Voice For Liberty

Tag: Interventionism

  • Eliminate mortgage interest deduction

    As part of simplification of income taxes, eliminating the mortgage interest deduction should be at the top of the list. This will be difficult to accomplish, as the real estate industry pitches the deduction as a way to help middle-class families afford home ownership.

    The math, however, doesn’t add up. Consider a family of four. Its standard deduction for federal income taxes is $11,900. Itemizing deductions — which is what you must do in order to received the mortgage interest deduction — is beneficial only when the deductions exceed the standard deduction amount.

    With interest rates for a 30 year mortgage at 3.356 percent APR (Wells Fargo 30 year fixed), $11,900 of interest payments implies a mortgage loan of $354,000. For a 15 year fixed loan, it would be $406,000.

    The national median sales price of a house, according to the National Association of Realtors, is $178,600. In many parts of the country like Wichita, it’s much less. The mortgage loan amounts calculated above are beyond the reach of most middle class families.

    But once you start itemizing deductions, most families will have additional amounts to deduct beyond mortgage interest, which means additional tax savings. But families should also be aware that the benefit of these deductions exists only for the amount above the standard deduction threshold. So if a family was able to deduct $14,000, the marginal benefit is only $2,100.

    Then, many people seem to believe that income tax deductions like mortgage interest are deducted from the tax bill. That describes the mechanism of tax credits. Mortgage interest is a deduction from income. After the deduction, there is less income to pay taxes on, and that’s the benefit.

    The amount of the benefit, however, for middle class families is small. Most of these families probably fall into the tax bracket where the marginal rate is 15 percent, meaning that a dollar’s change in taxable income changes taxes by 15 cents. So $2,100 of additional deductions saves $315 in taxes.

    There’s another policy consideration. The mortgage tax deduction incentivizes borrowing to buy a home, not the actual ownership.

    The mortgage tax deduction is seen as promoting home ownership, which has been a goal of government for a long time. A few years ago we saw what happens when government intervenes in markets like housing. Most people are perfectly capable of deciding for themselves whether to be renters or owners. The government should stop social engineering programs that sway people to act one way or another, and the home mortgage interest deduction is a prime example.

  • Flight options from Wichita decline, compared to nation

    A program designed to bring low air fares to Wichita appears to meet that goal, but the unintended and inevitable consequences of the program are not being recognized.

    The legislative agendas for Wichita and Sedgwick County call for supporting the retention and funding of the Affordable Airfares program. This program provides taxpayer money to subsidize low-cost air carriers in Kansas. Most of the program’s funds have been spent in Wichita, in particular on AirTran Airways.

    According to Regional Economic Area Partnership, the managing organization, the goal of the program is “to provide more air flight options, more competition for air travel, and affordable airfares for Kansas.”

    Is the Affordable Airfares program meeting its goals? If we look at “air flight options,” and if we consider the number of monthly departing flights as a measurement, Wichita isn’t doing well compared to the nation. The chart at the end of this article illustrates.

    (Since this data is highly seasonal, I present a 12-month moving average, so that each point plotted is the average of the previous 12 months data. Also, I index January 2000 to 100.)

    Of particular note is that over the past two or three years, the trend of flights nationally is level, while the trend of flights available in Wichita is declining.

    In its Kansas Affordable Airfares Program Fiscal Year 2011 Report, REAP addresses the goal of “more air flight options” and reports:

    “Air service through Wichita Mid-Continent Airport addresses the statutory objective of more flight options, as follows: A total of 11 airlines provide service from Wichita to seven nonstop destinations with connecting service and four nonstop destinations with no connecting service. Overall, there are on average 38 daily (with 40 on weekdays) nonstop or one-stop flights by commercial air carriers, providing access to 4,989 U.S. and international destinations.”

    This statement simply addresses the current situation. But the goal is more flight options. Which is better evidence of meeting the statutory goal: A simple recitation of what’s available today, or looking at the trend, especially comparing Wichita to the nation? REAP’s statement provides very little information as to whether the program is meeting its stated goals, or whether the program is desirable. We should ask that REAP recognize the data and its implications.

