Voice For Liberty

Tag: Entrepreneurship

  • Wichita taxicab regulations likely to impede progress

    Tomorrow the Wichita City Council will consider new taxicab regulations that, city hall hopes, will improve tax service in Wichita. But the regulations create high barriers to entry that stifle entrepreneurship and market competition, likely dooming the program to fail.

    The problem is that some feel that Wichita’s taxicab companies are not delivering good service. There have been complaints about both the drivers and the conditions of cabs. Wichita Mayor Carl Brewer said he was tired of hearing complaints about the taxicabs. He has tired slowly, however, as it’s taken eleven years of Brewer as either city council member or mayor for a solution to be proposed.

    In some cities, the permit or medallion to operate a cab costs many thousands of dollars, even hundreds of thousands in New York City and other large cities. Wichita’s proposed fees are not exorbitant: Just $200 annually for a taxicab company and $100 annually per taxicab. (In Wichita there are three taxicab companies, but two have the same ownership.)

    Further, Wichita does not restrict the number of taxicab companies, the number of cabs, or prohibit cruising for fares, as do some cities. This sounds like light-handed regulation, which if so, should induce new entrants to the market for providing taxi service. The market competition thereby created would normally be expected to drive down fares and improve service.

    But Wichita’s regulations create substantial barriers to entering the taxicab market. Some of the most restrictive include these: A central office, staffed at least 40 hours per week; a dispatch system operating 24 hours per day, seven days per week; enough cabs to operate city-wide service, which the city has determined is ten cabs; and a supervisor on duty at all times cabs are operating.

    These requirements, in effect, eliminate the small-time entrepreneur and the solo operator from entering the market. Things like dispatch systems, a central office, a fleet of ten taxicabs, and supervisors sound good. But these are costly, and they aren’t all necessary to get started in the business, or even perhaps to thrive. Since some of the complaints are the lack of available cabs at the airport, we need more cabs, not fewer.

    If a person wanted to simply concentrate on picking up fares from the airport or cruising downtown looking for street hails, a dispatch system is not necessary. Neither is a supervisor or an office.

    Yes, a cab without a dispatch system will miss out on fares that other cabs will be able to service. But the decision as to whether to use a dispatch system should be made by taxicab drivers or owners, not the city. Certainly, for some drivers and companies the economic benefit of such systems will become apparent, and they will invest in them. Others won’t.

    The regulations in Wichita make it difficult for new taxicab operators to enter the market, leaving the city’s citizens and visitors served by a near-monopoly of two companies. That hasn’t worked out well, at least according to city officials. A new government regulator with a new set of regulations to enforce isn’t likely to help create a thriving market for taxicabs in Wichita.

    But these market-based considerations and potential solutions, evidently, are not considered by the city. At a workshop on the topic, Council Member Michael O’Donnell (district 4, south and southwest Wichita) noted the near-monopoly of taxicabs companies and asked if the city had looked at ways of creating more competition in the market?

    The presenter of the proposed regulations, a public management fellow in the city manager’s office, said, simply, “we have not, no.” (We’re left to wonder if this proposed regulatory expansion is just an exercise, or make-work, for a recent graduate of the school of public administration at Wichita State University.) City Manager Robert Layton interjected, adding “we are believers in the free market system,” saying that he hoped that the new regulations and fare structure would make it easier to enter the market. I don’t think anyone at the meeting picked up on the irony.

  • Southfork TIF should, again, be rejected

    Tomorrow the Wichita City Council considers the formation of a tax increment financing (TIF) district in south Wichita. Known as the Southfork TIF District, the developer is Wichitan Jay Maxwell. His agent is Tim Austin.

    The TIF proposal has been revised since it was approved by the Wichita city council last December, but rejected by the Sedgwick County Commission in January. Like all TIF districts, this form of government intervention in the economy does more harm than good, and should be rejected.

    TIF is not free money

    Supporters of TIF usually contend that TIF has no cost. This is not the case. This new development will consume fire, police, and other governmental services, but will not contribute its share of property taxes to pay for these. Instead, some portion of the property taxes will be redirected back to the TIF district to benefit the developers. Others will have to pay taxes to make up this deficit, or will have to accept a reduced level of service. See Tax increment financing is not free money.

    There’s also the “but-for” argument: without the benefit of TIF, the project will not be built, and therefore no tax revenue would be received. It’s a powerful argument, if it were really true. But those who seek this type of government funding can always find a way to make their financial projections “prove” the need for TIF money. Governments then take them at their word.

    We might ask ourselves this question: If TIF is truly without cost, why not have more TIF districts? Why not offer TIF for all new development?

    The role of politics

    Maxwell and Austin have some queer ideas regarding the nature of markets and politics. In an email message to supporters of the Southfork TIF, Austin wrote: “There are many underlying political winds working against the Southfork TIF.” In another email message, he wrote: “As I mentioned previously, there are underlying political interests at play that appear to be making this a political matter as opposed to a vote the merits of the TIF, the project, and South Wichita.”

    Austin has it exactly backwards. It is he and Maxwell who are arguing for using the political process to enrich themselves. Those such as myself who oppose government interventions like TIF are arguing against using the political process — against making this a political matter, that is.

