For the state of Kansas, real personal income declined from $137,975 million in 2015 to $137,307 in 2016, a decline of 0.5 percent. For the entire country, the growth was 1.1 percent. Among the states and DC, Kansas ranked forty-fifth in magnitude of change.
For the Wichita metropolitan statistical area, real personal income declined from $30,913 million in 2015 to $30,747 in 2016, also a decline of 0.5 percent. Of 382 metro areas, Wichita ranked 337th in magnitude of change.
Looking at per capita figures, real personal income per capita in Kansas fell from $47,483 in 2015 to $47,221 in 2016, a decline of 0.6 percent. For the entire country, the growth was 0.4 percent. Among the states and DC, Kansas ranked forty-third in magnitude of change.
Real personal income per capita in the Wichita metropolitan statistical area fell from $48,076 in 2015 to $47,694 in 2016, a decline of 0.8 percent. Of 382 metro areas, Wichita ranked 325th in magnitude of change.
“Real” means that the values are expressed in a way that recognizes the effects of inflation. In this case the values are in “millions of chained (2009) dollars.” Additionally, BEA uses regional price data to measure and account for the effects of regional inflation.
BEA offers this definition: “Real state personal income is a state’s current-dollar personal income adjusted by the state’s regional price parity and the national personal consumption expenditures price index.” 2 Metro personal income is defined similarly.
Personal income, also from BEA, is “The income received by, or on behalf of, all persons from all sources: from participation as laborers in production, from owning a home or business, from the ownership of financial assets, and from government and business in the form of transfers. It includes income from domestic sources as well as the rest of world. It does not include realized or unrealized capital gains or losses.” 3
The growth of population in Wichita compared to other areas.
Several Wichita city officials have noted that the population of the City of Wichita now exceeds that of Cleveland. This, to them, is a point of pride and sign of momentum in Wichita.
It’s true, at least the population facts. For 2016, the U.S. Census Bureau estimates the population of Wichita as 389,902 and Cleveland as 385,809. From the 2010 census, Wichita’s population was 382,368; Cleveland’s 396,815. 1
That Wichita moved up in population rank is more due to Cleveland losing 11,006 people (2.8 percent loss) while Wichita gained 7,534 people (2.0 percent gain).
Looking only at city population, however, misses the fact that the Cleveland metropolitan statistical area population is 2,058,844 compared to the Wichita MSA at 645,628, a difference of 3.2 times.
For most types of economic and demographic analysis, metropolitan statistical areas (MSA) are preferred to cities proper. The Census Bureau notes: “The general concept of a metropolitan or micropolitan statistical area is that of a core area containing a substantial population nucleus, together with adjacent communities having a high degree of economic and social integration with that core.” 2
Further, there is more economic data available at the MSA level (compared to the city level) from agencies like Bureau of Labor Statistics and Bureau of Economic Analysis. This data includes important measures like employment, labor force, unemployment rate, gross domestic product, and personal income.
City boundaries are still important, as Wichita, for example, can’t impose property or sales taxes outside the city limits. Nor can it write laws affecting neighboring towns or the county.
But not even schools respect city boundaries, with several large suburban school districts (Andover, Maize, Goddard) reaching far into the city limits of Wichita.
While Wichita may be the 50th largest city, its rank is not as high when considering metropolitan areas. Worse, its rank is slipping as other areas grow at a faster clip. In the 1990 and 2000 census, Wichita was the 80th largest metro area. By 2010 Wichita’s rank had fallen to 82, and for 2017 the rank is 89.
Growth of Wichita MSA population and economy
Wichita officials incessantly talk about momentum. Using a misguided measure of regional size and growth (Wichita is larger than Cleveland!) is one example.
Unfortunately, there are many other examples. Recently Wichita’s mayor spoke of a “thriving city” and that “we’re going to continue our growth pattern.” 3
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. 4
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.” 6
But these pictures — thriving, growth, progress, momentum — just aren’t true, according to the best statistical evidence. Wichita is shedding jobs. 7 In 2016 the Wichita economy shrank. 8 Our labor force is declining. 9 Sedgwick County shows a decline in employees and payroll in 2016. 10
Finally, as can be seen in the nearby chart of population growth in the Wichita metro area and a few other examples. Wichita’s growth rate is low, and is slowing. (The other metro areas in the chart are our Visioneering peers plus a few others.)