    This trend is an example of unintended consequences of government intervention and regulation. The Affordable Airfares program imposes a rough form of price control on airfares in Wichita. If the program didn’t do that — and it appears it succeeds at this goal — then there would be no point in having the program.

    The inevitable effect of price controls is that less is supplied, compared to what would have been supplied. This economic phenomenon is reliable and predictable.

    While travelers prefer low air fares to high, this is not the only consideration. For those who need to travel on short notice, the availability of flights is very important.

    For more about flights in Wichita, see In Wichita, confusion over air traffic statistics.

    Monthly flights, Wichita Airport and nationally.

  • In Wichita, confusion over air traffic statistics

    As the governments of Wichita and Sedgwick County prepare their legislative agendas for next year, retaining the Affordable Airfares program is a high priority for most officials. This program provides taxpayer money to subsidize low-cost air carriers in Kansas. Most of the program’s funds have been spent in Wichita, in particular on AirTran Airways.

    It’s almost certain that air fares are lower now in Wichita than they might be if not for the Affordable Airfares program. But another goal of the program is not being met. That goal is to increase the flight options from Wichita. This number has been declining for many years, but local officials seem reluctant to acknowledge this. A report produced last year by Kansas Legislative Division of Post Audit, while containing many useful findings, muddies the water in a way that makes it difficult to see the trends at the Wichita airport.

    Here’s an example: Sedgwick County’s 2012 legislative platform states “The Post Audit report also concluded that ‘the program appears to have the desired effect … fares have decreased while passengers and flights have increased.’”

    In the chart provided in the LPA document, there mare many years where the “percent change in flights from prior year” is zero or negative. That means that for that year, the number of flights declined.

    In the chart (below) titled “Monthly Departures, Wichita” we see the number of flights leaving Wichita each month since 2000. (I gathered this data from the same source as did LPA, but independently.) I draw a trend line starting in 2000. That line barely slopes upwards, supporting a claim that “flights have increased.”

    But suppose we start the trend line on January 1, 2003, about seven months after AirTran entered the Wichita market. In this case, the trend line slopes downwards, and rather sharply. Which of the two lines best represents the performance of the Affordable Airfares program? I would contend it is the second line, as it shows what has been happening for the past nine or so years: Flight options from Wichita are declining.

    Considering passengers, shown in the chart titled “Monthly Passengers, Wichita and U.S.”: If we take as a starting point any time from 2000 to 2002, the number of passengers is higher now than then. But since 2004 the trend for Wichita passengers is pretty flat. (Since the monthly passenger data is highly seasonal, I present a 12-month moving average, so that each point plotted is the average of the previous 12 months data.)

    Comparing Wichita to national data, we can see that for the past two years the national trend is slowly rising, while Wichita’s trend is flat. The gap between national and Wichita is increasing, although slowly. This means that Wichita passenger traffic is not keeping pace with national.

    In presentations made as part of the Wichita/Sedgwick County Community Investment Plan attendees are told: “Fares have decreased (24 % overall) while passengers (23% increase) and flights have increased.”

    You have to make a selective — and I would say tortured — reading of the data for this statement to make sense and be true. The survey administered to program participants, at least in draft form, holds similar errors.

    Is the number of flights important? To the business traveler — who often must make travel arrangements on short notice — it is. An available seat on an airplane, even if the fare is high, is the primary concern.

    Other facts regarding the Affordable Airfares program are muddy too. The LPA report from February 2011 is Affordable Airfares: Reviewing the Benefits Claimed As a Result of State Funding to Lower Airfares. In its “Answer in Brief” the audit states: “Overall, the program appears to have had the desired effect. Since Wichita’s original affordable airfare program (FairFares) began in 2002, fares have decreased, while the number of passengers and the number of available flights have increased. However, the Regional Economic Area Partnership’s (REAP) annual reports on the program contain numerous inconsistencies and inaccuracies. Further, the economic impact of the program has been significantly overstated. Specifically, the estimated number of jobs created and the State’s return on investment were overstated because of key methodological errors and the use of some inaccurate data. We also found that overall accountability for the State funds is lacking.”

