreements can include cost-sharing agreements and joint powers agreements. The Secretary should also enter into agreements with local jurisdictions along a proposed route. The bill also gives the Secretary authority to make loans or grants to passenger rail service providers for the purpose of restoring existing rail infrastructure, for rail economic development projects and the cost to initiate and operate passenger rail service. The bill does not specify where program funding would come from.

House Bill 2476 (Extend and increase court fees)
to increase a number of court fees and extend such judicial branch surcharges through fiscal year 2011 to fund non-judicial personnel working in the court system; the compromises recommended would alter specific fee increases for specific court actions with the fees ranging generally between $10 and $20.

Senate Bill 200 (Repeal partial HMO tax, apply full rate to all)
to repeal the partial state tax of 0.5 percent imposed on premiums charged against a few Health Maintenance Organizations so that the full one percent premiums tax would be applied uniformly against all HMOs.

House Bill 2582 (Extend and reallocate e-911 tax revenue to locals)
to delay for one year — until July, 1, 2011 — a provision in current law that discontinues the wireless enhanced 911 grant fee and the VoIP enhanced 911 grant fee, abolishes the wireless enhanced 911 advisory board and the grant fund, and that directs the distribution of the unobligated balance in the grant fund to public safety answering points (PSAPs).

House Bill 2554 (Expand tax incentives for hiring new workers)
expanding the PEAK program (Promoting Employment Across Kansas) by liberalizing its definitions, relaxing its requirements so that a company would be eligible if it relocated or expanded a portion of its business operations into the state, permitting qualified companies to retain 95 percent of the employees’ withholding taxes if the median wage paid to the new employees at least equals that paid throughout the county, and by requiring an independent evaluation of economic development incentives administered by the Kansas Department of Commerce.

House Bill 2226 (Change earmarks of traffic fine revenue, increase fines)
to increase the fine assessed on traffic infractions that are on the uniform fine schedule by $15. The revenue generated by the increased fines would be distributed to several justice related programs, including the Crime Victims Compensation Fund, the Crime Victims Assistance Fund, the Community Alcoholism and Intoxication Programs Fund, the Boating Fee Fund, the Children’s Advocacy Center Fund, and the criminal justice information system line fund.

Senate Bill 430 (Limit use of certain tax credits)
make a 10 percent cut in certain income tax credits permitted under current law; repeal a $3.75 million cap that had been imposed on historic preservation income tax credits; make statutory amendments needed for Kansas to remain in national compliance with the streamlined sales tax act; impose a $10 fee for delinquent taxpayers who enter into an installment payment plan agreement in excess of 90 days from the date of the payment plan agreement; and, people with intangibles tax liability would be required to file their returns with county clerks, rather than the Department of Revenue.

House Bill 2501 (Allow exemption from liability limit on mortgage insurers)
to allow the Kansas Department of Insurance to waive (at the sole discretion of the Commissioner of Insurance) the current requirement that a mortgage guaranty insurance company must have a total liability that does not exceed 25 times its capital, surplus and contingency reserve; to amend the definition of “RBC instruction” to mean risk-based capital instructions promulgated by a specified national insurance association; to prohibit firms that offer health care plans from requiring or requesting genetic tests, and prohibiting insurance companies from charging a higher premium because of any genetic test results; and, to grant rights to insurance customers in seeking special exceptions for cases in which their credit histories may affect their insurance coverage, allowing any such customer who experiences an “extraordinary life circumstance” that hurts their credit, and thereby causes an adverse insurance action, to obtain reasonable exceptions to the insurer’s rates.

House Bill 2485 (Increase evaluation period for trucking licenses)
to increase the time period from the current 12 up to 18 months for the Kansas Corporation Commission to verify a trucking company’s fitness and regulatory compliance for its continued operation.

House Bill 2472 (Specify rights in common interest communities)
to enact a set of rights and duties regarding people who live in common interest communities such as associations of apartment owners, but not owners currently and similarly bound by covenants unless they agree otherwise – setting forth duties in such communities regarding bylaws, owner voting rights, dispute resolutions, access to property, borrowing money, communications with owners, recordkeeping, and other matters; to prohibit until July 1, 2011, any city from adopting or enforcing any rule requiring the installation of a multi-purpose residential fire protection sprinkler system; and, to decrease down to 90 days, but permit a court to extend to up to 180 days, a compliance period for an abandoned property owner to carry out a rehabilitation plan where the property is brought into compliance with fire, housing and building codes and current on all ad valorem property tax owed, and to reduce from three to two years the time a person who purchases a house from an organization that has rehabilitated an abandoned property must occupy the house.

Senate Bill 389 (Compensation to dentists in health insurance plans)
to only permit a health insurance plan — including any individual health insurance policy, the State Children’s Health Insurance Plan and the state Medicaid program — to set fees for covered services (and not for uncovered services)provided by a dentist who is a participating provider in the plan.

Senate Bill 377 (Regulate retainage in construction contracts)
to prohibit an owner, contractor or subcontractor from withholding more than a five percent limit on the contract as retainage (money withheld to ensure proper work performance); to require release of retainage on an undisputed payment within 30 days after substantial completion of the project; to permit no more than 150 percent of the value of incomplete work, due to a contractor or subcontractor, to be withheld by an owner or contractor and require it be paid within 45 after completion of the work; and, to permit a general contractor to request an alternative security in lieu of retainage, such as an irrevocable bank letter or credit, certificate of deposit or cash bond.