    The supporters of government intervention such as TIF often make claims of “market failure.” They claim that the free market system has failed to deliver what they want, so they make appeals to government to intervene. This moves society away from markets and civil society and toward politics and cronyism.

    In reality, markets do quite well in allocating the resources of our economy, despite the claims of many, including historians who should know better. There are those who may feel they’re not getting everything they deserve through the market process, but that’s no reason to introduce the tremendous inefficiencies and distortions that the political process brings with it. In his book How Capitalism Saved America: The Untold History of Our Country, From the Pilgrims to the Present, Thomas J. DiLorenzo explained:

    Most historians also uncritically repeat the claim that government subsidies were necessary to building America’s transcontinental railroad industry, steamship industry, steel industry, and other industries. But while clinging to this “market failure” argument, they ignore (or at least are unaware of) the fact that market entrepreneurs performed quite well without government subsidies. They also ignore the fact that the subsidies themselves were a great source of inefficiency and business failure, even though they enriched the direct recipients of the subsidies and advanced the political careers of those who dished them out.

    Political entrepreneurs and their governmental patrons are the real villains of American business history and should be portrayed as such. They are the real robber barons.

    The idea of “market failure” is used by the promoters of this TIF district. They claim that only government — that is, politics — can make things right, at least according to their vision.

    Political entrepreneurs, by the way, are those who seek their profits through government, not markets. Instead of seeking to create products and services that please customers, they seek to please politicians and bureaucrats. This move away from market entrepreneurship to political entrepreneurship is especially sad in Wichita, where we have a proud tradition of market entrepreneurs with famous names: Lloyd Stearman, Walter Beech, Clyde Cessna, W.C. Coleman, Albert Alexander Hyde, Dan and Frank Carney, Fred C. Koch, and many others.

    Do TIF districts work?

    In deciding whether TIF districts “work” we must come to an agreement of what “work” means. Generally, most supporters of TIF — besides the obvious motivations of the developers who are directly enriched by them — claim increased development and jobs.

    But there’s plenty of evidence to the contrary.

    As far as increased development: Yes, that generally happens within the TIF district. But what about the overall city? The answer is that TIF is harmful.

    Regarding the effect of tax increment financing (TIF) districts on economic development, economists Richard F. Dye and David F. Merriman have studied the issue extensively. Their paper The Effects of Tax Increment Financing on Economic Development bluntly states the overall impact of TIF: “We find clear and consistent evidence that municipalities that adopt TIF grow more slowly after adoption than those that do not.”

    Later in the same paper the authors conclude: “These findings suggest that TIF trades off higher growth in the TIF district for lower growth elsewhere. This hypothesis is bolstered by other empirical findings.” More on their work is at Tax increment financing (TIF) and economic growth.

    Others may support TIF for its purported positive impact on employment. Sure, it’s easy to drive by a TIF district and see people at work. But that doesn’t tell the whole story.

    One person who looked at the effect of TIF on employment in the entire city is economist Paul F. Byrne. He concluded this: “Results find no general impact of TIF use on employment. However, findings suggest that TIF districts supporting industrial development may have a positive effect on municipal employment, whereas TIF districts supporting retail development have a negative effect on municipal employment.”

    More on his work is at Does tax increment financing (TIF) deliver on its promise of jobs?

    We must conclude that TIF does not meet the goals of increased development and/or jobs, if we consider the impact on everyone. What we’re left with is the well-known problem that public choice economics — the economics of politics — has described: Concentrated benefits and dispersed costs. It’s the reason why those who seek enrichment at Wichita City Hall and other governments make so many political campaign contributions.

    This particular applicant

    We also need to look at the characteristics of this applicant. The Wichita Business Journal reported this regarding a company Maxwell owned:

    Pixius proposes to repay, over a 10-year period, $1.3 million of a $6.4 million loan from the U.S. Department of Agriculture’s Rural Utilities Service, according to court documents. The loan was part of a 2002 Farm Bill pilot program that loaned more than $180 million to ISPs to expand Internet service to rural areas.

    “To my memory … Pixius is the only one (to receive a loan) that’s had to file bankruptcy to work out of its situation,” says Claiborn Crain, USDA spokesman.

    When the government helped out Maxwell in the past, it cost taxpayers $5.1 million in a loan discharged in bankruptcy. His company is set apart from other similar companies in that, according to the USDA spokesman, only Maxwell’s declared bankruptcy.

    I suggest that Maxwell has had his turn at the government funding trough. Taxpayers can’t afford to give him another.

  • In Wichita, Southfork TIF is politics, and therefore should be rejected

    Last month the Wichita City Council approved the formation of a TIF district in south Wichita. Known as the Southfork TIF District, the developer is Wichitan Jay Maxwell. This week the matter will appear before the Sedgwick County Commission, as it may, under law, decide to veto the formation of the district.

    Maxwell himself rarely appears at meetings of governmental agencies, sending his agent Tim Austin of Poe & Associates, Inc. instead.