It is terribly unfortunate that the Wichita economy is not growing. What’s worse is the attitude of our city leaders. If we don’t confront our problems, we probably won’t be able to solve them.
In an interactive visualization I’ve prepared from census data, you can compare growth in metropolitan statistical areas. Click here to access the visualization.
Annual Estimates of the Resident Population for Incorporated Places of 50,000 or More, Ranked by July 1, 2016 Population: April 1, 2010 to July 1, 2016. Source: U.S. Census Bureau, Population Division. Release Date: May 2017 ↩
The unemployment rate in the Wichita metropolitan area fell. So too did the number of jobs.
Today the Bureau of Labor Statistics released employment statistics for metropolitan areas through March 2018. These are numbers that are not seasonally adjusted, so it’s not very useful to compare any month with the month before. But it is appropriate to compare a month with the same month of the prior year.
The good news, sort of: 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 also declined by 8.3 percent for the same period.
These numbers should be good news. But these two statistics don’t exist in a vacuum. Specifically, 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 MSA 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 had decreases, and 8 had no change.
Someone asked a question regarding an item on the Wichita City Council agenda today: How much will this cost taxpayers?
The item in question is agenda item IV-1: Public Hearing and Request for a Letter of Intent to Issue Industrial Revenue Bonds (WAM Investments #6, LLC). 1
Attached was an article from the Wichita Business Journal previewing the matter. 2
How much do these bonds cost taxpayers? It’s important to remember that with Industrial Revenue Bonds in Kansas, cities and counties are not the lender. 3 If this company was not able to pay the bond interest or principle, the city would be under no obligation to pay. The city makes no guarantee as to repayment. Bond buyers know this.
(As an aside, the Business Journal article states: “However, using IRB financing can help the company secure a lower interest rate.” This is simply not true unless the bonds are tax-exempt municipal bonds. Those bonds have a lower interest rate because the interest income is not subject to income tax. But the IRBs considered today are not tax-exempt.)
So if the city is not lending money, and if the city is not guaranteeing repayment, do these bonds have a cost to taxpayers? The answer depends on which side of the fence you sit.
The benefit to WAM, today’s applicant, is that IRBs carry with them tax abatements. Specifically, a whole or partial exemption from paying some property taxes. Additionally, IRBs also enable escape from paying sales tax on purchases made with bond proceeds.
So one way to look at the IRBs is that they do indeed have a cost. The city, county, school district, and state will not receive tax revenue they otherwise would receive.
Supporters of this incentive make two rebuttals. One is that without the tax abatements, the project would not be built. Therefore, no tax revenue. So by abating taxes for a period of time, the project can be built, and after the abatements expire, it will be paying taxes. (For this project, the property tax abatement is for five or likely ten years, with a reduced rate of abatement in the final five.)
The second argument is that by building something, new jobs and commerce are created. These new employees and commercial activity pay taxes. The city and other jurisdictions receive more from these new taxes than they gave up in tax abatements. This is called the benefit-cost ratio. It’s computed by Center for Economic Development and Business Research (CEDBR) at Wichita State University. City documents often refer to something like a “1.57:1 benefit-cost ratio,” meaning that for every one dollar foregone in tax revenue, the city expects to gain $1.57 in other tax revenue.
There are problems with these arguments. For the first: The developer of this project says the incentives are “critical.” If true, this claim exposes a large problem, which is if taxes are so high as to block investment, how are we going to grow as a city and region? Will every project require tax incentives? If not, why do some say they need incentives, and some don’t?
Second: Remember that government says that with the new project, tax revenue will increase. But this almost always happens regardless of whether the company has received incentives. Therefore, the benefit-cost ratio calculations are valid only if incentives were absolutely necessary.
Are incentives necessary? The benefiting companies usually make their case with a lot of numbers and projections, most of which are simply guesses. Plus, there is strong incentive to not tell — to not know — the truth. Here’s why. Suppose fictional company XYZ dangles the idea of expanding its presence in Wichita, or maybe in some other city. XYZ cites incentive packages offered by other cities. Wichita comes up with millions in incentives, and XYZ decides to expand in Wichita. Question: Were the incentives necessary? Was the threat to expand elsewhere genuine? If XYZ admits the threat was not real, then it has falsely held Wichita hostage for incentives. If the city or state admits the threat was not real, then citizens wonder why government gave away so much. No one has an incentive to be truthful. 4
Back to the item on today’s agenda. How much tax revenue is foregone through the abatements? City documents in the agenda packet did not have these numbers, but a presentation made to council members did, as follows:
Value of one year 95% tax abatement ($6,000,000 at 80%)
City of Wichita: $37,240
Sedgwick County: $33,508
USD 375 (Circle public schools): $61,255
State of Kansas: $1,710
These values would apply annually for five years. If occupancy goals are met, the incentives would apply for another five years, at a lower rate. (The values above are 95 percent of the usual taxes. The rate for the second five years would be 50 percent of the usual taxes.)
