New research provides insight into the Wichita metropolitan area economy and dynamism.
The Walton Family Foundation has released a study titled “The Most Dynamic Metropolitans,” saying it is new research ranking the economic performance of metropolitan areas in the Heartland and across the country. 1
Of the study, the authors write “Our Most Dynamic Metropolitan Index, and the analysis contained in this report provides objective insight into the communities providing economic opportunity for their residents, separating high performers from the low. Most Dynamic Metropolitans provides fact-based metrics on near-term and medium-term performance and prospects for long-term growth. The index allows economic development officials the ability to monitor their metro’s vivacity relative to others on a national basis or within their region and state.”
In the overall rankings, Wichita was number 319 of 379 metropolitan areas examined. Of note, this research recognizes the importance of young firms:
While most of our metrics are commonly used indicators of economic development, the young firm employment ratio is a relatively new measure. We use factor analysis to test our hypothesis that the ratio is an indicator of longer-term economic growth. Factor analysis is a statistical tool that can derive categories, called factors, from several variables by finding the ways clusters of variables move together. A factor analysis on all of our metrics tells us that we generally have the two factors we claimed to have above: one closely relating to variables such as 2016-2017 growth in average annual pay and 2017-2018 job growth. The second most closely relating to per-capita personal income, 2013-2017 growth in real GDP, 2013-2017 average annual pay growth and the young firm employment ratio. Thus, our hypothesis regarding the young firm employment ratio seems valid.
There have been some rankings showing Wichita doing well in jobs at young firms. 2 That’s good, as young firms — which are different from small business — are vitally important to economic growth. 3
This study, however, shows Wichita lagging in young firm employment ratio. In these rankings, Wichita came in at position 247 of 379 metro areas. That is better than the overall ranking for Wichita, which is at number 319.
The young firm employment ratio is calculated using data from 2016. Perhaps newer data will show something different.
We should be wary of government planning in general. But when those who have been managing and planning the foundering Wichita-area economy want to step up their management of resources, we risk compounding our problems.
As announced by the City of Wichita, “In response to recent recommendations from Project Wichita and the Century II Citizens Advisory Committee, community organizations and their leadership are stepping forward to take the next step to create a comprehensive master plan and vision that connects projects and both banks of the Arkansas River.”
The city says these organizations will be involved:
We should note that these organizations have been responsible for developing the Wichita-area economy for many years. Despite recent developments like Cargill and Spirit Aerosystems, the Wichita economy has performed below the nation. While improving, our economic growth is perhaps half the national rate, and just two years ago Wichita lost jobs and population, and economic output fell.
Thus, the question is this: Why these organizations?
Then, recent behavior by the city, specifically surrounding the new ballpark, has resulted in a loss of credibility. Few seem happy with the city’s conduct. To this day, we still do not know the identities of the partners except for one.
In the future, can we trust the city and its partners are telling us the truth, and the whole truth?
Planning seems like a good thing. But O’Toole tells us the problem with government plans: “Everybody plans. But private plans are flexible, and we happily change them when new information arises. In contrast, special interest groups ensure that the government plans benefiting them do not change — no matter how costly.”
He continues: “Like any other organization, government agencies need to plan their budgets and short-term projects. But they fail when they write comprehensive plans (which try to account for all side effects), long-range plans (two to 50 years or more), or plans that attempt to control other people’s land and resources. Many plans try to do all three.”
Other problems with government planning as identified by O’Toole (and many others):
Planners have no better insight into the future than anyone else
Planners will not pay the costs they impose on other people
Unlike planners, markets can cope with complexity
Some will argue that the organizations listed above are not government entities and shouldn’t exhibit the problems inherent with government planning. But their plans will undoubtedly need to be approved by, and enforced by, government.
Further, some of these organizations are funded substantially or nearly entirely by government, are in favor of more government (such as higher taxation and regulation), and campaign vigorously for candidates who support more taxes and planning.
Following, from Randal O’Toole as published in 2007.
Government Plans Don’t Work
By Randal O’Toole
Unlike planners, markets can cope with complexity and change.
After more than 30 years of reviewing government plans, including forest plans, park plans, watershed plans, wildlife plans, energy plans, urban plans, and transportation plans, I’ve concluded that government planning almost always does more harm than good.