    The role of politics

    Maxwell and Austin have some queer ideas regarding the nature of markets and politics. In an email message to supporters of the Southfork TIF, Austin wrote: “There are many underlying political winds working against the Southfork TIF.” In another email message, he wrote: “As I mentioned previously, there are underlying political interests at play that appear to be making this a political matter as opposed to a vote the merits of the TIF, the project, and South Wichita.”

    Austin has it exactly backwards. It is he who is arguing for using the political process to enrich himself and Maxwell. Those such as myself and Americans for Prosperity who oppose government interventions such as this are arguing against using the political process — against making this a political matter, that is.

    The supporters of government intervention such as TIF often make claims of “market failure.” They claim that the free market system has failed to deliver what they want, so they make appeals to government to intervene. This, of course, moves society away from markets and civil society and toward the politics that Austin seems to disdain.

    In reality, markets do quite well in allocating the resources of our economy, despite the claims of many, including historians who should know better. There are those who may feel they’re not getting everything they deserve through the market process, but that’s no reason to introduce the tremendous inefficiencies and distortions that the political process brings with it. In his book How Capitalism Saved America: The Untold History of Our Country, From the Pilgrims to the Present, Thomas J. DiLorenzo explained:

    Most historians also uncritically repeat the claim that government subsidies were necessary to building America’s transcontinental railroad industry, steamship industry, steel industry, and other industries. But while clinging to this “market failure” argument, they ignore (or at least are unaware of) the fact that market entrepreneurs performed quite well without government subsidies. They also ignore the fact that the subsidies themselves were a great source of inefficiency and business failure, even though they enriched the direct recipients of the subsidies and advanced the political careers of those who dished them out.

    Political entrepreneurs and their governmental patrons are the real villains of American business history and should be portrayed as such. They are the real robber barons.

    The idea of “market failure” is used by the promoters of this TIF district — as do supporters of TIF districts. They claim that only government — that is, politics — can make things right, at least according to their vision.

    The idea that there are two classes of entrepreneurs — market and political — is explained by Helen Cochran in her book review of The Myth of the Robber Barons: A New Look at the Rise of Big Business in America by Burton Folsom. Cochran wrote:

    According to Folsom, “political entrepreneurs” are those that seek government/taxpayer subsidy, public private partnerships, protective tariffs, special privileges, etc. Folsom makes a sound case that economic development fueled by political intervention invariably fails and undermines the very ideology it purports to serve.

    On the other hand “market entrepreneurs” are those that obtain their successes by producing a product that is better and of more value to the consumer, unbridled by the government controls and restrictions that come with subsidy. No one can argue that it is the market entrepreneurs that create the wealth in this country.

    The essence of political entrepreneurship is that Austin and Maxwell find it easier to convince a majority of the Wichita City Council, and now the Sedgwick County Commission, of the superiority of their plans than it is to convince others through the market process. They want to replace the collective knowledge of free people trading voluntarily in markets with the political process — that is, with the judgments of bureaucrats and politicians.

    Do TIF districts work?

    In deciding whether TIF districts “work” we must come to an agreement of what “work” means. Generally, most supporters of TIF — besides the obvious motivations of the developers who are directly enriched by them — claim increased development and jobs.

    But there’s plenty of evidence to the contrary.

    As far as increased development: Yes, that generally happens within the TIF district. But what about the overall city? The answer is that TIF is harmful.

    Regarding the effect of tax increment financing (TIF) districts on economic development, economists Richard F. Dye and David F. Merriman have studied the issue extensively. Their paper The Effects of Tax Increment Financing on Economic Development bluntly states the overall impact of TIF: “We find clear and consistent evidence that municipalities that adopt TIF grow more slowly after adoption than those that do not.”

    Later in the same paper the authors conclude: “These findings suggest that TIF trades off higher growth in the TIF district for lower growth elsewhere. This hypothesis is bolstered by other empirical findings.” More on their work is at Tax increment financing (TIF) and economic growth.

    Others may support TIF for its purported positive impact on employment. Sure, it’s easy to drive by a TIF district and see people at work. But that doesn’t tell the whole story.

    One person who looked at the effect of TIF on employment in the entire city is economist Paul F. Byrne. He concluded this: “Results find no general impact of TIF use on employment. However, findings suggest that TIF districts supporting industrial development may have a positive effect on municipal employment, whereas TIF districts supporting retail development have a negative effect on municipal employment.”

    More on his work is at Does tax increment financing (TIF) deliver on its promise of jobs?

    So considering the high-minded goals of politicians and bureaucrats, we must conclude that TIF does not meet the goals of increased development and/or jobs, if we consider the impact on everyone. What we’re left with is the well-known problem that public choice economics — the economics of politics — has described: Concentrated benefits and dispersed costs. It’s the reason why those who seek enrichment at Wichita City Hall and other governments make so many political campaign contributions.

    This particular TIF district

    In a document prepared for Sedgwick County Commissioners by the county’s Finance Division, this TIF district is analyzed.