(As an aside, the Business Journal should not use headlines like it did in this case: “Wichita City Council to consider $6 million in IRBs for industrial spec building.” A better headline would be something like “Wichita City Council to consider $133,713 in annual tax abatements.” That is the real economic transaction that happened today.)
But this is not all. The applicant company will almost certainly receive an exemption from paying sales tax on the building. City documents did not provide an estimate for how much sales tax might be abated, but it could be several hundred thousand dollars.
Wichita City Council agenda packet for May 1, 2108. ↩
For more on this, see LeRoy, Greg. The Great American Jobs Scam. Especially chapter two, titled Site Location 101: How Companies Decide Where to Expand or Relocate. The entire book may be read online at http://www.greatamericanjobsscam.com/pages/preview-book.html. A relevant excerpt: “These prisoners’ dilemma games also enable companies to create fictions about cause and effect. These fictions can be used to create public versions of how deals happened that no one can credibly contradict, because the company’s real decision-making process will never be revealed. The most important fiction to maintain, of course, is that subsidies matter in deciding where a company expands or relocates. For example, being able to send secret signals to competing cities means companies can tell contradictory stories to different cities and have no fear of being exposed. If a company really has its heart set on City A, it can tell that city that it is in the hunt, but needs to do better. Meanwhile, it can send less urgent signals to Cities B and C, even if they offered bigger packages at first. Eventually, City A offers the biggest package, and the company announces its decision to go there.” ↩
Liquor enforcement tax collections provide insight into the economic impact of hosting NCAA basketball tournament games in Wichita.
In Kansas, a tax is collected at liquor stores, grocery stores, and convenience stores on the sale of alcoholic beverages. The same tax is also collected on sales to clubs, drinking establishments, and caterers by distributors. 1 This tax is called the liquor enforcement tax. The rate has been 8 percent since 1983, when it was raised from 4 percent. 2
This tax provides some insight into the level of sales of alcoholic beverages at bars, clubs, and restaurants. It is not a perfect measurement of that, and perhaps not even a very good measurement, as it also includes sales at retail outlets for consumption offsite.
Nonetheless, it’s data we have. The Kansas Department of Revenue provides this data on a monthly basis for each county. With the touted influx of visitors for the NCAA men’s basketball tournament games in Wichita in May — along with the generalized party atmosphere — we might to expect to see these tax collections rise during March. Here’s what happened.
The liquor tax collections exhibit pronounced seasonality, so it’s useful to compare the same month of the previous year, as follows for Sedgwick County:
March 2017: $1,315,653
March 2018: $1,085,214
Change: -$230,439, a decline of 17.5 percent.
Not only was March 2018 lower than March 2017, it was lower than five of the previous six months of March.
The monthly average for the 12 months prior to March 2018 was $1,243,793. March 2018 didn’t meet that standard.
Kansas liquor enforcement tax collections are available in an interactive visualization here.
“Liquor Enforcement or Sales Tax. The second level of taxation is the enforcement or sales tax, which is imposed on the gross receipts from the sale of liquor or CMB to consumers by retail liquor dealers and grocery and convenience stores; and to clubs, drinking establishments, and caterers by distributors.”
Also: “Enforcement. Enforcement tax is an in-lieu-of sales tax imposed at the rate of 8 percent on the gross receipts of the sale of liquor to consumers and on the gross receipts from the sale of liquor and CMB to clubs, drinking establishments, and caterers by distributors.
A consumer purchasing a $10 bottle of wine at a liquor store is going to pay 80 cents in enforcement tax.
The club owner buying the case of light wine (who already had paid the 30 cents per gallon gallonage tax as part of his acquisition cost) also now would pay the 8 percent enforcement tax.”
Kansas Legislative Research Department. Kansas Legislator Briefing Book 2017. Available at http://www.kslegresearch.org/KLRD-web/Publications/BriefingBook/2017Briefs/J-4-LiquorTaxes.pdf. ↩
Hotel tax collections provide an indication of the economic impact of hosting a major basketball tournament.