Most government plans are so full of fabrications and unsupportable assumptions that they aren’t worth the paper they are printed on, much less the millions of dollars taxpayers spend to have them written. Federal, state, and local governments should repeal planning laws and shut down planning offices.
Everybody plans. But private plans are flexible, and we happily change them when new information arises. In contrast, special interest groups ensure that the government plans benefiting them do not change — no matter how costly.
Like any other organization, government agencies need to plan their budgets and short-term projects. But they fail when they write comprehensive plans (which try to account for all side effects), long-range plans (two to 50 years or more), or plans that attempt to control other people’s land and resources. Many plans try to do all three.
Comprehensive plans fail because forests, watersheds, and cities are simply too complicated for anyone to understand. Chaos science reveals that very tiny differences in initial conditions can lead to huge differences in outcomes — that’s why megaprojects such as Boston’s Big Dig go so far over budget.
Long-range plans fail because planners have no better insight into the future than anyone else, so their plans will be as wrong as their predictions are.
Planning of other people’s land and resources fails because planners will not pay the costs they impose on other people, so they have no incentive to find the best answers.
Most of the nation’s 32,000 professional planners graduated from schools that are closely affiliated with colleges of architecture, giving them an undue faith in design. This means many plans put enormous efforts into trying to control urban design while they neglect other tools that could solve social problems at a much lower cost.
For example, planners propose to reduce automotive air pollution by increasing population densities to reduce driving. Yet the nation’s densest urban area, Los Angeles, which is seven times as dense as the least dense areas, has only 8 percent less commuting by auto. In contrast, technological improvements over the past 40 years, which planners often ignore, have reduced the pollution caused by some cars by 99 percent.
Some of the worst plans today are so-called growth-management plans prepared by states and metropolitan areas. They try to control who gets to develop their land and exactly what those developments should look like, including their population densities and mixtures of residential, retail, commercial, and other uses. “The most effective plans are drawn with such precision that only the architectural detail is left to future designers,” says a popular planning book.
About a dozen states require or encourage urban areas to write such plans. Those states have some of the nation’s least affordable housing, while most states and regions that haven’t written such plans mostly have very affordable housing. The reason is simple: planning limits the supply of new housing, which drives up the price of all housing and leads to housing bubbles.
In states with growth-management laws, median housing prices in 2006 were typically 4 to 8 times median family incomes. In most states without such laws, median home prices are only 2 to 3 times median family incomes.
Few people realize that the recent housing bubble, which affected mainly regions with growth-management planning, was caused by planners trying to socially engineer cities. Yet it has done little to protect open space, reduce driving, or do any of the other things promised.
Politicians use government planning to allocate scarce resources on a large scale. Instead, they should make sure that markets — based on prices, incentives, and property rights — work.
Private ownership of wildlife could save endangered species such as the black-footed ferret, North America’s most-endangered mammal. Variably priced toll roads have helped reduce congestion. Pollution markets do far more to clean the air than exhortations to drive less. Giving people freedom to use their property, and ensuring only that their use does not harm others, will keep housing affordable.
Unlike planners, markets can cope with complexity. Futures markets cushion the results of unexpected changes. Markets do not preclude government ownership, but the best-managed government programs are funded out of user fees that effectively make government managers act like private owners. Rather than passing the buck by turning sticky problems over to government planners, policymakers should make sure markets give people what they want.
The City of Wichita says it values open and transparent government. But the city’s record in providing information and records to citizens is poor, and there hasn’t been much improvement.
The City of Wichita is proud to be an open and transparent governmental agency, its officials say. Former Mayor Carl Brewer often spoke in favor of government transparency. 1
Mayor Jeff Longwell penned a column in which he said, “First off, we want City Hall to be open and transparent to everyone in the community.” And the mayor’s biography on the city’s website says, “Mayor Longwell has championed many issues related to improving the community including government accountability, accessibility and transparency …”
But the reality is different. It shouldn’t be. Nearly four years ago the city expanded its staff by hiring a Strategic Communications Director. When the city announced the new position, it said: “The Strategic Communications Director is the City’s top communications position, charged with developing, managing, and evaluating innovative, strategic and proactive public communications plans that support the City’s mission, vision and goals.”