    Specifically, some of the problems LPA found were:

    • REAP officials don’t use the best data available on fares and the number of passengers.
    • The baseline years and industry benchmarks REAP officials use for comparisons are inconsistent from year to year, and sometimes even within the same report.
    • REAP officials omitted data on the number of flights available to passengers — a key goal of the program — from all but one of the annual reports.
    • The annual financial reports contain numerous errors and inconsistencies.
    • The general approach to estimating the number of jobs created appears reasonable, but the actual estimate includes some key methodological errors and uses some inaccurate data. … As a result, the 2008 study’s estimate of more than 9,700 average annual jobs from AirTran entering the Wichita market is significantly overstated. … The calculated return on investment to the State is also significantly overstated.
    • Overall accountability for state funds is lacking.
    • There is a perception among some people in the State that REAP isn’t sufficiently independent to administer the State Affordable Airfares Fund.

    Thea actions of Wichita and Sedgwick County officials show that they are either uninformed regarding these issues, or that they simply don’t care.

    Monthly departures from the Wichita Airport.
    Monthly passengers, Wichita Airport and nationally.

  • Wichita licenses the striping of parking lots

    Next week the Wichita City Council will consider licensing and regulating the painting of stripes in parking lots. How, may I ask, has civilization advanced without the benefit of such regulation?

    The agenda report narrative states “The proposed ordinance does not set up permit or inspection processes; it would be complaint-driven enforcement through the ADA Coordinator.”

    But earlier, the same report reads: “The proposed ordinance establishes a licensing and enforcement system applicable to persons and businesses catering to the public when they modify the construction or layout of parking spaces they make available to the public.”

    The licensure requirement in the ordinance states: “Any person or entity, whether as principal, agent, or employee, engaged in the business of striping a parking lot in the City of Wichita shall be required to obtain a striping contractor’s license from the City Engineer’s Office. When striping is performed by or under the direct supervision of a property owner or renter, or such owner’s or renter’s agent, such individual shall be deemed to be a licensed striping contractor for the purposes of striping such property.”

    Before receiving such a license, applicants must post a surety bond of $5,000, approved by the city attorney. Then the contractor must pass a comprehensive exam on ADA standards for accessible parking. There’s an application fee of $100, which appears to be payable annually.

    And, this ordinance is open-ended: “The City Engineer’s Office shall develop any additional rules and regulations necessary for the issuance or annual renewal of striping contractors’ licenses.”

    Before painting stripes on a parking lot, notice must be given, according to the proposed ordinance: “When striping begins, the striping contractor shall post a conspicuous notice at the location to be striped, to remain conspicuous for no less than seven days after striping is completed. The notice shall be in a form prescribed by the ADA Coordinator and shall contain, at a minimum, the striping contractor’s name and license number or, if the striping contractor is the property owner or renter, the notice shall contain that entity’s contact information.”

    Violators, believe it or not, can face imprisonment: “Any person violating any of the provisions of this chapter shall, upon conviction, be punished by a fine of not more than one thousand dollars or by imprisonment for not more than thirty days or by both such fine and imprisonment.”

    I wonder: Is it a problem in Wichita that there aren’t enough parking spots for disabled people, or that the parking spots are too narrow? (The ordinance specifies the width of the parking stalls, and also the width of adjacent access isles.)

    Can’t businesses decide for themselves how many parking spots they want to reserve for their handicapped customers? Or must government decide for us, independently of the type of business? Isn’t it possible that a hospital and a ballet studio might have different needs for handicapped parking, and that each is best equipped to determine that number?

    To top it off: It appears that these regulations are part of a settlement agreed to by the City of Wichita in response to a lawsuit filed against the city. For the city’s sins, we all suffer with these needless and overbearing regulations.

    Wichita parking lot striping standards and enforcement

  • Wichita’s $60 million gift to Spirit Aerosystems — not

    When I read that Wichita had invested nearly $60 million in its Spirit AeroSystems plant, I thought I must have been napping during a city council meeting. Instead, the lede of the story in the Tulsa World newspaper was a misstatement of the mechanism of Industrial Revenue Bonds (IRBs).

    The News reported “News that the city of Wichita is moving to invest nearly $60 million in its Spirit AeroSystems plant has Vision2 backers warning that Tulsa’s aerospace jobs are at risk of poaching by other cities.”