    One startling conclusion: “The Southfork area qualifies for TIF funding because most of the land is in a flood plain, and while action is being taken to reduce the magnitude of this problem most of the land will remain in a flood plain after those actions are completed.” (emphasis added)

    In other words, one of the “noble” actions of the developer — fixing a flooded area — is exposed for what it is.

    Another conclusion of the analysis is that the “Proposed project is economically feasible without county funding support.” In other words, the TIF district is not financially necessary.

    Then: “Proposed private equity funding is insufficient to effect default risk.”

    Finally: “Costs to county government are greater than benefits to county government. If, as appears possible based on the financial projections provided for county review, the project is financially feasible without TIF funding, then a substantial cost to county government is the property tax revenue diverted unnecessarily to the project.”

    This directly contradicts the claims that most TIF supporters make: That TIF is without cost. Randal O’Toole and others have shown the many ways in which TIF does have a great cost. His essay “TIF is not free money” may be read as part of my article Tax increment financing: TIF has a cost.

    This particular applicant

    We also need to look at the characteristics of this applicant. The Wichita Business Journal reported this regarding a company Mr. Maxwell owned:

    Pixius proposes to repay, over a 10-year period, $1.3 million of a $6.4 million loan from the U.S. Department of Agriculture’s Rural Utilities Service, according to court documents. The loan was part of a 2002 Farm Bill pilot program that loaned more than $180 million to ISPs to expand Internet service to rural areas.

    “To my memory … Pixius is the only one (to receive a loan) that’s had to file bankruptcy to work out of its situation,” says Claiborn Crain, USDA spokesman.

    When the government helped out Maxwell in the past, it cost taxpayers $5.1 million. His company is set apart from other similar companies in that, according to the USDA spokesman, only Maxwell’s declared bankruptcy.

    I suggest that Maxwell has had his turn at the government funding trough. Taxpayers can’t afford to give him another.

  • At Wichita City Council, a big company asks for a forgivable loan

    Notes for remarks delivered to the Wichita City Council, October 18, 2011. Johnson Controls asked the city for a forgivable loan.

    Mayor, members of the council,

    I can understand the city’s desire to help out homegrown companies that might be struggling to get a foothold in business. I don’t think it’s wise to do so, but I can understand how people might think it is.

    But Johnson Controls doesn’t fall into this category.

    In Wichita, the labor force is 191,760. Johnson’s 137,000 worldwide employees amount to 71 percent of this figure.

    Johnson’s profit of $1,540,000,000 is 2.8 times the city’s all funds budget of $549,313,783, or 7.1 times the city’s general fund budget of $217,912,874

    So this is not a small company, or a startup company, or a company that lacks for money, or a company that isn’t successful. Its stock has far outperformed leading market indexes over the past ten years.

    The State of Kansas is contributing $1,168,000 through various programs. This is not in the form of loans that need to be repaid. It is in the form of grants, forgiveness from paying the taxes that most others have to pay, and by expenditures through the tax system.

    I remind this council that the cost-benefit calculations performed by the Wichita State University Center for Economic Development and Business Research are not of the same type that a business makes, or that people make in their personal lives. There are not legitimate business investments that have a return of five-fold over any reasonable period of time, at least not without accepting huge risks.

    Instead, the “benefit” that goes into this equation is in the form of future anticipated tax revenues. It simply recognizes that economic activity is good, and since government taxes based on economic activity, its tax revenues go up. This happens whether or not government claims responsibility for creating the economic activity.

    The harm of programs like this is that when the city, county, and state make these programs available, companies will take advantage of them. Evidently companies find it’s easy to persuade this state and this council to grant them money.

    At least easier than it is to raise equity, where you have to trade shares of ownership for money. Or in debt markets, where you have to pay interest and principal.

    This behavior creates a self-fulfilling feedback loop. Company A sees what Companies B, C, D, E, F (and so on …) have received from the city, county, and state, and they want it too. Soon we may find ourselves in the situation where few companies will consider Wichita without some form of handout.

    But the real harm that these programs do is the destruction of civil society. By that I mean a society that respects individuals and property rights, and where people trade harmoniously with others through markets. This includes companies attempting to raise investment capital, like the applicant company today.

    Instead, we replace a civil society and market entrepreneurship with political entrepreneurship, and with all the negatives that accompany that.

    If we in Wichita are looking to distinguish ourselves, let’s start today by rejecting crony capitalism as our economic development tool.

    The forgivable loan measure passed 6 to 1, with Michael O’Donnell (district 4, south and southwest Wichita) voting against it.

  • Kansas and Wichita quick takes: Wednesday September 28, 2011

    Obama’s intercontinental railroad. Burton Folsom notices a recent speech by President Barack Obama that mentioned how America built the “intercontinental railroad.” Folsom grants Obama some slack for the gaffe — we all make them, after all — and explains to readers the most important lesson that should be learned from our experience building the transcontinental railroad: “… the story of the transcontinental railroads really is a great teaching tool for today. If we study the Union Pacific, the Central Pacific, and the Northern Pacific Railroads, we learn they all went broke after receiving a combined total of 61 million acres of land. And they ran the nation deep into debt, too. … federal spending on transcontinentals meant corruption, land grabs, and wasted taxpayer dollars. But wait. The Great Northern Railroad, which went from St. Paul to Seattle, never went bankrupt and was one of the best-built railroads in the United States. Why did the Great Northern succeed when the others failed? Because James J. Hill, the president, built his railroad with no federal subsidies. He built the Great Northern slowly and made each part profitable before expanding it further. … Hill made profits and never went bankrupt. Here is the lesson: that which is privately owned is properly cared for and is best positioned to create jobs and profits. When the government gets involved, profits vanish and quality declines. Therefore, the president is right. Let’s discuss railroad history and apply what we learn to the present day.” The article is Interfacing with Obama’s Intercontinental Railroad.