But there has been little, perhaps no, improvement in the data and information made available to citizens. The Wichita Eagle has editorialized on the lack of sharing regarding the details surrounding the new baseball team. 3
While this is important and a blatant example, there are many things the city could do to improve transparency. Some are very simple.
For example, it is very common for governmental agencies post their checkbooks on their websites. Sedgwick County does, as does the Wichita school district. But not the City of Wichita.
Until a few years ago, Wichita could supply data of only limited utility. What was supplied to me was data in pdf form, and as images, not text. It would be difficult and beyond the capability of most citizens to translate the data to a useful format. Even if someone translated the reports to computer-readable format, I don’t think it would be very useful. This was a serious defect in the city’s transparency efforts.
Now, if you ask the city for this data, you’ll receive data in an Excel spreadsheet. This is an improvement. But: You may be asked to pay for this data. The city says that someday it will make check register data available, but it has been promising that for many years. See Wichita check register for the data and details on the request.
Another example: For several years, the Kansas city of Lawrence has published an economic development report letting citizens know about the activities of the city in this area. The most recent edition may be viewed here.
The Lawrence report contains enough detail and length that an executive summary is provided. This report is the type of information that cities should be providing, but the City of Wichita does not do this.
Example from the Lawrence report. Click for larger.It’s not like the City of Wichita does not realize the desirability of providing citizens with information. In fact, Wichitans have been teased with the promise of more information in order to induce them to vote for higher taxes. During the campaign for the one cent per dollar Wichita city sales tax in 2014, a city document promised this information regarding economic development spending if the tax passed: “The process will be transparent, with reports posted online outlining expenditures and expected outcomes.” (This is what Lawrence has been doing for several years.)
The city should implement this reporting even though the sales tax did not pass. If it’s good for citizens to have this type of information if the sales tax had passed, it’s good for them to know in any circumstance, because the city (and other overlapping governmental jurisdictions) still spends a lot on economic development.
Why is this information not available? Is the communications staff overwhelmed, with no time to provide this type of information?
During the sales tax campaign Wichita city staff had time to prepare news releases with titles like “City to Compete in Chili Cook-off” and “Jerry Seinfeld Returns to Century II.” Now the city produces headlines like “Wichita Transit to Receive Good Apple Award.”
But if you want to know how the city spends economic development dollars, you won’t find that.
Most of all, the city simply needs to change its attitude. Here’s an example.
Citizen watchdogs need access to records and data. The City of Wichita, however, has created several not-for-profit organizations that are controlled by the city and largely funded by tax money. The three I am concerned with are the Wichita Downtown Development Corporation, Visit Wichita (the former Go Wichita Convention and Visitors Bureau), and Greater Wichita Economic Development Coalition, now the Greater Wichita Partnership. Each of these agencies refuses to comply with the Kansas Open Records Act, using the reasoning that they are not “public agencies” as defined in the Kansas law that’s designed to provide citizen access to records.
The city backs this interpretation. When legislation was introduced to bring these agencies under the umbrella of the Kansas Open Records Act, cities — including Wichita — protested vigorously, and the legislation went nowhere.
Recently the City of Wichita added a new tax to hotel bills that may generate $3 million per year for the convention and visitors bureau to spend. Unless the city changes its attitude towards citizens’ right to know, this money will be spent in secret.
This attitude has been the policy of the city for a long time. In 2008, Randy Brown, at one time the editorial page editor at the Wichita Eagle wrote this:
I’m fairly well acquainted with Bob Weeks, our extraconservative government watchdog. It’s fair to say that I agree with Weeks no more than one time in every 20 issues. But that one time is crucial to our democracy.
Weeks is dead-on target when he says that conducting the public’s business in secret causes citizens to lose respect for government officials and corrupts the process of democracy (“TIF public hearing was bait and switch,” Dec. 5 Opinion). And that’s what happened when significant 11th-hour changes to the already controversial and questionable tax-increment financing plan for the downtown arena neighborhood were sneaked onto the Wichita City Council’s Tuesday agenda, essentially under cover of Monday evening’s darkness.
This may not have been a technical violation of the Kansas Open Meetings Act, but it was an aggravated assault on its spirit. Among other transgressions, we had a mockery of the public hearing process rather than an open and transparent discussion of a contentious public issue.