The Kansas Department of Revenue has released transient guest tax collections for March 2018. This is a tax added to hotel bills in addition to sales tax. The rate in Kansas is 6.00 percent, although some localities add additional tax to that.
For the city of Wichita, here are the collections:
March 2017: $538,539
March 2018: $543,844
Increase: $5,305 or 0.99 percent
With the hotel tax at 6.00 percent, that increase implies additional sales of $88,417 for the same month of the prior year. (The 2.75% tourism fee that is also added to Wichita hotel bills is paid directly to the city, so it does not appear in the statistics from the Kansas Department of Revenue.)
While an increase from the same month of the previous year is good, the average monthly hotel tax collections for the year before (March 2017 through February 2018) was $590,770.
So March 2018 didn’t exceed the average month of the previous year. It also didn’t exceed March 2016. Whatever was happening in Wichita during that month, the city generated $665,854 in hotel taxes.
Kansas transient guest tax collections are available in an interactive visualization here.
If Wichita-area companies can’t fill jobs, the declining labor force may be the reason. Who is responsible?
The Chung Report has a recent article noting the low unemployment rate in Wichita. That may make it difficult to fill jobs: “Wichita also has a low unemployment rate, which has seen steep decline in the past five years and now sets at 3.9 percent, below the national average of 4.1 percent. So even if companies are dead set on hiring, do we have the available workforce?” 1
It’s a useful article. But where it could be better, especially when discussing how Wichita companies will find workers to fill anticipated new jobs, is to note the shrinking Wichita labor force.
Here is a table of data for the Wichita MSA from the Bureau of Labor Statistics Local Area Unemployment Statistics (LAUS) program. 2 It is part of the Bureau’s Current Population Survey (CPS), which is a “monthly survey of households conducted by the Bureau of Census for the Bureau of Labor Statistics.” 3
I chose the year ending January 2011 as a comparison point, as it is near the low point of the great recession. Since then, the unemployment rate has fallen greatly, and is just half the rate of 2010.
But that isn’t the total story. It isn’t even the most important part of the story. Since the unemployment rate is a ratio, it has two moving parts, specifically the number of unemployed people and the number of people in the labor force. (The labor force, broadly, is the number of persons working plus those actively looking for work.)
It is possible that the unemployment rate falls while the number of people employed falls or rises slowly. This is the general trend in Wichita for the past seven years or so. The nearby table illustrates this. The labor force has fallen, and by a lot, while employment growth has been modest.
In fact, of the changes, we can say that 35.2 percent of the change in the unemployment rate is due to new jobs, while 67.8 percent of the change is due to a smaller labor force.
So when Wichita leaders ask “Do we have the workforce?” the answer might be no. The next question ought to be “Why not?”
Our leaders are quick and eager to take credit for economic development gains. But what about the shrinking labor force caused by the many of the same leaders and their policies?
As the proverb says, “Success has many fathers, while failure is an orphan.”
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.
For example, he wrote how Wichita is a “thriving city in a brand new age of possibility.” Construction and change is everywhere, he said.
The problem is this: Even though there seems to be a lot of construction and change, Wichita isn’t thriving.
There are several ways to gauge the economic health of a city. Jobs are probably most important, especially to politicians, and jobs data is available on a frequent and timely basis. And when we look at Wichita’s growth in nonfarm jobs, we see Wichita lagging far behind the nation.
It wasn’t always that way. Nearby charts show the ratio of Wichita job growth to the nation. When the line is above the value one, it means Wichita was outpacing the nation.
Wichita has done that many times — growing faster than the nation. But that hasn’t been the case recently. In fact, as the charts show, the ratio of Wichita to the nation is sinking. Wichita is falling farther behind.
But despite this evidence, the mayor wrote, “In the coming years, we’re going to continue our growth pattern, and we need passionate individuals supporting and expanding upon our efforts.”
I sincerely hope the mayor is not aware of the poor performance of the Wichita-area economy. Because if he is aware, and he promises to “continue our growth pattern,” we’re in for continued trouble. Did you know that the Wichita-area economy shrank from 2015 to 2016? That is, we produced fewer goods and services in 2016 than in 2015, after accounting for inflation. 2 Is this the growth pattern the mayor promises to continue?