    Alain festival starts. Today marks the first day of Jehan Alain, 1911-1940 — The American Festival, a three-day event celebrating the music of the French organist and composer, who died at the age of 29 fighting for his country against Germany in World War II. This three-day event is organized by Lynne Davis of Wichita State University. If you can attend only one event, I would suggest the opening recital to be performed by Davis at 7:30 pm tonight. The location is Wiedemann Recital Hall (map) on the campus of Wichita State University. … For more about Davis and WSU’s Great Marcussen Organ including photographs I took while climbing around the interior of the massive instrument, see my story from last year.

    How business loves regulation and hates markets. In a chapter of the book Back on the Road to Serfdom: The Resurgence of Statism edited by Thomas E. Woods Jr., Timothy P. Carney writes about the cultural costs of corporatism: “Despite the widespread assumption that a free market is the ideal economy for big business, and that regulation checks the power of big business, more often the opposite is true. Regulation, by adding to the cost of doing business, disproportionately hurt smaller business and acts as a barrier to entry, keeping out new competitors. Likewise, government subsidies can be far more valuable, or at least more reliable, then income for consumers, for which businesses must continually fight with competitors. The dynamics of the lobbying game are crucial here. Bigger companies enjoy a greater advantage in Washington than they do in the market. Not only can bigger companies hire the better lobbyists — former lawmakers are top administration aides — and handout more in campaign contributions, but they also matter more to lawmakers. The more workers you employ and the more taxes you pay, the more lawmakers care about your well-being, desires, and wishes.” … Carney goes on to explain that big government enables political entrepreneurs to succeed over market entrepreneurs. And big companies are better equipped to be political entrepreneurs. So while the standard account is that Walmart kills small-town retailers, the reality is that Walmart is effective at political entrepreneurship in ways that mom-and-pop retailers can’t be. “An unbridled free market isn’t killing Mom and Pop; an untethered state is.” The effect of this is, he writes: “And so reading the market is no longer as valuable as reading the polls. Research and development is not as good an investment as political connections. A good lobbyist is now worth more than a good idea.” … While Carney is writing about the situation at the federal level, we see the same dynamic at work in Wichita, where the city Council and its surrogates such as the Wichita Downtown Development Corporation and Greater Wichita Economic Development Coalition have large power over the granting of government favors. Connections to the politicians and bureaucrats that control these organizations replaces market allocation and market decisions.

    The Buffet rule won’t work. In a Cato daily podcast, Cato Institute Senior Fellow Alan Reynolds says “It doesn’t work. We tried it.” He’s referring to raising tax rates to collect more revenue from high-income earners. Reynolds explains that starting in 1986 and for the next 10 years the capital gains tax rate was 28 percent. But then President Bill Clinton lowered the rate to 20 percent, and Reynolds said that the stock market soared and the government was flush with cash. This, he said, was an example of lower tax rates increasing tax revenue. … Reynolds also explained that Berkshire Hathaway — the company Warren Buffet formed — was a tax avoidance device until 2003. As a holding company, it purchased companies that paid dividends, but Berkshire didn’t pay dividends itself. This practice avoided the higher dividends tax by converting dividends into capital gains. (Prior to 2003, dividends were taxed as ordinary income, which for most taxpayers was higher than the capital gains tax rate. Plus, capital gains can be deferred.) This purposeful design by Buffet belies his current contention that the wealthy should pay higher taxes.

  • In Wichita, private tax policy on the rise

    In a free society with a limited government, taxation should be restricted to being a way for government to raise funds to pay for services that all people benefit from. An example is police and fire protection. Even people who are opposed to taxation rationalize paying taxes that way. But in the city of Wichita, private tax policy is overtaking our city.

    The Douglas Place project, a downtown hotel to be considered tomorrow by the Wichita City Council, makes use of several of these private tax policy strategies.

    By private tax policy, I mean that the proceeds of a tax are used for the exclusive benefit of one person (or business firm), instead of used for the benefit of all. And in at least one case, private parties are being allowed to determine the city’s tax policy at their discretion.

    The taxes collected by this private tax policy is still collected under the pretense of government authority. But instead of going to pay for government — things like police, fire, and schools — the tax is collected for the exclusive benefit of one party, not the public.

    In Wichita and across Kansas, one example of taxation being used for the benefit of one person or business is the Community Improvement District (CID). Under this program, the business collects an extra tax that looks just like sales tax. Except — the proceeds of the extra CID tax are funneled back for the exclusive benefit of the people who own property in the district. The Douglas Place project is asking to collect an extra tax of two cents per dollar for its own benefit.