The Wichita officials involved should publicly apologize, and the issue should be reopened. And this time, the public should be properly notified.
Randy Brown
Executive director
Kansas Sunshine Coalition for Open Government
A few years later, Brown noticed the attitude had not improved. Although he did not mention him by name, Brown addressed a concern expressed by Wichita City Council Member Pete Meitzner (district 2, east Wichita). He accurately summarized Meitzner’s revealed attitude towards government transparency and open records as “democracy is just too much trouble to deal with.”
“The City Council has stressed the importance of transparency for this organization,” City Manager Robert Layton said. “We’re honored to receive a Sunny Award and we will continue to empower and engage citizens by providing information necessary to keep them informed on the actions their government is taking on their behalf.” Wichita City New Release. Available at https://www.wichita.gov/News/Pages/2013-03-18b.aspx. ↩
In 1989, median household income in Sedgwick County was greater than that for Kansas and the nation. In 2017, however, Sedgwick County has fallen behind both.
In 1989, the all-age poverty rate in Sedgwick County was less than the national rate, but now it is higher.
As can be seen in the nearby charts produced by the Census Bureau’s visualization tool, the trend in economic performance between Sedgwick County and the nation started diverging around the time of the last recession. As time passes, the gap between the two generally grows larger, with Sedgwick County falling farther behind.
Courtesy U.S. Census Bureau. Click for larger.Courtesy U.S. Census Bureau. Click for larger.
When the Wichita Regional Chamber of Commerce Political Action Committee endorses a candidate, consider what that means.
If you’ve been following analyst James Chung — and it seems like everyone has — he’s delivered a sobering message: The Wichita economy has not been growing. “[Wichita has been] stuck in neutral for about three decades, with basically no growth, amidst the landscape of a growing U.S. economy,” he said. (In fact, in 2016 the Wichita economy shrank from the previous year, and numbers for 2017 don’t look much better.)
Chung says we need to change our ways. In his June visit he said, and the Chung Report wrote, “Every market signal points to the same conclusion: The manner in which Wichita is operating during this critical point in our history is just not working.”
So what needs to change? Chung won’t say, but here are two things:
First, there are some elected officials and bureaucrats who have presided over the stagnation of Wichita. These people need to go.
That sounds good, but under the hood it’s the same leadership and the same methods, although with a few new hired hands.
So when James Chung (and others) says our manner of operation is not working, it’s the Wichita Chamber of Commerce and its ecosystem that must assume a large portion of blame.
Not only has the Wichita Chamber manner of operation not been working, its leadership hasn’t been working, either. In 2014 the Chamber showed charts of Wichita job growth as compared to the nation and other cities, and Wichita was near the bottom. The Chamber’s response was to advocate for a Wichita city sales tax, some to be used for economic development, but also for water supply enhancement, street repair, and bus transit improvement.
The Chamber managed the political campaign for the sales tax, and in November 2014, 62 percent of Wichita voters said no.
After this, what did the Chamber do? It had told Wichitans that an economic development fund fed by sales tax revenue was essential. Then, the sales tax vote failed. But that isn’t the only way to fund what the Chamber said we needed. The Chamber could have asked the Wichita city council to raise property taxes, and the council could have done that with a simple majority vote of its members. (Since then it has become more difficult, but still possible, to raise local property taxes.)
Or, the city could have raised franchise fees. These are like a sales tax added to utility bills. This could also have been accomplished with a simple majority vote of the council. The council could do it today, if its members wanted to.
None of these possibilities were pursued, at least to my knowledge. The Wichita Chamber of Commerce, after advocating for a sales tax it said was essential, gave up after defeat. It recommended that Wichitans vote to impose a sales tax themselves, but when it came to something it could have accomplished — new taxes through city council votes — the Chamber backed away.
The Chamber then formed the Greater Wichita Partnership. But many of the people who supported the Chamber’s sales tax are directing the operations of GWP, serving its strategic advisory team and the more-exclusive executive board.
This includes the president and CEO of the Wichita Chamber, who was also president during the sales tax campaign.
The Chamber endorsements
So when the Wichita Regional Chamber of Commerce PAC supports candidates, spends money on their behalf, and issues endorsements, what should voters think?