Senate Bill 373 (Amending application of municipal court fees)
to require a $19 municipal court fee be imposed uniformly statewide in each case filed in municipal court, other than a nonmoving traffic violation, where there is a finding of guilty, a plea of guilty, a plea of no contest, or a forfeiture of bond or a diversion.

House Bill 2433 (Liberalize school purchasing process, Prison sales)
to allow all state educational institutions more independence in choosing how they acquire goods, supplies, equipment, services and land leases without the need to route acquisitions through the Kansas State Director of Purchases; and, to authorize the Department of Corrections for the next three years to sell prison-made goods to private citizens and businesses in Kansas.

House Bill 2415 (Exempt universities from surplus property law)
to exempt the six Kansas Regents universities from the current duty to dispose of any of their personal property through the terms of the Kansas Surplus Property Act. That law ordinarily makes the goods available for sale to the general public.

House Bill 2411 (Criminalize incense, “K2”)
to criminalize the unauthorized use or possession of certain chemicals known as “K2”, BZP and TFMPP that have been added to herbs and incense to produce hallucinogenic effects when inhaled or consumed.

House Bill 2353 (Ratify local sales tax vote for jail)
to retroactively validate a local election last year in Chautauqua County to impose a countywide sales tax where money raised would pay for a new county jail and law enforcement facility.

House Bill 2160 (Require state workers’ health plan to cover autism)
to require the state employees’ health plan to cover services for the diagnosis and treatment of autism spectrum disorders in any covered person less than 19 years old, and to require health insurance policies include coverage provisions for orally administered anti-cancer medications.

Senate Bill 83 (Require licensure of naturopathic doctors)
to change the regulatory status of naturopathic doctors with the Board of Healing Arts from registrants to licensees and to permit naturopaths to form professional corporations; and, to include two licensure categories — “exempt license” and “federally active license” — in the Physical Therapy Practice Act.

Hayek’s star on the rise, sometimes

Partly due to Glenn Beck’s interest, a book and its ideas is receiving increased attention. F.A. Hayek is the author, and The Road to Serfdom is the book.

Personally, I find the book difficult to read. An example of Hayek’s writing is from the jacket notes prepared by the author himself: “The economic freedom which is the prerequisite of any other freedom cannot be the freedom from economic care which the socialists promise us and which can be obtained only by relieving the individual at the same time of the necessity and of the power of choice: it must be the freedom of economic activity which, with the right of choice, inevitably also carries the risk and the responsibility of that right.”

Someone else might have written: “A socialist government that provides for our needs doesn’t make us free. Freedom, both economic and political, comes from having choices and the power to exercise them. With that comes responsibility and risk.”

I might suggest interested readers look to The Reader’s Digest condensed version of The Road to Serfdom, which may be purchased or read online at the Institute of Economic Affairs. The forward by Walter E. Williams is especially valuable.

(Hayek’s realization of the importance of economic freedom is one of the reasons why I named my analysis of votes of the Kansas Legislature the Kansas Economic Freedom Index.)

This week George Mason University’s Russell Roberts wrote about The Road to Serfdom in the pages of the Wall Street Journal. The article, titled Why Friedrich Hayek Is Making a Comeback and available only to subscribers, lists four of Hayek’s important ideas:

First, “[Hayek] and fellow Austrian School economists such as Ludwig Von Mises argued that the economy is more complicated than the simple Keynesian story.”

Second, Hayek recognized the Federal Reserve’s control of monetary policy as a factor in the business cycle. Applied to current events, Roberts writes: “Former Fed Chairman Alan Greenspan’s artificially low rates of 2002-2004 played a crucial role in inflating the housing bubble and distorting other investment decisions. Current monetary policy postpones the adjustments needed to heal the housing market.”

Third, “political freedom and economic freedom are inextricably intertwined. In a centrally planned economy, the state inevitably infringes on what we do, what we enjoy, and where we live.”

Fourth, “order can emerge not just from the top down but from the bottom up. … Hayek understood that the opposite of top-down collectivism was not selfishness and egotism. A free modern society is all about cooperation. We join with others to produce the goods and services we enjoy, all without top-down direction. The same is true in every sphere of activity that makes life meaningful — when we sing and when we dance, when we play and when we pray. Leaving us free to join with others as we see fit — in our work and in our play — is the road to true and lasting prosperity. Hayek gave us that map.”

In Wichita, we see the importance of economic freedom ignored — trampled upon, I might say — on a regular basis as the City of Wichita seeks to direct economic development in our town from city hall. We are entering an especially dangerous period, as the master plan for the revitalization of downtown Wichita will soon be in place. This form of centralized planning by government is precisely what Hayek warns against.

Why Friedrich Hayek Is Making a Comeback

With the failure of Keynesian stimulus, the late Austrian economist’s ideas on state power and crony capitalism are getting a new hearing.