    A Tulsa television news report offered similar reporting: “… after the City of Wichita, Kansas offered roughly $60 million in incentives to try and steal Spirit Aerosystems away from Tulsa.”

    When news stories cover IRBs, the stories usually focus on the amount of the bonds, as in these two examples. That’s unfortunate, as the amount of the bonds is really a minor component of the story.

    You see this misunderstanding revealed in comments left to newspaper articles reporting the issuance of IRBs, where comment writers complain that the city shouldn’t be in the business of lending companies money.

    This confusion hides the reason why IRB transactions take place, which is tax avoidance. That’s the real story of Industrial Revenue Bonds: Companies escape paying the property and sales taxes that you and I — as well as most business firms — must pay.

    Reading the city council agenda packet regarding the IRB issue tells the story. The city is not lending Spirit money. In fact, no one is, according to the city document: “Spirit AeroSystems, Inc. intends to purchase the bonds itself, through direct placement, and the bonds will not be reoffered for sale to the public.”

    Also, the city has no obligation to pay the bondholders should Spirit default. This is a moot point in this case, as the issue of the bonds is also the buyer. But this is the case with all IRBs.

    It’s not uncommon for the issuing company to buy the bonds. So why issue the bonds? The agenda packet has the answer: “The bond financed property will be eligible for sales tax exemption and property tax exemption for a term of ten years, subject to fulfillment of the conditions of the City’s public incentives policy.”

    City documents didn’t give the amount of tax Spirit will avoid paying, so we’re left to surmise. Bonds could be issued up to $59.5 million. Taxable business property of that value would generate an annual tax bill of around $1.8 million per year, but Spirit would not pay that for up to ten years. If all the purchased property was subject to sales tax, that one-time tax exemption would be $4.3 million. These are the upper bounds of the tax savings Spirit Aerosystems may receive. Its actual savings will probably be lower, but still substantial.

    These numbers are the economic benefit of the bonds to Spirit, and the opportunity cost of the bonds to taxing jurisdictions. The $60 million “investment” or “incentive” reported by two Tulsa news sources is incorrect.

    Industrial Revenue Bonds, a confusing program

    IRBs are a confusing economic development program. It sounds like a loan from the city or state, but it’s not. The purpose is to convey tax avoidance.

    Here’s language from the Wichita ordinance that was passed to implement the bonds: “The Bonds, together with the interest thereon, are not general obligations of the City, but are special obligations payable (except to the extent paid out of moneys attributable to the proceeds derived from the sale of the Bonds or to the income from the temporary investment thereof) solely from the lease payments under the Lease, and the Bond Fund and other moneys held by the Trustee, as provided in the Indenture. Neither the credit nor the taxing power of the State of Kansas or of any political subdivision of such State is pledged to the payment of the principal of the Bonds and premium, if any, and interest thereon or other costs incident thereto.”

    So no governmental body has obligations to pay the bondholders in case of default. But this language hints at another complicating factor of IRBs: The city actually owns the property purchased with the bond proceeds, and leases it to Spirit. Here’s the preamble of the ordinance: “An ordinance approving and authorizing the execution of a lease agreement between Spirit Aerosystems, Inc. and the City of Wichita, Kansas.”

    Other language in the ordinance is “WHEREAS, the Company will acquire a leasehold interest in the Project from the City pursuant to said Lease Agreement.” There’s other language detailing the lease.

    We create this imaginary lease agreement — and that’s what it is, as it doesn’t have the same purpose and economic meaning as most leases — for what purpose? Just so that certain companies can avoid paying taxes.

    The city does have another program that allows it to exempt these taxes under some circumstances without having to issue bonds. In this case the goal of the program is laid clear: tax avoidance.

    IRBs are a confusing program that obfuscates the actual economic transaction. That’s not good public policy, whether or not you agree with the concept of selective tax abatements as economic development.

    Similarly, a principle of good tax policy is that those in similar situations should face the same laws. IRBs are contrary to this.

    While we can understand that citizens — with their busy lives — may not be informed or concerned about the complex workings of IRBs, we should expect more from our elected (and paid) officials. But we find often they are not informed.