Voters should remember that the Wichita Chamber has presided over the wreckage of the Wichita economy, its leaders still call the shots, and still wants to raise taxes, I believe.
Plus, these people will not accept responsibility for the harm they have caused.
This is a shame, because we want to be proud of our civic leadership. We want to have faith in our elected officials and bureaucrats.
But that isn’t the case in Wichita. Keep this in mind when considering candidates endorsed by the Wichita Regional Chamber of Commerce PAC.
Of 422 metropolitan areas considered, Wichita ranked 383, dropping 28 spots since the previous year.
Among 100 medium size metropolitan areas, Wichita ranked 93, dropping 5 spots from the previous year.
NewGeography.com uses employment data from the United States Bureau of Labor Statistics from November 2006 to January 2018. 1 Last year’s publication contains a more detailed explanation of how the rankings capture current year-growth, mid-term growth, and momentum. 2
In the analysis for 2017, Wichita had also fallen in ranking.
Wichita has momentum, they say
Despite this news, Wichita leaders are in denial. Recently Greater Wichita Partnership president Jeff Fluhr told a group of young people this:
From the innovation campus at Wichita State University and development along the Arkansas River in downtown, including a new baseball stadium, to the conversations happening now about a new convention center and performing arts facility, Fluhr said the momentum is pushing to keep Wichita on par with the development of other communities around the country.
That development, which has in recent years expanded to incorporate the entire region, is a critical component to attracting and retaining talent — the exact kind of talent in the ICT Millennial Summit crowd. 3
In March Sedgwick County Commissioner David Dennis penned a column for the Wichita Eagle praising the county’s efforts in economic development. 5 Dennis is also chair of the commission this year. In his column, the commissioner wrote: “Economic development is a key topic for the Board of County Commissioners and for me in particular. Right now we have a lot of momentum to make our community a more attractive place for people and businesses.”
At the same time, the Wichita Eagle editorialized: “Wichita’s economy struggled to rebound from the last recession, which held the city back. But there have been positive economic signs of late, including a renewed focus on innovation and regional cooperation. … There also is a sense of momentum about Wichita. Yes, challenges remain, but the city seems to have turned a corner, with even greater things ahead.”6
In announcing his candidacy for Sedgwick County Commission, Wichita city council member Wichita City Council Member Pete Meitzner (district 2, east Wichita) said, “We have enjoyed great progress and growth during my two terms as a City Council member and I plan to do my part to assure Sedgwick County is part of this continued success.” 7
Given all this, it ought to be easy to find economic data supporting momentum, progress, and growth. Besides the NewGeography.com report cited above, let’s look at some other indicators.
Personal income. For the Wichita metropolitan statistical area, personal income in 2016 rose slightly from the 2015 level, but is still below the 2014 level. In real (inflation-adjusted) dollars, personal income fell in 2016. 8
Personal Income Summary, Wichita, through 2016. Click for larger.
Trends of business activity in downtown Wichita. Click for larger.Downtown Wichita. There’s been a lot of investment in downtown Wichita, both public and private. But since 2008 the trend is fewer business establishments, fewer people working downtown, and lower earnings generated in downtown Wichita. Almost every year these numbers are lower than the year before. This is movement in the wrong direction, the opposite of progress. There may be good news in that the number of people living downtown may be rising, but business activity is declining. 9
Employment. While officials promote the low Wichita-area unemployment rate, there is an alternative interpretation. First, the good news: The unemployment rate for the Wichita metro area declined to 3.9 percent in March 2018, down from 4.2 percent in March 2017. The number of unemployed persons declined by 8.3 percent for the same period. 10
Is Wichita’s declining unemployment rate good news, or a byproduct of something else? The unemployment rate is the ratio of the number of unemployed persons to the labor force. While the number of unemployed persons fell, so too did the labor force. It declined by 3,367 persons over the year, while the number of unemployed persons fell by 1,056. This produces a lower unemployment rate, but a shrinking labor force is not the sign of a healthy economy.
A further indication of the health of the Wichita-area economy is the number of nonfarm jobs. This number declined by 1,200 from March 2017 to March 2018, a decline of 0.4 percent. This follows a decline of 0.7 percent from February 2017 to February 2018.