By Russ Roberts

He was born in the 19th century, wrote his most influential book more than 65 years ago, and he’s not quite as well known or beloved as the sexy Mexican actress who shares his last name. Yet somehow, Friedrich Hayek is on the rise.

When Glenn Beck recently explored Hayek’s classic, “The Road to Serfdom,” on his TV show, the book went to No. 1 on Amazon and remains in the top 10. Hayek’s persona co-starred with his old sparring partner John Maynard Keynes in a rap video “Fear the Boom and Bust” that has been viewed over 1.4 million times on YouTube and subtitled in 10 languages.

Why the sudden interest in the ideas of a Vienna-born, Nobel Prize-winning economist largely forgotten by mainstream economists?

Continue reading at the Wall Street Journal (subscription required)

Wichita downtown master plan meetings scheduled

Recently planning firm Goody Clancy presented the master plan for the revitalization of downtown Wichita. This plan is in “draft” form, meaning that input is being solicited, with revisions appearing in the final version expected to be ready in September.

In order that citizens may become familiar with the draft plan, the Wichita Downtown Development Corporation, the City of Wichita, and Visioneering Wichita will present the plan at a series of community meetings. The schedule is:

July 7: Atwater Neighborhood City Hall (2755 E. 19th St. N.)
July 8: Evergreen Library (2601 N. Arkansas)
July 12: Haysville Public Library (210 S. Hays)
July 13: Bel Aire City Hall (7651 E. Central Park Ave.)
July 14: Derby City Hall (611 Mulberry)
July 19: 1st United Methodist Church (330 N. Broadway) Meredith Room
July 20: WSU Metroplex (5015 E. 29th St. N.) Entrance C
July 21: Sedgwick County Extension (7001 W. 21st St.)

All meetings begin at 7:00 pm.

Wichita should follow Lawrence’s lead in tax warnings

Is there a point where sales taxes become so high that consumers need to be warned?

Sales tax is already high in the northeast Kansas college town of Lawrence, home to the University of Kansas Jayhawks. After July 1, the combined sales tax rate — state, county, and city — will be 8.85 percent.

Lawrence has two districts where an extra one cent per dollar is added to that. Like Wichita, Lawrence is considering creating Community Improvement Districts, where merchants add up to another two cents per dollar in sales tax. The proceeds of that extra sales tax go to the exclusive benefit of the district.

In Lawrence, therefore, the sales tax in some parts of town could reach 10.85 percent. On in round numbers, eleven cents per dollar spent.

That has the mayor and some city council members concerned, according to reporting in the Lawrence Journal-World. According to the article: “Commissioners said they have heard multiple concerns from residents who fear they may buy products at locations without knowing they are paying the extra tax.”

That’s a problem. Most people are generally aware of their state’s sales tax rate, and of that in the city where they live. But shoppers are just starting to realize that different stores in a city may charge different sales tax rates. A Kansas Reporter story has more on this.

So the issue is this: should high-tax zones be required to post signage warning shoppers that they’ll pay more sales tax by shopping there?

Some in Lawrence are worried that the signs are bad for business, both within the high-tax districts, but also for the city as a whole. I think they’re right: taxes — and the realization thereof — are bad for business and consumers.

In Wichita, the only community improvement district approved so far is for a hotel. According to Wichita City Council Member and Vice Mayor Jeff Longwell, the fact that the extra sales tax will be paid almost exclusively by visitors to our city is a wise economic development strategy.

With or without signs warning of high sales tax districts, local shoppers will eventually learn where these districts exist. Our out-of-town visitors, however, probably won’t learn of the high tax rates until they receive their bill. Then, one of two realizations will set in: They’ll either curse themselves for staying at a hotel in a special high-tax district, or they they may form an impression that sales tax is very high in the entire City of Wichita or State of Kansas.

Either way, Longwell’s soak-the-visitors tax strategy isn’t likely to make Wichita many friends.

Letters on Wichita Bowllagio

Letters recently appeared in the Wichita Eagle regarding the proposed Bowllagio project, a west side entertainment destination. Bowllagio is planned to have a bowling and entertainment center, a boutique hotel, and a restaurant owned by a celebrity television chef.

The developers of this project propose to make use of $13 million in STAR bond financing. STAR bonds are issued for the immediate benefit of the developers, with the sales tax collected in the district used to pay off the bonds. The project also proposes to be a Community Improvement District, which allows an additional two cents per dollar to be collected in sales tax, again for the benefit of the district.

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Property rights

Imagine paying your mortgage and taxes for many years, only to get a knock on your door one day. A real estate developer tells you he wants your land.

That’s what happened to a couple on South Maize Road in the boundaries of the proposed Bowllagio sales-tax-and-revenue (STAR) bonds district. They were offered the county-appraised value, plus 10 percent, for their home. But they don’t want to move, as they couldn’t find a comparable property for what the developer offered.

Now the homeowners are concerned they may be forced out of their home through the process of eminent domain. This forceful taking of property by government is one of the worst possible violations of private property rights.

Wichita Mayor Carl Brewer said that the city does not intend to use eminent domain for the proposed Bowllagio entertainment complex.

That’s good news. The city can and should affirm this promise by writing it into the Bowllagio authorizing ordinance. Supporting private property rights is essential; the use of public funds for private projects is bad policy.