Finally, the mayor issued this plea: “We can’t be complacent in our comfort. We must reconcile our vibrant history with a limitless future. Let’s shed the stigma of what we have been and embrace the vibrant mantle of what we’re becoming.”
First, anyone who’s complacently comfortable is uninformed or unbelieving of the statistics regarding the Wichita economy.
Second, “what we’re becoming” is a low-growth area, falling behind the rest of the country, with the gap growing. The opposite of “vibrant.”
Then, the “stigma of what we have been” describes Mayor Longwell and other long-time officeholders and bureaucrats. It is they who have taken responsibility for the development of the Wichita-area economy. It is their decisions and policies that have led to our slow growth. They are eager to take credit for the successes we do have. But as the mayor’s ill-informed article shows, they are not willing to accept responsibility for failure, much less to even acknowledge the truth.
Wichita leaders are proud of our region’s economic growth. Here are the numbers.
Greater Wichita Partnership is our region’s primary agency responsible for economic development. On its website, it tells us, “We are an organization built upon teamwork and the idea that, when everyone is advancing in the same direction, we can create a powerful force to effect change — and, thanks to our numerous investors and partners, we are.” One of the things GWP says we are doing is “Growing primary jobs.” 1
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. 2
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.” 4
Given all this, it ought to be easy to find economic data supporting momentum, progress, and growth. Let’s look at some 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. 5
Population. In 1990 Wichita was the 80th largest metropolitan area. In 2016 its ranking had fallen to 87.
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. 6
Employment. While officials promote the low Wichita-area unemployment rate, there is an alternative interpretation: The September 2017 unemployment rate declined to just about half the January 2011 rate. The number of employed persons rose by 1.2 percent, but the labor force fell by 3.1 percent. If we consider only the unemployment rate, it looks like the Wichita area is prospering. But the unemployment rate hides bad news: The number of jobs increased only slightly, and the labor force fell by a lot. While it’s good that there are more people working, the decline in the labor force is a problem. (More about employment below.) 7
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. 8
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.
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. 9
What to do?
You can’t change what you don’t acknowledge.
— Phillip C. McGraw
The failure of the Wichita-area economy to thrive is a tragedy. This is compounded by Wichita leaders failing — at least publicly — to acknowledge this. 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.
In the area of growth, Wichita ranked 91 out of 100 metropolitan areas. For jobs, the ranking was 89. In the charts, you can see that since the last recession, the Wichita area is falling behind the country, with the gap growing each year. The good news in growth is that Wichita ranks higher in jobs at young firms (67 of 100). Young firms — which are different from small business — are vitally important to economic growth. 1
In the two other major categories that Brookings looks at, Wichita is 91 out of 100 in prosperity, and 94 out of 100 in inclusion.
These rankings are based on values through 2016 and represent change from 2015. The index also has data for two other time periods of longer duration.
As the Brookings data end in 2016, what might we find if the data was based on 2017 values? Some of the data Brookings uses is not available until after a lengthy delay, such GDP for metropolitan areas. That data, which is an important indicator of a region’s economic health, is scheduled to be released in September 2018 for complete year 2017 data.
Employment data is available fairly quickly, although it is often revised each year in March. The nearby chart, displaying data from the Bureau of Labor Statistics, shows changes in the average annual employment for Wichita and the nation. For the year 2016, total nonfarm employment in Wichita rose by 0.61 percent. For 2017, the growth rate was 0.54 percent — a slowdown in job growth. An interactive version of the chart is available here. 2
These growth figures are far below the rate for the nation, which were 1.79 and 1.58 percent respectively.
Wichita leaders are talking about success in developing the Wichita economy; that there is momentum for the future. Based on the data we have available, the rate of growth of employment slowed down in 2017 from what was already anemic growth. What is the basis for optimism if we continue our present policies and leadership?
FRED, from the Federal Reserve Bank of St. Louis, is a resource for examining economic data and creating charts and tables. Most of the available data is data gathered from other sources, in this case the Bureau of Labor Statistics. FRED provides a consistent interactive interface to the data, and provides several ways to share the data. Start at https://fred.stlouisfed.org/. ↩
Greater Wichita Partnership (GWP) has requested $45,000 from Sedgwick County to engage the services of a consultant to direct an initiative to bring more focus to GWP’s regional economic development efforts. This one-time request, if provided, is intended to be leveraged with $45,000 from the City of Wichita and another $45,000 from GWP. Sedgwick County’s committment would represent one-third of the consultant’s work.