    CIDs are a threat to unsuspecting customers who likely won’t be aware of the extra tax they’ll be paying until after they complete their purchases, if at all. Wichita decided against disclosing to citizens the amount of tax they’ll be paying with signage on stores. Instead, the city settled for a sign that says nothing except to check a city website for information about CIDs.

    CIDs also present the City of Wichita as a high-tax place to live and do business. It’s a risk to our city’s reputation. Especially when you consider the Jeff Longwell strategy, which is that since these taxes are often used by hotels and other businesses that cater to visitors, Wichitans don’t pay them as much as do visitors.

    Another example of private tax policy is when a tax such as Wichita’s hotel guest tax is redirected from its original goal. According to a description of the Tourism and Convention Fund in the city’s budget, the goal of the guest tax is to “support tourism and convention, infrastructure, and promotion of the City.” Its priorities are to be “Fund priorities are: 1) debt service for tourism and convention facilities, 2) operational deficit subsidies and 3) care and maintenance of Century II.”

    But in the case of the Douglas Place project, the city is asking for a charter ordinance to be passed that would route 75 percent of this tax directly back to the Douglas Place owners. That’s not the proclaimed purpose of the guest tax, unless we consider private hotels to be part of the city’s tourism infrastructure. (I think some people think that way.)

    At least in the case of Douglas Place the city is being more upfront with its citizens. The charter ordinance requires a two-thirds vote of the city council for passage, a higher bar than in the past. And, the city isn’t borrowing money to give to the hotel. That’s what the city has done in the past, as in the case of the Fairfield Inn & Suites Wichita Downtown that is part of the WaterWalk project. One of the many layers of subsidy going in to that hotel was that the city simply gifted the hotel $2,500,000, to be paid back by the hotel’s guest tax receipts.

    Some will say that’s not really a gift, as the hotel will pay back the loan. But the loan is being repaid with taxes the hotel — more properly, its guests — must pay anyway. This is public taxation for private enrichment.

    If you need further evidence that the city is turning over taxation to private hands, consider this: The charter ordinance is subject to a protest petition, and if sufficient signatures are gathered, the city council would have to either overturn the ordinance or hold an election to let the people decide.

    Now, if such a tax is truly in the public interest, the city would hold such an election and bear its costs itself. But that’s not the case. In the agreement between the city and the Douglas Place developers, we see this: “If Developer requests a special election solely for the purpose of passing the charter ordinance in the event a sufficient protest petition is submitted, Developer shall reimburse the City for the actual out of pocket costs and expenses of conducting such election.”

    In other words, the city is turning over to private interests the decision as to whether to have such an election. At least the citizens of Wichita won’t have to pay for it, if such an election happens.

    Another example of private tax policy that the Douglas Place project is using is Tax increment financing, or a TIF district. This mechanism routes property taxes back to the development. In the case of Douglas Place, $3,325,000 of its own property taxes are being used to pay for its parking garage. That’s a deal most citizens can’t get.

    Normally property taxes are used for the general operation of government. Not so in TIF districts, another example of public taxation for private enrichment. Again, these are taxes that the property must pay anyway.

    Private taxation funds political entrepreneurship

    In Wichita, especially in downtown, we see the rise of private tax policy, that is, the taxation power of government being used for private purposes. This private tax policy is pushed by Wichita’s political entrepreneurs. These are the people who would rather compete in the realm of politics rather than in the market.

    Examples of Wichita’s political entrepreneurs include the developers of Douglas Place: David Burk of Marketplace Properties, and the principals of Key Construction.

    Competing in the political arena is easier than competing in the market. To win in the political arena, you only have to convince a majority of the legislative body that controls your situation. Once you’ve convinced them the power of government takes over, and the people at large are forced to transfer money to the political entrepreneurs. In other words, they must engage in transactions they would not elect to perform, if left to their own free will.

    In the free marketplace, however, entrepreneurs have to compete by offering products or services that people are willing to buy, free of coercion. That’s hard to do. But it’s the only way to gauge whether people really want what the entrepreneurs are selling.

    One of the ways that political entrepreneurs compete is by making campaign contributions, and the developers of Douglas Place have mastered this technique. Key Construction principles contributed $13,500 to Mayor Carl Brewer and four city council members during their most recent campaigns. Council Member Jeff Longwell alone received $4,000 of that sum, and he also accepted another $2,000 from managing member David Burk and his wife.

    All told, Burk and his wife contributed at least $7,500 to city council candidates who will be voting whether to give Burk money. Burk and others routinely make the maximum contribution to all — or nearly all — candidates, even those with widely varying political stances. How can someone explain Burk’s (and his wife’s) contributions to liberals like Miller and Williams, and also to conservatives like Longwell, Meitzner, and former council member Sue Schlapp?

    The answer is: Burk will be asking these people for money.

    Wichitans need to rise against these political entrepreneurs and their usurpation of a public function — taxation — for their own benefit. The politicians and bureaucrats who enable this should realize they should be serving the public interest, not the narrow and private enrichment of the few at the cost of many.