Susan Oliver Estes
Wichita

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Let developer fill funding gap

Bowllagio’s representative told the Wichita City Council last week that the developer needed $13 million in public money to fill the projected funding shortfall for the project to be economically feasible. I believe the developer needs to dig deeper into his own pocket to fill this funding gap, or seek private venture capital.

As an experienced real estate practitioner, I am aggrieved that the Wichita mayor and City Council members lack the necessary experience to properly evaluate these projects. They have proved to be little match in protecting the public treasury against sophisticated developers accustomed to using the public purse as part of their real estate funding formulas.

The investment of public money in bowling alleys, restaurants, shops and hotels that compete with existing businesses that offer the same services is not a proper role for government to play and is wrong. It creates an unlevel playing field for those businesses that compete in the same market using their own money.

If the Bowllagio development venture is an economically feasible project, the private developer will find the private money he needs to fund it.

John R. Todd
Wichita

Wichita economic development official to speak

This Friday (June 18) Vicki Pratt Gerbino, president of the Greater Wichita Economic Development Coalition, will address members and guests of the Wichita Pachyderm Club.

The Greater Wichita Economic Development Coalition, also known as GWEDC, is responsible for economic development in the Wichita area, such as recruitment and retention of “economic driver industries” in Wichita and Sedgwick County.

All are welcome to attend Wichita Pachyderm Club meetings. The program costs $10, which includes a delicious buffet lunch including salad, soup, two main dishes, and ice tea and coffee. The meeting starts at noon, although it’s recommended to arrive fifteen minutes early to get your lunch before the program starts.

The Wichita Petroleum Club is on the ninth floor of the Bank of America Building at 100 N. Broadway (north side of Douglas between Topeka and Broadway) in Wichita, Kansas (click for a map and directions). You may park in the garage (enter west side of Broadway between Douglas and First Streets) and use the sky walk to enter the Bank of America building. The Petroleum Club will stamp your parking ticket and the fee will be only $1.00. Or, there is usually some metered and free street parking nearby.

Wichita Bowllagio hearing produces only delay

Yesterday’s meeting of the Wichita City Council featured a lengthy public hearing for a proposed west-side entertainment development known as Bowllagio. Bowllagio is planned to have a bowling and entertainment center, a boutique hotel, and a restaurant owned by a celebrity television chef.

The developers of this project propose to make use of $13 million in STAR bond financing. STAR bonds are issued for the immediate benefit of the developers, with the sales tax collected in the district used to pay off the bonds. The project also proposes to be a Community Improvement District, which allows an additional two cents per dollar to be collected in sales tax, again for the benefit of the district.

The Kansas STAR bond process calls for several steps: First, a local governing body, like the City of Wichita, must approve the concept and set boundaries for the project. This is what yesterday’s agenda item called for. If approved by the council, the Kansas Secretary of Commerce would examine the project to see if it meets statutory criteria. If the Secretary approves the project, the city is then required to prepare a project plan and hold another public hearing concerning whether to adopt the project plan. The project plan must be passed by a two-thirds supermajority of the council.

One of the elements of the project plan, according to the 2010 Kansas Legislator Briefing Book, is a “marketing study conducted to examine the impact of the special bond project on similar businesses in the projected market area.” The effect of Bowllagio on existing Wichita-area businesses was a major source of concern for both council members and citizens speaking at the public hearing.

Speaking during the public hearing, Ray Baty, who is manager of a Wichita bowling center, said Bowllagio is not a new concept, but rather one that would compete with existing programs already in Wichita. The C.A.T.S. system, a training system promoted by Bowllagio developers, is actually a portable system, Baty said.

He contended that introduction of Bowllagio to the market will not grow the market for bowling, but will further divide the existing market, resulting in a loss of revenue and profit for existing bowling centers. He said that bowling centers lose six percent of their customers each year, a trend that he said is national.

Frank DeSocio, owner of several bowling centers in Wichita, told the council that the bowling training promoted by Bowllagio developers already happens in Wichita at the present. He mentioned five full-time bowling teachers and coaches already working in Wichita bowling centers.

He added that Wichita does very well in obtaining and hosting tournaments, mentioning 17 PBA live televised tournaments that took place in Wichita, 10 regional events, a BPA womens’ open, six intercollegiate championships that were televised live, and numerous Kansas state high school championships.

“Everything the Maxwell Group [developer of Bowllagio] claims they want to do is already being done in Wichita by the current bowling centers,” qualifying that he’s speaking only of the bowling side of the Bowllagio proposal, not the restaurants.

In my remarks to the council, I mentioned that Wichita has had examples of restaurants or other establishments being announced — sometimes by the mayor in his annual state of the city address — but then the development failed to materialize. I expressed concern that we might commit to a large amount of STAR bond financing based on big plans that never advance beyond some small initial stage.

Susan Estes told the council that “this is an extremely profound day” for the City of Wichita. She asked will the city help one business owner over another business owner in the same industry? She said that Bowllagio has some unique aspects, but it is a bowling alley. Its other entertainment features are also available in Wichita. We are using tax money to compete against existing businesses, she said.