Of the metropolitan areas in the United States, BLS reports that 308 had over-the-year increases in nonfarm payroll employment, 72 (including Wichita) had decreases, and 8 had no change.
Growth in output. The worst news, however, is that the Wichita-area economy shrank from 2015 to 2016. In real (inflation-adjusted) dollars, the Wichita metropolitan area gross domestic product fell by 1.4 percent. For all metropolitan areas, GDP grew by 1.7 percent. Since 2001, GDP for all metropolitan areas grew by 29.3 percent, while Wichita had 12.3 percent growth. 11
Wichita MSA employment, annual change. Click for larger.The GDP figures are for 2016, and figures for 2017 won’t be available until September. So what happened in 2017? Could 2017 be the genesis of momentum to drive our economy forward?
While GDP figures aren’t available, jobs numbers are. For the year 2016, total nonfarm employment in the Wichita metropolitan area grew by 0.62 percent. For 2017, the growth rate was 0.56 percent — a slowdown in the rate of job growth. These job growth figures are far below the rate for the nation, which were 1.79 and 1.58 percent respectively.
Annual change in job growth, Wichita and USA through 2017. Click for larger.
Furthermore, Wichita’s job growth rate in 2016 was lower than 2015’s rate of 1.07 percent. This is momentum in the wrong direction. Nearby charts illustrate. 12
What to do?
The failure of the Wichita-area economy to thrive is a tragedy. This is compounded by Wichita leaders failing to acknowledge this, at least publicly. While we expect people like the mayor, council members, and the chamber of commerce to be cheerleaders for our city, we must wonder: Do these people know the economic statistics, or do they choose to ignore or disbelieve them?
From private conversations with some of these leaders and others, I think it’s a mix of both. Some are simply uninformed, while others are deliberately distorting the truth about the Wichita economy for political or personal gain. The people who are uninformed or misinformed can be educated, but the liars are beyond rehabilitation and should be replaced.
—
Notes
“The methodology for our 2018 ranking largely corresponds to that used in previous years. We seek to measure the robustness of metro areas’ growth both recently and over time, with some minor corrections to mitigate the volatility that the Great Recession has introduced into the earlier parts of the time series. The ranking is based on three-month rolling averages of the U.S. Bureau of Labor Statistics’ ‘state and area’ unadjusted employment data reported from November 2006 to January 2018.” 2018 How We Pick The Best Cities For Job Growth. Available at http://www.newgeography.com/content/005973-2018-how-we-pick-best-cities-job-growth. ↩
In some presentations these figures may differ slightly due to data revisions and methods of aggregation. These differences are small and not material. ↩
One of the tables released is “Over-the-year change in total nonfarm employment for metropolitan areas, not seasonally adjusted,” which shows changes in jobs from February 2017 to February 2018. 2 For this time period for the Wichita metropolitan area, the number of nonfarm jobs fell from 294.7 thousand to 292.3 thousand, a decline of 2,400 jobs or 0.8 percent.
In February, 313 metropolitan areas had over-the-year increases in nonfarm payroll employment, 69 had decreases, and 6 had no change.
Over the same period, the unemployment rate in the Wichita MSA fell from 4.6 percent to 4.1 percent. The labor force fell from 309,336 to 304,886.
One of the tables released is “Over-the-year change in total nonfarm employment for metropolitan areas, not seasonally adjusted,” which shows changes in jobs from January 2017 to January 2018. 2 For this time period for the Wichita metropolitan area, the number of nonfarm jobs fell from 292.1 thousand to 291.1 thousand, a decline of 1,000 jobs or 0.3 percent.
Of 382 metropolitan areas, 57 performed worse than did Wichita. For these metro areas, the average growth in jobs was 1.15 percent.
Over the same period the unemployment rate in the Wichita MSA fell from 4.6 percent to 3.7 percent.
Wichita economic development efforts viewed in context.
Greater Wichita Partnership is the organization with primary responsibility for economic development in the Wichita area. Data provided by GWP shows that since 2004, GWP takes credit for creating an average 1,847 jobs per year through its economic development efforts. 1
To determine whether this is an impressive amount, we need context.
Over the past ten years the labor force for the Wichita MSA has averaged 314,877 each month (in May 2017 it was 306,809), and there were an average of 295,785 people working each month (May 2017 value was 293,763).