  • Job creation at young firms declines

    A new report by the Kauffman Foundation holds unsettling information for the future of job growth in the United States. Kauffman has been at the forefront of research regarding entrepreneurship and job formation.

    Previous Kauffman research has emphasized the importance of young firms in productivity growth. Research by Art Hall found that for the period 2000 to 2005, young firms created nearly all the net job growth in Kansas.

    So young firms — these are new firms, and while usually small, the category is not the same as small businesses in general — are important drivers of productivity and job growth. That’s why the recent conclusion from Kauffman in its report Starting Smaller; Staying Smaller: America’s Slow Leak in Job Creation is troubling: “The United States appears to be suffering from a long-term leak in job creation that pre-dates the recession and has the potential to persist for an unknown time. The heart of the problem is a pullback by newly created businesses, the economy’s most critical source of job creation, which are generating substantially fewer jobs than one would expect based on past experience. … This trend has only worsened since the onset of the most recent recession. The cohort of firms started in 2009, for example, is on track to contribute close to a million jobs less in its first five to ten years than historical averages.”

    The report mentions two assumptions that are commonly made regarding employment that the authors believe are incorrect:

    First, policymakers’ focus on big changes in employment because of events such as a new manufacturing plant or the recruitment of a business to a community ignore the more important fact that our jobs outlook will be driven more by the collective decisions of the millions of young and small businesses whose changing employment patterns are not as easy to see or influence. Second, it is just as easy to be deluded into thinking that the jobs problem will be solved by growth in the number of the self-employed.

    The importance of young firms is vital to formulating Kansas economic development policy. Kansas Governor Sam Brownback has incorporated some of the ideas of economic dynamism in his economic plan released in February. The idea of dynamism, as developed by Dr. Art Hall, is that economic development is best pursued by creating a level playing field where as much business experimentation as possible can take place. The marketplace will sort out the best firms. The idea that government economic development agencies can select which firms should receive special treatment is sure to fail. It is failing.

    While the governor’s plan promotes the idea of economic dynamism, some of his actual policies, such as retaining a multi-million dollar slush fund for economic development, are contrary to the free marketplace of business experimentation and letting markets pick winning firms.

    At the City of Wichita, economic development policy is tracking on an even worse direction. Among city hall bureaucrats and city council members, there is not a single person who appears to understand the importance of free markets and capitalism except for one: council member Michael O’Donnell, who represents district 4 (south and southwest Wichita).

    The policy of Wichita is that of explicit crony capitalism, with city leaders believing they have the wisdom to develop policies that recognize which firms are worthy of taxpayer support. And if they want to grant subsidies to firms that don’t meet policies, they find exceptions or write new policies. Elected officials like Wichita Mayor Carl Brewer and city council member Jeff Longwell lust for more tools in the economic development toolbox.

    At the Sedgwick County Commission, two of the five members — Karl Peterjohn and Richard Ranzau understand the importance of free markets for economic development. But the city has a much larger role in targeted incentives for economic development, as it is the source of tax increment financing districts, industrial revenue bonds, economic development exemptions, community improvement districts, and other harmful forms on economic interventionism.

  • Stossel: The state against blacks

    John Stossel’s most recent television program was titled The State Against Blacks, and it dealt with the topics of affirmative action, welfare, and the minimum wage.

    A featured guest on the show was Dr. Walter E. Williams, an economist at George Mason University. His most recent book is on this topic, and it’s titled Race and Economics: How Much Can Be Blamed on Discrimination? A preview of the book is available at that link.

    On welfare, Williams told Stossel: “The welfare state has done to black Americans what slavery could not have done, the harshest Jim Crow laws and racism could not have done — namely, break up the black family. Today, just slightly over 30 percent of black kids live in two-parent families.” He contrasted this with much higher numbers of intact families in the past. A video clip is below.

    In another clip from the show, Williams discusses the war on poverty and how the minimum wage is harmful to those it is meant to help.

    Summarizing at the end of the show, Stossel told the audience that limited government — not an expansive welfare state — is best for everyone, including the poor, immigrants, and minorities:

    There’s no question that in America that blacks, on average, are economically behind whites. Average black household income is about 40 percent less than for whites. Why? Other minorities were once that far behind, but they prospered. In 1910 Chinese immigrants were 10 percent poorer than other Americans. Their grandkids, in 1985, were 35 percent richer than other Americans.

    Other minorities rose out of poverty: Italians, Hungarians, the Irish, and so on. So why not most blacks? Because just at the time that blacks like Walter Williams were lifting themselves out of poverty, President Johnson created a government war on poverty. Trillions of your dollars were spent on welfare programs that unintentionally reward dependency.

    And then came more regulation like licensing rules and minimum wage rules that stifle entrepreneurship. Politicians like Jessie Jackson say racism is why blacks still struggle today. But Walter Williams taught me that’s just nonsense. There is still racism today. But if that’s such an obstacle, explain the success of black immigrants in America. Their skin is just as dark, but they knew well they’d proposer. Immigrants from Jamaica are poorer than the average American, but a few years later their kids are one percent richer than the average American.