In response to a question by a homeowner in the project area, the mayor, indicating he believed he speaks for the council, said the council would not support using eminent domain to remove the homeowner from his home.

During discussion by council members, a subject of controversy was whether approving project boundaries and forwarding the application to the Secretary of Commerce constitutes an endorsement of the project by the City of Wichita. Some council members wanted to pass an ordinance that would establish the boundaries of the district, and then have the Secretary decide whether the project meets the statutory requirements for a STAR bond project. Wichita economic development director Allen Bell mentioned that the council’s endorsement of the project might be a factor the Secretary would consider in determining whether to approve the project.

A question from Council Member Lavonta Williams elicited Bell’s further opinion that the Secretary is “looking for a signal from the council” regarding its support for the project. Lack of local support, he added, would be taken in a “negative way.” Council Member Paul Gray agreed with this assessment.

Vice Mayor Jeff Longwell disagreed, saying that all the Secretary needs is a geographic boundary for the proposed project. He contended that the process starts with setting the boundaries, and that other questions are difficult or impossible to answer without doing this. There are too many unknowns, he added, to give this project a formal endorsement at this time.

Longwell also mentioned a report that showed that the south-central region of Kansas, which includes Wichita, receives fewer state economic development funds, relative to population, than the northeast Kansas region. He said we needed to “equal the playing field.”

Longwell said he didn’t want to put together a package that would harm existing businesses, saying he wouldn’t vote for the project if an independent study showed that result would happen.

Council Member Jim Skelton asked about the property taxes the development would pay. Bell replied that the property taxes should increase by a large amount, as the land is vacant now and is planned to receive $95 million of development. He said that while STAR bonds and Community Improvement District financing is proposed for this development, the plan does not include property tax abatements, industrial revenue bonds, tax increment financing, or any other diversion of property taxes.

Council Member Janet Miller asked if the Kansas STAR bond statutes prohibited adding these other types of incentives to the project. The answer, according to Bell, is that these programs could be added on to this development, as has been done in some Kansas STAR bond districts.

Later Miller referred to the “lack of information to make an education decision about the project.” She wondered why the developers would not spend “one-tenth of one percent of their $50 million dollar investment” ($50,000) to produce the studies that would give the council the information it needs to decide whether to send the project to the Secretary of Commerce with its support.

When City Manager Bob Layton suggested a delay to gather more information from the developers, council members readily agreed. Layton said that city staff will visit with the developers, looking for an approach that will make council members comfortable with proceeding, addressing some of the information needs expressed today.

Due to scheduling, Layton said that this matter would need to appear on next week’s agenda, or there would be a one month delay before it could be considered at a council meeting.

The council voted unanimously to defer the item for one week, and to keep open the public hearing.

Analysis

An important issue to many council members is the potential harmful affect of Bowllagio on existing businesses, particularly bowling centers. Miller’s suggestion that the developers spend the money to have an independent assessment of this performed is entirely sensible.

But I don’t think a study of that scope can be performed in one week. As it is now, the city will probably rely on information provided by the developers. It must be recognized that they have a $13 million incentive to produce information favorable to their cause. In his remarks, Gray recognized that proof that Bowllagio will not harm existing businesses will not come from “somebody advocating for the project.” It would require a third-party, independent analysis, he said.

As of now, it is difficult to see how information that will satisfy council members can be produced by next week’s meeting.

In my opinion, the local bowling center operators are justifiably concerned that a subsidized competitor will harm their business. They were able to show that many of the purportedly unique aspects of the Bowllagio concept are already available in Wichita, and have been for some time.

Further, it’s not only direct competitors such as bowling centers that we need to be concerned for. Since the development is proposed to include a Mexican restaurant, what will its impact be on existing Mexican restaurants? And not only restaurants offering that cuisine, but all other restaurants?

In a broader sense, a subsidized business competes with all other businesses in the market for employees and other goods and services that all business firms purchase.

Longwell’s contention that we can still “kill” the project at a later date if reports come back showing negative impact on local businesses is, in my opinion, an empty promise. If the Kansas Secretary of Commerce approves this project, it would be very difficult for the council to vote against Wichita receiving $13 million in state tax dollars, especially in light of Longwell’s argument that the Wichita area doesn’t receive nearly enough of this economic development money.

While council members such as Schlapp say they’re in favor of free markets, she and the other council members nearly always vote in favor of intervention in markets. The fact that the city council members have so many questions about the proposal tells us that this plan is, in fact, a form of centralized planning by government.

As I remarked to the council, developments such as this are portrayed as a success story, in that someone has confidence in Wichita because they’re investing here. But I wonder why these people won’t invest in Wichita unless they receive millions in payments or tax forgiveness from the city, county, school board, and/or state.

Aren’t the real heroes in Wichita the people — many of them small business owners — who invest in Wichita without the benefit of TIF districts, tax abatements, STAR bonds, or other forms of subsidy or incentive?

These people, besides facing subsidized competition, additionally have to pay the taxes that make the subsidies to others possible.

Regarding the mayor’s statement that eminent domain will not be supported for this project: Kansas law does not prohibit the use of eminent domain to acquire property in a STAR bond district (K.S.A. 12-17,172).