The proposed consulting engagement would be designed with two primary goals:
1. Develop a strategic plan for GWP that establishes an organizational structure to optimize and coordinate regional economic development efforts that grow opportunities, help create and maintain jobs, and promote the region as an attractive place to locate and/or grow a business.
2. Bring clarity and innovative ways for the Blueprint for Regional Economic Growth (BREG) to expand. We need to develop strategies to work together as a region to maintain and grow the Aerospace clusters for which we are known globally; while working to attract and grow businesses in other industries that will strengthen and diversify the regional economy.
There are a few ways to look at this request. One is that presently, GWP is working well and providing positive results, so there’s no need to spend money on the organization’s improvement. Local leaders seem pleased with GWP and its work. In January Wichita Mayor Jeff Longwell said “It’s hard to find a time when we’ve had more momentum.” 1 There are many other example of praise heaped on GWP and its leaders.
Or: We might argue that even though GWP is performing well, an overhaul could really boost its efforts.
Or: We might wonder how this organization is just getting started doing things like working on its focus and strategies. (While GWP is relatively new, it is a successor to a previous economic development group, with many of the same leaders and employees.)
What has GWP been doing? How effective is its stewardship of the Wichita-area economy? Here are some numbers on the Wichita-area economy.
Personal income. For the Wichita metropolitan statistical area, personal income in 2016 rose slightly from 2015 level, but is still below the 2014 level. In real (inflation-adjusted) dollars, personal income fell in 2016. 2
Employment. While officials promote the low Wichita-area unemployment rate, there is an alternative interpretation: The May 2017 unemployment rate declined to just about half the January 2011 rate. The number of employed persons rose by 1.1 percent, but the labor force fell by 3.7 percent. If we consider only unemployment rate, it looks like the Wichita area is prospering. But the unemployment rate hides bad news: The number of jobs increased only slightly, and the labor force fell by a lot. While it’s good that there are more people working, the decline in the labor force is a problem. 3
Population. In 1990 Wichita was the 80th largest SMA. In 2016 its ranking had fallen to 87.
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. 4
With these points in mind, we ought to wonder if GWP and its leadership ought to be replaced with something else.
This item will be handled on the commission’s consent agenda, meaning that there will be no discussion or individual vote unless a commissioner decides to “pull” the item.
For 2016, personal income in Wichita rose, but is still below 2014 levels.
The Bureau of Economic Analysis, an agency of the United States Department of Commerce, has released personal income figures for metropolitan areas through 2016. For the Wichita metropolitan statistical area, personal income in 2016 rose slightly from 2015 level, but is still below the 2014 level. In real (inflation-adjusted) dollars, personal income fell in 2016.
The trend in personal income mirrors that of the Wichita-area GDP, which is the value of goods and services produced. That fell in 2016. 1
To access an interactive visualization of personal income for all metropolitan areas, click here.
Employment in the Wichita metropolitan area is on an upward tick.
Using seasonally-adjusted figures, employment in the Wichita Metropolitan Statistical Area 1 was 294,800 in January 2017. For September, it is 302,700, an increase of 7,900, or 2.7 percent. This data is from the Bureau of Labor Statistics, part of the United States Department of Labor. 2
The employment data comes from the BLS Current Employment Statistics program, which surveys employers. 3
BLS also collects data regarding employment and unemployment through the Local Area Unemployment Statistics (LAUS) program. 4 It is part of the Bureau’s Current Population Survey (CPS), which is a “monthly survey of households conducted by the Bureau of Census for the Bureau of Labor Statistics.” 5 This data is collected from a survey of households, and the monthly data is not adjusted for seasonality. This is the data series that produces the oft-cited unemployment rate.
It’s important to understand the nature of the unemployment rate. Being a ratio, it has two moving parts, specifically the number of unemployed people and the number of people in the labor force. (The labor force, broadly, is the number of persons working plus those actively looking for work.)
It is possible that the unemployment rate falls while the number of people employed falls or rises slowly. This is the general trend in Wichita for the past seven years or so. The nearby table illustrates this. Because the values in this data series are not adjusted for seasonality, I use the average of the proceeding 12 months.
In the first example, the unemployment rate fell by nearly half for the time period chosen. (2010 was the first full year after the most recent recession ended.) That improvement was produced by a small increase in the number of employed people and a large decline in the labor force. Is our area better off for this? Local politicians and bureaucrats seem to think so, as the low unemployment rate is widely cited as a measure of their success in managing the local economy.