    Why? For one reason, it’s harder for immigrants to get government assistance. They don’t grow up in a culture of handouts, so they’re forced to make it on their own. And that makes all the difference. What helps poor people most is limited government, simple rules that everyone understands, that leave newcomers free to braid hair, for example, or drive taxis, or start companies.

    If the state keeps the peace but then gets out of our way, people prosper. I didn’t understand that until Walter Williams taught me. And many Americans still don’t get it.

    Stossel’s column on this topic is Is Government Aid Helping or Hurting Blacks? Video from Williams’ 1985 PBS documentary “State Against Blacks” is available here. Video from the “Good Intentions” series is here.

  • Kansas and Wichita quick takes: Sunday June 5, 2011

    Wichita City Council this week. This week the Wichita City Council will consider these items of particular interest: The Wichita Art Museum has $265,738 in funds that it did not spend. The council will be asked to allow the museum to retain this unspent money. … Mid-Continent Instrument, Inc. is asking for a forgivable loan of $10,000. It received the same last week from Sedgwick County. According to city documents, the State of Kansas is also chipping in $503,055 in forgivable loans, sales tax exemptions, training grants, and tax credits. … Council members will receive the city’s 2010 Comprehensive Annual Financial Report. … An item deferred from two weeks ago will consider hiring an outside firm to inspect the roofs at the airport for storm damage. Wichita Eagle reporting from that time has detail. Some, including Council Member Michael O’Donnell (south and southwest Wichita) have wondered why the city can’t do the inspection with its own engineering staff and resources. … Of further note is that the city — two weeks ago — proposed to use general obligation bonds to borrow the funds to pay for this inspection. This is similar to last December, when the city decided to also use bonds to borrow money to pay for an analysis of nine aging fire stations and what repairs and upgrades they might require. Material for this week’s meeting indicates the project will be “funded with Airport revenues either directly or through the repayment of General Obligation bonds.” … A “receive and file” item notes that as established by city ordinance, the salaries for council members, the vice-mayor, and the mayor will increase by 3.2 percent effective June 7. This is a cost-of-living increase based on the consumer price index. Last year all these parties decided to decline the increase. … A consent agenda item recommends settling a lawsuit for damages resulting from a shooting on August 3, 2008 for the amount of $575,000. The agenda material is not specific, but Wichita Eagle reporting indicates that Wichita police officers on that date shot James Ware “at least seven times” in the parking lot of a club after Ware retrieved a rifle from his car. Ware was charged with a crime in the matter, but acquitted in a jury trial. Consent agenda items will not be discussed by the council unless a member asks to “pull” an item for discussion and a possible vote separate from the other consent agenda items. … As always, the agenda packet — all 376 pages for this week’s meeting — is available at Wichita city council agendas.

    Resources on Austrian economics. The prolific and best-selling author Thomas E. Woods, Jr. has compiled a very useful collection of resources regarding Austrian economics. In an essay by Lew Rockwell that Woods refers to, we can learn the essence of the Austrian way: “It is not a field within economics, but an alternative way of looking at the entire science. Whereas other schools rely primarily on idealized mathematical models of the economy, and suggest ways the government can make the world conform, Austrian theory is more realistic and thus more socially scientific. Austrians view economics as a tool for understanding how people both cooperate and compete in the process of meeting needs, allocating resources, and discovering ways of building a prosperous social order. Austrians view entrepreneurship as a critical force in economic development, private property as essential to an efficient use of resources, and government intervention in the market process as always and everywhere destructive.” Concluding his essay, Rockwell wrote: “The future of Austrian economics is bright, which bodes well for the future of liberty itself. For if we are to reverse the trends of statism in this century, and reestablish a free market, the intellectual foundation must be the Austrian School.” … Woods’ collection is at Learn Austrian Economics. … The local chapter of Americans for Prosperity, Kansas has been showing some of the video presentations Woods recommends at its monthly meetings, and will conclude the series at its June 13th meeting. Details to follow.

    Wichita Save-A-Lot owner commended. Susan Estes of Americans for Prosperity, Kansas contributed this letter to the Wichita Eagle, and it appeared today. Following is the letter as submitted to me: “News the grocery store project in Planeview will proceed — without tax incentives — is a major win for Wichita taxpayers. We commend Ron Rhodes and his company for finding a way to make this project happen without asking for tax money. Rather than giving up the store entirely when the Tax Increment Financing (TIF) district was vetoed by the county, the Rhodes family continued to explore the possibility of building a grocery store here. The planned Save-A-Lot store will create jobs and serve the needs of the neighborhood without adding on to their grocery bills through tax increases, which is certainly good news for Wichitans.” … For more on this matter, see In Wichita, corporate welfare not needed, after all.

    Pompeo public forum. On Monday June 6 at 6:30 pm, U.S. Representative Mike Pompeo, a Wichita Republican serving his first term, will hold a public forum at Andover City Hall, 1609 E. Central. Pompeo’s office says: “Congressman Pompeo will take questions from those in attendance and discuss issues related to Congress and the federal government.”