If the city wants to assure property owners that their property will not be subject to seizure by eminent domain, the city can add language to that effect in the ordinance. With four city council positions — including the mayorship — up for election next spring, it’s possible that a future city council might not be opposed to the use of eminent domain. This change could take place during the time Bowllagio developers are acquiring property. An ordinance would help prevent this from happening.

Similarly, if it is not the intent of the developers to seek additional forms of subsidy such as tax increment financing or property tax abatements, appropriate language could be added to the authorizing ordinance.

Wichita Warren Theater groundbreaking raises policy issues

Friday’s groundbreaking of a new Warren Theater and renovation of the existing theater in west Wichita provide an opportunity to revisit some of the public policy issues surrounding Wichita city government and its intervention in the economy in the name of economic development.

Wichita Mayor Carl Brewer and Vice Mayor Jeff Longwell claim that the economic development incentives or subsidies offered to Warren do not cost Wichita taxpayers anything.

Reading comments left to stories at various media outlets, there is definitely a problem with citizens understanding the nature of the city’s industrial revenue bond program. There is no money being lent by the city, as many citizens seem to believe. Instead, the benefit of the program is the escape from paying property taxes and possibly sales taxes. The fact that tax forgiveness is mixed in with a private loan or bond purchase is definitely a source of confusion. The city should seek to simplify this program, if it intends to continue this practice.

But what about the claim that tax forgiveness does not cost other taxpayers? Will the new theater make use of city services such as fire and police protection? Will employees of the theater send their children to public schools? Vice mayor Longwell says that the city is not adding new police officers because of the new theater, so there is no additional cost for police protection. At the margin, that may be true — each additional house or building does not require a new policeman be hired. But at some time, additional city services and personnel will be required.

The city’s practice of liberally granting tax abatements goes against the constant refrain that we must “build up the tax base.” The city’s position is that by “investing” in tax breaks, the city will gain more revenue in the future.

The fallacy of the city’s investment philosophy can easily be seen. When the city grants tax abatements, there is a cost-benefit analysis that accompanies the proposal. The rationale of this analysis that by giving up tax revenue now, more will flow in at some future time.

That’s the source of the fallacy. The return to the city and other governmental units is more tax revenue. Is it the purpose of the city to generate more and more tax revenue? Is it productive to grant one taxpayer favored status so that other hapless taxpayers can be soaked instead?

When a business invests, it does so in order to increase its productive capacity so that it can earn higher future profits, those profits — or losses — being the measure of success of the investment. Government has no ability to calculate profit and loss, and therefore has no way to judge whether its investment has been wise and productive.

There is also, of course, the concept that private business investment is voluntary, while the action the city takes is not voluntary. Citizens must comply.

The companies that receive tax breaks are often prominent companies that ask for large tax abatements. It is worth considerable time and effort — and campaign contributions — for these companies to pursue these benefits. Small companies, however, often don’t fit into the various programs the city has. Instead, they face additional taxes to pay for the taxes the city doesn’t collect when it grants incentives and subsidies.

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.” See Wichita targeted economic development should end.

An aspect of the incentive or subsidy package granted in this case is a fixed, negotiated, growth in property taxes the renovated theater will pay. There are a few points that deserve discussion. First, the base taxable value for the theater is the present value. The theater owner, however, is spending several million dollars on a renovation of that theater. This, according to the Sedgwick County Appraisers Office, would increase the taxable value of the theater by a large amount.

But based on the deal struck with the City of Wichita, this increase in value will not figure into the base taxable value and therefore, will not affect the taxes (PILOT, actually) the theater owner will pay.

Further, the rate of growth in value, 2.3 percent per year, is lower than what might be expected for commercial property to increase in value in many years. This fixed, predictable rate of growth is reminiscent of last year’s Proposition K proposal. The Wichita Eagle rejected this proposal, editorializing: “Over time, this system could result in significant disparities and a disconnect from actual market values, thus likely violating the Kansas Constitution’s requirement of a ‘uniform and equal basis of valuation.'”

But in this case one politically-favored business was able to receive this benefit. These special deals breed justifiable cynicism and distrust of not only City Hall politicians and bureaucrats but businesses that seek this form of pork-barrel spending through the tax system.

Finally, the payments the existing theater will make are not taxes, but payment in lieu of taxes, or PILOT. These payments are different in character from regular property taxes. Instead of falling under the Kansas property tax law regarding payment and possible sale of the property to pay taxes if the taxpayer falls behind for long enough, PILOTS are more in the form of a contract between the city and the taxpayer. If the taxpayer were to fail to pay, the city would have to sue for breach of contract. If the city should prevail in such a suit, it would stand in line with other creditors instead of taking a preferred position as in a tax sale.

This is, of course, assuming the city would choose to pursue such a lawsuit. Nothing would require it to do so. As the city has in the past bailed out this theater owner with a no-interest and low-interest loan, we could easily imagine the city deciding to let these missing or late PILOT payments slide by.

This too assumes that failure to pay PILOT payments as agreed would become public knowledge. The Sedgwick County Treasurer’s office prints lists of delinquent property taxpayers. There is no corresponding list of delinquent PILOT payments.