So one level of context is that the jobs for which GWP credits itself amount to 1,847 of 295,785 jobs, or 0.6 percent of the number of people working.
Click for larger.Another way to look at this level of job creation is to consider it in relation to the number of hires. Over the past ten years, the national average monthly rate of hires is about 3.4 percent, meaning that each month 3.4 percent of jobs have a new person filling them, or the jobs are newly-created. With an average of 295,785 people working in the Wichita MSA each month, this means that about 10,057 jobs have a new worker, each month. That’s 120,684 per year. With GWP taking credit for 1,847 jobs, this means that GWP’s efforts are responsible for 1.5 percent of the new hires each year.
Another context: Employment in the Wichita MSA reached a peak of 312,100 in July 2008. In June 2017 it was 298,800. To get back to the peak, Wichita needs 13,300 new jobs. At the GWP rate of 1,847 per year, it will take seven more years to recover.
All this shows that the efforts of our economic development machinery are responsible for small proportions of the jobs we need to create. This assumes that the data regarding jobs and investment that GWP provides is correct.
Here’s one example of problems with the data GWP provides. GWP reported that companies made investments of $1.2 billion in 2016 when the average for years before that was $138 million. That looks like an impressive jump. This figure, however, contains over one billion dollars of investment by Spirit Aerosystems projected to occur over the next five years. Not in 2016, but possible over the next five years. Yet GWP presents this investment as through it occurred in 2016.
Furthermore, when Spirit asked the city for authority to issue $280 bonds over five years, it told the city this would result in 349 new jobs over the same time period. That’s creating jobs at the rate of 70 per year. These jobs are welcome, but we need thousands of jobs per year. 2
Does GWP deserve credit? GWP says, “We only incorporate data and dollar amounts from projects which we helped attract, retain or expand; we do not include announcements that we have not assisted with.” 3 “Helped” and “assisted” are not very precise. How much “help” did Spirit need to decide to remain in Wichita, except for hundreds of millions of dollars in forgiven taxes? That is something the people of Wichita pay for, not GWP.
We must also be concerned about the reliability of GWP statistics. Earlier this year GWP was prominently promoting on its website the success of NetApp, a technology company. The problem is that NetApp never met the job creation numbers GWP promoted, and in fact, had been downsizing its Wichita operations. 4
Still, GWP promoted NetApp as a success. An important question is, the NetApp jobs that were announced but never created: Are they included in the jobs and investment totals GWP provides? We don’t know, because GWP will not disclose the data used to build its report.
There are other instances of GWP’s predecessor, Greater Wichita Economic Development Coalition (GWEDC), promoting Wichita as home to companies that had closed their Wichita facilities, or were in the process of closing. 5
GWP also promotes this on its website: “Downtown Wichita is work central, boasting 26,000 daytime workers in the financial, healthcare, education, oil & gas and creative services industries.” This claim of 26,000 workers is based on blatant misuse and misrepresentation of U.S. Census data, and GWP leadership has known of this for several months. 6 Still, the use of incorrect data remains.
Capacity to create
When the Wichita area offered incentives to a company that planned to add 50 jobs, the president of the chamber of commerce told commissioners that staff worked very hard to acquire these jobs. He called it “a great moment” in economic development. 7 But 50 jobs, while welcome, is just a drop in the bucket compared to what Wichita needs.
For Spirit to create 349 jobs over five years, we must let the company escape paying property tax and sales tax on $280 million of property.
For BG Products to add 11 well-paying jobs, we must let them avoid paying $204,280 per year in property taxes and $368,417 in sales tax.
In order to prepare the incentives package for another company, several events took place. There was a visit to the company. Then another visit and tour. Then economic development officials helped the company apply for benefits from the Kansas Department of Commerce. Then these officials worked closely with Wichita city staff on an incentive package. City documents stated that the expansion will create 28 jobs over the next five years. Obtaining these jobs took a lot of effort from Wichita and Kansas economic development machinery. Multiple agencies and fleets of bureaucrats at GWEDC, the City of Wichita, Sedgwick County, and the State of Kansas were involved. Wichita State University had to be involved. All this to create 5.6 jobs per year for five years.