The second example uses as its starting point 2008, which was the high mark for employment in the Wichita MSA. The unemployment rate then is nearly the same as today. But both the labor force and the number of employed persons is down.
If we consider only the unemployment rate, it looks like the Wichita area is prospering. But the unemployment rate hides bad news.
In the nearby chart you can see these effects. The unemployment rate has been declining, although it has recently increased slightly. The labor force has been declining. The number of employed persons has increased, although it has also recently declined.
The labor force, specifically the civilian labor force, are those people working, plus those people actively searching for work, minus people under 16 years of age, minus people living in institutions (for example, correctional facilities, long-term care hospitals, and nursing homes), minus people on active duty in the Armed Forces.
BLS defines unemployed people as: “Persons aged 16 years and older who had no employment during the reference week, were available for work, except for temporary illness, and had made specific efforts to find employment sometime during the 4-week period ending with the reference week. Persons who were waiting to be recalled to a job from which they had been laid off need not have been looking for work to be classified as unemployed.”
The unemployment rate is “the number unemployed as a percent of the labor force.”
Bureau of Labor Statistics. *Glossary.* Available at https://www.bls.gov/bls/glossary.htm. ↩
“The Bureau of Labor Statistics (BLS) has two monthly surveys that measure employment levels and trends: The Current Population Survey (CPS), also known as the household survey, and the Current Employment Statistics (CES) survey, also known as the payroll or establishment survey.
Both surveys are needed for a complete picture of the labor market.
The payroll survey (CES) is designed to measure employment, hours, and earnings in the nonfarm sector, with industry and geographic detail. The survey is best known for providing a highly reliable gauge of monthly change in nonfarm payroll employment. A representative sample of businesses in the U.S. provides the data for the payroll survey.
The household survey (CPS) is designed to measure the labor force status of the civilian noninstitutional population with demographic detail. The national unemployment rate is the best-known statistic produced from the household survey. The survey also provides a measure of employed people, one that includes agricultural workers and the self-employed. A representative sample of U.S. households provides the information for the household survey.
National employment estimates from both the household and payroll surveys are published in the Employment Situation news release each month. The estimates differ because the surveys have distinct definitions of employment and distinct survey and estimation methods.” Bureau of Labor Statistics. Comparing employment from the BLS household and payroll surveys. Available at https://www.bls.gov/web/empsit/ces_cps_trends.htm. ↩
Previous versions of the report prominently mentioned the number of daytime workers in downtown Wichita. 3The number most often given was 26,000. But that number is missing from this year’s report. Unless I overlooked it, there is no mention of the number of workers in downtown Wichita.
Why was this number omitted from this year’s report? Earlier this year I found out that the U.S. Census Bureau data series which was the source of this statistic is not a valid measure of the number of people working downtown. That’s because the series counts all the employees of the Wichita public school district as downtown workers solely because the district’s headquarters building is downtown.4 This means the statistic is not valid and meaningful, because most school workers don’t work at the downtown building. Instead, they’re working in schools and other facilities dispersed throughout the district. A similar anomaly exists for Wichita city workers: All are counted as though they work in the city hall building. 5
When I asked Jeff Fluhr, the president of Downtown Wichita, about this he referred my question to Jeremy Hill, the Director of Center for Economic Development and Business Research at Wichita State University. This was — seemingly — reasonable as CEDBR supplied the number to Fluhr’s organization. Hill’s response was unsatisfactory in resolving the issue. In conclusion, Hill wrote to me: “Although the center systematically questions all data sources (federal, state, private, and nonprofit) for reasonableness, limited resources (e.g. time and costs) prevent us from validating and/or cross checking every statistic. In this situation, the center used the appropriate source for the research question and the total number of people estimated to work downtown was within reason.”
Here’s what concerns me. This data comes from a Census Bureau application called “OnTheMap.” When using the OnTheMap application for downtown Wichita, which is zip code 67202, there are two large bright blue dots that stand out from all others. These represent the two highest concentrations of workers in downtown Wichita. One is Census block 201730043001036, which has 7,740 employees. This is a one square block area from First to Second Streets, and Wichita to Water Streets. That block, for the year of this data, held the Wichita school district headquarters building.
7,740 employees is a lot. It’s about one-fourth of the total downtown employee count claimed by Downtown Wichita and CEDBR. It’s more employees than McConnell Air Force Base has, and about twice as many that work at Koch Industries in Wichita.