Southwest Airlines topic of Wichita Eagle article

Sunday’s Wichita Eagle carried a story featuring local elected officials’ reaction to the possibility that Southwest Airlines would start service to Wichita. (City, county officials cautiously weigh subsidy for Southwest Airlines, May 30, 2010)

A source of controversy is over the payments of public funds that are thought to be necessary to acquire the service. The Eagle article quotes an unnamed source as saying it would take about $3 million in public funds to “get the service up and running.” It is not disclosed whether this is a one-time requirement, or if this is $3 million per year for some specific period, or perhaps forever.

Wichitans may want to remember that the subsidy paid to AirTran started small and was promoted as a temporary measure until the airline could establish itself in Wichita. The program, however, has grown to a combined $7 million annual payment from the state, county, and city. It seems unlikely that this number will ever drop.

At one time Wichita was a city known for its entrepreneurs. But recently the New York Times noted that Wichita is known as a “pioneer in the business of paying airlines to continue service.”

An interesting tidbit in the Eagle story is Wichita City Council Member Sue Schlapp making a distinction between a “subsidy” and an “incentive.” What we offer to Southwest would be an incentive, not a subsidy, she said.

The overall tone of the article is that Wichita City Council Members and Sedgwick County Commissioners are making a show of concern, wanting to be “realistic,” desiring more details and something “reasonable and feasible.”

Despite this show of concern and prudence, if this matter comes before these bodies, I’ll be surprised if even one member votes against it.

One thing this article did not mention is that Charleston, South Carolina was able to lure Southwest without having to pay a subsidy.

By way of comparison, the Wichita metropolitan area population is 612,683 (2009 estimate), while the Charleston-North Charleston-Summerville, metropolitan area populations is 659,191. In 2008, there were 780,756 enplanements at the Wichita airport, while there were 1,174,667 at the Charleston airport.

According to reports, the Charleston Convention and Visitors Bureau estimates a $139 million economic impact with the arrival of Southwest. An economic impact analysis has been prepared for the City of Wichita, but Wichita officials will not release it, citing an exception in the Kansas Open Records Act (KORA).

Wichita won’t release Southwest Airlines report

Research produced for the City of Wichita by a taxpayer-supported university won’t be made available to the public until a later date.

The report, produced by the Center for Economic Development and Business Research at Wichita State University, may provide analysis of the feasibility and economic impact of Southwest Airlines entering the Wichita market.

An informal request made by myself for this document, which the city escalated to a formal request under the Kansas Open Records Act (KORA), was denied. The reasoning that city legal staff provided is as follows:

“The request is denied pursuant to KSA 45-221(a)(20). The reports have not been distributed to a majority of the quorum of any body, have not been cited in a public meeting. These memoranda contain research data in the process of analysis and contain recommendations in which opinions are expressed or actions proposed.”

The portion of the statute referred to, which is one of many exceptions to the Kansas Open Records Act, reads: “Notes, preliminary drafts, research data in the process of analysis, unfunded grant proposals, memoranda, recommendations or other records in which opinions are expressed or policies or actions are proposed, except that this exemption shall not apply when such records are publicly cited or identified in an open meeting or in an agenda of an open meeting.”

It is important to recognize that the Kansas Open Records Act does not prohibit the City of Wichita from releasing this document. The law simply does not require the city to release the records.

But the city can release the document, if it wanted to. It is within the discretion of the city to do so.

Looking forward, I believe there will be a time when the document will become a public record and the city will have to supply it. I don’t know what the city accomplishes by delaying the release of it until that time. It is true that I am skeptical of the conclusions of the document as reported in the Wichita Eagle, which has obtained a copy of the report through a source other than the city.

Specifically, I would like to see the reasoning or evidence for the reported claim that the entry of Southwest will result in 7,000 additional jobs — direct and indirect — being added to the Wichita area. As I noted in previous articles, our area’s second-largest employer has just 6,000 employees. These grandiose economic development claims are difficult to believe.

Other articles on this topic:
In Wichita, will Southwest save our city?
Wichita economic development claims deserve scrutiny

In Wichita, will Southwest save our city?

Talk that low-cost carrier Southwest Airlines might enter the Wichita market has the usual cast of government bureaucrats, centralized planning advocates, and their boosters in a tizzy.

The Wichita Eagle’s Rhonda Holman has Wichita director of airports Victor White saying that if the necessary subsidies are offered, the popular airline will consider serving Wichita.

(Oops. White actually used the word “incentives,” not “subsidies.” There are some who believe there is a difference in meaning between the two words. These are the types of nuances you have to become comfortable with when politicians and government bureaucrats try to direct and control economic development.)

Holman’s editorial makes a case for subsidizing another low-cost airline at Wichita’s airport, citing some remarkable economic development statistics:

Two recent studies supported the view that Southwest would build on the current affordable airfares program in leveraging low fares and boosting ridership at Mid-Continent — forecasting 33.5, 37 and 39 percent increases in airport activity and 7,000 additional direct and indirect jobs over such a carrier’s first three years in Wichita, as well as $29.5 million annually in savings for travelers.