This illustrates a capacity problem. Acquiring these jobs took a lot of bureaucratic effort, which has a cost. It required expensive incentives. Occasionally the city works with a large number of jobs, as in the recent case of Cargill. But those jobs required many expensive incentives, and no jobs were created. The incentives and effort were spent simply to persuade Cargill to remain in Wichita instead of moving elsewhere.
All this assumes, of course, that the incentives are necessary. Either that, or there is a larger problem. If companies can’t afford to make investments in Wichita unless they receive exemptions from paying taxes, we must conclude that taxes are too high. It’s either that, or these companies simply don’t want to participate in paying for the cost of government like most other companies and people do.
Civic leaders say that our economic development policies must be reformed. So far that isn’t happening. Our leaders say that we will no longer use cash incentives. But cash incentives like forgivable loans were a minor part of the incentives Wichita and the State of Kansas used. Furthermore, forgiveness of taxes is just as good as receiving cash. 8
The large amount of bureaucratic effort and cost spent to obtain relatively small numbers of jobs lets us know that we need to do something else to grow our local economy. We need to create a dynamic economy, focusing our efforts on creating an environment where growth can occur organically without management by government. Dr. Art Hall’s paper Embracing Dynamism: The Next Phase in Kansas Economic Development Policy provides much more information on the need for this. 9
In particular, Hall writes: “Embracing dynamism starts with a change in vision. Simply stated, the state government of Kansas should abandon its prevailing policy vision of the State as an active investor in businesses or industries and instead adopt the policy vision of the State as a caretaker of a competitive ‘platform’ — a platform that seeks to induce as much commercial experimentation as possible.” But our economic development policies are that of an “active investor,” and the cost of incentives increases the cost of experimentation.
Another thing we can do to help organically grow our economy and jobs is to reform our local regulatory regime.Kansas Policy Institute released a study of regulation and its impact at the state and local level. This is different from most investigations of regulation, as they usually focus on regulation at the federal level.
The study is titled “Business Perceptions of the Economic Impact of State and Local Government Regulation.” It was conducted by the Hugo Wall School of Public Affairs at Wichita State University. Click here to view the entire document.
Following is an excerpt from the introduction by James Franko, Vice President and Policy Director at Kansas Policy Institute. It points to a path forward.
Surprising to some, the businesses interviewed did not have as much of a problem with the regulations themselves, or the need for regulations, but with their application and enforcement. Across industries and focus group sessions the key themes were clear — give businesses transparency in what regulations are being applied, how they are employed, provide flexibility in meeting those goals, and allow an opportunity for compliance.
Sometimes things can be said so often as to lose their punch and become little more than the platitudes referenced above. The findings from Hugo Wall are clear that businesses will adapt and comply with regulations if they are transparent and accountable. Many in the public can be forgiven for thinking this was already the case. Thankfully, local and state governments can ensure this happens with minimal additional expense.
A transparent and accountable regulatory regime should be considered the “low hanging fruit” of government. Individuals and communities will always land on different places along the continuum of appropriate regulation. And, a give and take will always exist between regulators and the regulated. Those two truisms, however, should do nothing to undermine the need for regulations to be applied equally, based on clear rules and interpretations, and to give each business an opportunity to comply. (emphasis added)
Creating a dynamic economy and a reformed regulatory regime should cost very little. The benefits would apply to all companies — large or small, startup or established, local or relocations, in any industry.
Our civic leaders say that our economic development efforts must be reformed. Will the path forward be a dynamic economy and reformed regulation? Or will it be more bureaucracy, chasing jobs a handful at a time?
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Notes
Greater Wichita Partnership – 2017 Investment Request. Part of the February 15, 2017 Sedgwick County Commission meeting. Available at https://goo.gl/hk6RHB. ↩
“Spirit is now requesting a new Letter of Intent (LOI) to issues IRBs in an amount not to exceed $280,000,000 for a period of five years. … Spirit projects it will create 349 new jobs over the next five years as a result of these expansions. In addition to the $280,000,000 Spirit expects to invest in facilities over the next five years, it also projects approximately $825,000,000 of capital investment in new machinery and equipment for a total capital investment in excess of $1 billion dollars.” Wichita City Council agenda packet for May 3, 2016. ↩
Personal correspondence from Andrew Nave, GWP executive vice president of economic development. ↩