Importantly, this number is eleven times the number that work at Cargill, a company which Wichita is granting many millions of dollars in incentives just to retain the company in Wichita.
We just have to wonder: Didn’t anyone look at this data in a serious and critical manner? A quick glance at the data by CEDBR, much less “systematically” checking for “reasonableness” should have led to questions. A quick look by Downtown Wichita staff should have spurred these inquiries: Who do all these people work for in that one block? This is a wonderful success story! How can we replicate this great accomplishment in other blocks in downtown Wichita?
And didn’t anyone at the City of Wichita — council members and bureaucrats alike — wonder about these numbers?
That didn’t happen. Or maybe it did, and someone in authority nonetheless decided to proceed to use a statistic that doesn’t mean what city leaders say it means.
That’s why I wrote it was seemingly reasonable for Fluhr to refer me to CEDBR with my questions about the data. In retrospect, it is clear this is a multi-year episode of incompetence, ineptitude, or dishonesty.
But at least this statistic is no longer used.
I asked Cindy Claycomb, who is Chair of the Executive Committee of Downtown Wichita, about this. She replied that all data sources are listed in the report, and that the board relies on the expertise of the Wichita Downtown Development Corporation staff to decide what is presented in each year’s report. She said Jeff Fluhr was the best person to address my concerns. He, as we saw, demurred to CEDBR at WSU.
(By the way, Claycomb is nearly certain to be elected to the Wichita City Council in November. Jeff Fluhr is now, besides president of Downtown Wichita, also president of Greater Wichita Partnership, the new organization regional governments rely on for economic development.)
So: How many jobs are in downtown Wichita? There is another series of census data that is better, but not perfect, as it counts private-sector employees only. That data shows 13,581 workers in downtown Wichita for 2015. 6 But what’s remarkable — and disappointing — about this data series is its trend: It’s going down. The recent peak was 16,658 workers in 2008. By 2015 that number was down by 18 percent. (Again, these are private sector workers only.)
As can be seen in the nearby charts, the number of jobs has been on a mostly downhill trend.
There is, however a serious problem with this data series, as it includes workers whose “administrative home” is downtown, even though they work somewhere else. The Census Bureau makes this caveat clear to users of this data. 2 Because all Wichita school district employees have an “address” of 201 N. Water in downtown Wichita, they appear in the LODES data series as employees with that address.
It is a serious mistake to count all Wichita school district employees as downtown workers. Most school employees work in schools and other sites scattered throughout the city, not in downtown. Further, this year the school district moved its administrative offices to the former Southeast High School building at Lincoln and Edgemoor. That’s in zip code 67218, not 67202. The effect of this on the LODES statistics (it will appear that some 7,000 workers have moved out of downtown Wichita) probably won’t appear for two or three years.
Even if we use the data series promoted by the Wichita Downtown Development Corporation, the trend in jobs is in the wrong direction. WDDC promotes the large investment in downtown Wichita, by both private and public sources. 3 But employment is trending in the opposite direction. 4
But this data series is not useful as a measure of the number of people working in downtown Wichita, as it overstates the true number. The LODES data is widely cited by the City of Wichita and affiliated agencies such as WDDC and the Wichita Chamber of Commerce. 5 It appears prominently in the State of Downtown report produced by WDDC, generally released on May of each year. So far, there is no report for this year.
U.S. Census Bureau. LEHD Origin-Destination Employment Statistics Data (2002-2015) [computer file ↩
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.
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?
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. ↩
In this episode of WichitaLiberty.TV: Bob Weeks and Karl Peterjohn discuss issues regarding the Wichita and Kansas economies. View below, or click here to view at YouTube. Episode 163, broadcast September 3, 2017.
Wichita employment trends. While the unemployment rate in the Wichita metropolitan area has been declining, the numbers behind the decline are not encouraging.
Downtown Wichita business trends. There has been much investment in Downtown Wichita, both public and private. What has been the trend in business activity during this time?
Wichita downtown plan focused on elite values, incorrect assumptions. One of the themes of those planning the future of downtown Wichita is that the suburban areas of Wichita are bad. The people living there are not cultured and sophisticated, the planners say. Suburbanites live wasteful lifestyles. Planners say they use too much energy, emit too much carbon, and gobble up too much land, all for things they’ve been duped into believing they want.
Charts shown in the show: (Click charts for larger versions.)