As I pointed out a few weeks ago, these numbers are not believable. As I wrote two weeks ago, while more air service options are good for Wichita travelers, we need to be suspicious of the lofty claims of thousands of jobs and huge economic impact like the numbers claimed in this case. A few years ago I reported on a whopper of a economic impact figure given for the Wichita airport. It turned it the figures was based on some unrealistic assumptions, and used numbers likely to be counted a second time as part of someone else’s economic impact.

In the present case, the claim of 7,000 jobs to be created is a very large number. According to figures provided by the Greater Wichita Economic Development Coalition, only one company in the greater Wichita area has over 7,000 employees. The company with an employee count nearest 7,000 is Cessna, with about 6,000 employees.

Can anyone seriously claim that adding one more airline to the many already serving Wichita will result in the addition of more jobs than what exists at Cessna?

This is particularly true in that while there is one (or maybe two, depending on your definition) low-cost airlines receiving subsidies to serve Wichita, the other major airlines pretty much meet the discounters’ prices. This was the rational for bringing a low-cost airline to Wichita: by bringing in even one, it would force all other airlines to lower their fares.

This goal being largely achieved, it’s hard to fathom that adding one more discount airline would have a huge impact.

These economic development studies deserve scrutiny, and not just by eco-devo boosters and their cheerleaders who believe the government should heap money on anyone or anything that hints they might locate in Wichita — or leave Wichita. I asked Jeremy Hill of Wichita State University’s Center for Economic Development and Business Research if I could see the study that purportedly supports paying for more airline service. He, citing a non-disclosure agreement, would not send me the report or comment on its content. So I have a request pending at city hall.

There’s another angle to this story that hasn’t been reported in the Wichita Eagle news stories and editorials: Charleston was able to obtain Southwest Airlines service without paying a subsidy. The State, South Carolina’s largest newspaper and owned by the same McClatchy Company that owns the Wichita Eagle, reports that there was a lot of wooing, but there were no economic incentives.

In the Charleston situation, there evidently won’t be the massive state-supplied subsidy as we have in Kansas. But Southwest will still get a leg up: A USA Today story quotes a Charleston airport official saying “Southwest didn’t want a state subsidy, but was interested in the airport’s incentives a temporary waiver of landing fees, up to $10,000 to market new flights, and up to $150,000 for other start-up costs.”

Correction: The Wichita Eagle reported in its May 13 article that Southwest service in Charleston is not contingent of state subsidies.

Wichita economic development to be topic of meeting

This Monday (May 17), economic development tools and incentives in Wichita will be discussed at a meeting sponsored by the Kansas chapter of Americans for Prosperity.

Susan Estes, AFP Field Director and John Todd, AFP Volunteer Coordinator will lead the meeting, whose topic is “Local government economic development incentive tools with particular emphasis on the proposed Bowllagio STAR bonds project.”

The meeting is from 7:00 pm to 8:30 pm on Monday, May 17. The location is the Alford Branch Wichita Public Library (private meeting room), at 3447 S. Meridian.

For more information, contact John Todd at john@johntodd.net or 316-312-7335, or Susan Estes, AFP Field Director at sestes@afphq.org or 316-681-4415

Wichita economic development claims deserve scrutiny

Reports that Southwest Airlines may be considering adding service in Wichita have lead to enthusiasm for the economic development that this service would add.

In the current case, reporting by Molly McMillan of the Wichita Eagle tells of a study produced by Wichita State University’s Center for Economic Development and Business Research. She reports “In a worst-case scenario, the entrance of the airline in the study would add roughly 7,000 direct and indirect jobs in Wichita over a three-year period.”

An editorial in today’s edition of the Eagle repeats this number.

While more air service options are good for Wichita travelers, we need to be suspicious of the lofty claims of huge jobs and economic impact like the number claimed in this case.

In particular, 7,000 jobs is a very large number. According to figures provided by the Greater Wichita Economic Development Coalition, only one company in the greater Wichita area has over 7,000 employees. The company with an employee count nearest 7,000 is Cessna, with about 6,000 employees.

Can anyone seriously claim that adding one more airline to the many already serving Wichita will result in the addition of more jobs than what exists at Cessna?

These economic development figures need to be looked at closely. In 2005, I noted in the article Stretching figures strains credibility that the Center for Economic Development and Business Research has overstated the case before. In particular, the center included all the employees of Cessna and Bombardier in calculations of the economic impact of the Wichita airport:

By reading this study I learned that the employees of Cessna and Bombardier — 12,134 in total — are counted in determining the economic impact of the airport. Why? To quote the study: “While it might appear that manufacturing businesses could be based anywhere in the area, both Cessna and Bombardier require a location with runways and instrumentation structures that allow for flights and flight testing of business jet airplanes.” This is true, but it is quite a stretch to attribute the economic impact of these employees to the airport.

For one thing, if we count the economic impact of the income of these employees as belonging to the airport, what then do we say about the economic impact of Cessna and Bombardier? We would have to count it as very little, because the impact of their employees’ earnings has been assigned to the airport. This is, of course, assuming that we count the impact of these employees only once.

Or suppose that Cessna tires of being on the west side of town, so it moves east and starts using Jabara Airport. Would Cessna’s economic impact on Sedgwick County be any different? I think it wouldn’t. But its impact on the Wichita airport would now be zero. Similar reasoning would apply if Cessna built its own runway.

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 effectsthe 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.