    As an example, in 2004 the Wichita Eagle reported: “In July, the council approved industrial revenue bond financing and a $1.7 million property tax abatement for Genesis Health Clubs. Council members later said they didn’t realize they had also approved a sales-tax break.” (Kolb goal : Full facts in future city deals, September 26, 2004)

    Here we see Wichita City Council members not aware of the basic mechanism of a major city program that is frequently used. This is in spite of an informative city web page devoted to IRBs which prominently states: “Generally, property and services acquired with the proceeds of IRBs are eligible for sales tax exemption.”

    Yes, that page was active in 2004.

  • Government interventionism ensnares us all

    Are those who call for an end to government subsidy programs hypocrites for accepting those same subsidies? This is a common criticism, said to undermine the argument for ending government subsidy programs.

    Rather, the existence of this debate is evidence of the growing pervasiveness of government involvement not only in business, but in our personal lives as well.

    Recently the Wichita Eagle printed an op-ed critical of Charles G. Koch, chairman of the board and CEO of Wichita-based Koch Industries. The target of the criticism was Koch’s recent article in the Wall Street Journal titled “Corporate Cronyism Harms America” with the subtitle “When businesses feed at the federal trough, they threaten public support for business and free markets.”

    Koch stated one of the problems as this: “Instead of protecting our liberty and property, government officials are determining where to send resources based on the political influence of their cronies. In the process, government gains even more power and the ranks of bureaucrats continue to swell.”

    Even those who are opposed to government interventions in markets find themselves forced to participate in government subsidy programs. Referring to a recent Wichita incentive program for commercial real estate, Wichita developer Steve Clark said: “Once you condition the market to accept these incentives, there’s nothing someone else can do to remain competitive but accept them yourself. Like the things we’re working on with the city, now we have to accept incentives or we’re out of business.”

    Koch Industries, as a refiner of oil, blends ethanol with the gasoline it produces in order to meet federal mandates that require ethanol usage. Even though Koch opposes subsidies for ethanol — as it opposes all subsidies — Koch accepted the subsidies. A company newsletter explained “Once a law is enacted, we are not going to place our company and our employees at a competitive disadvantage by not participating in programs that are available to our competitors.” (The tax credit subsidy program for ethanol has ended, but there is still the mandate for its use.)

    Walter Williams, as he often does, recognizes the core of the problem: “Once legalized theft begins, it pays for everybody to participate.” The swelling ranks of bureaucrats preside over this.

    So should people who have built businesses — large or small — sit idle as government props up a competitor that could put them out of business?

    While Williams says not only does it pay to participate, the reality is that it is often necessary to participate in order to stay in business. This is part of the insidious nature of government interventionism: A business can be humming along, earning a profit by meeting the needs of its customers, when a government-backed competitor enters the market. What is the existing business to do? Consent to be driven out of business, just to prove a point?

    So existing firms are often compelled to participate in the government program, accepting not only subsidy but the strings that accompany. This creates an environment where government intervention spirals, feeding on itself. It’s what we have today.

    Not only does this happen in business, it also happens in personal life. I am opposed to the existence of the Social Security Administration and being forced to participate in a government retirement plan. Will I, then, forgo my social security payments when I become eligible to receive them?

    If the government hadn’t been taking a large share of my earnings for many years, I’d be in a better position to provide for my own retirement. So as a practical matter, many people need their benefits, and rightly are entitled to them as a way to get back at least some of what they paid. The harmful effect is that government, by taking away some of our capacity — and reducing the initiative — to save for ourselves, creates more dependents.

    (It might be a little different if our FICA contributions were in individual “lock boxes,” invested on our behalf. But that isn’t the case.)

    Often those who advocate for reduced government spending are criticized when they may be awarded government contracts. But if the contracts are awarded competitively and not based on cronyism, the winning company is saving taxpayer money by providing products or services inexpensively. This is true even when the government spending is ill-advised or wasteful: If government is going to waste money, it should waste it efficiently, I suppose.

    Contrast this behavior with that of some Wichita businesses and politicians. They make generous campaign contributions to city council members, and then receive millions in subsidy and overpriced no-bid contracts that bleed taxpayers. In Wichita this is called “economic development.”

    As Koch Industries’ Melissa Cohlmia notes in a letter to the Wichita Eagle, Charles Koch, along with David Koch, are examples of an unfortunately small group of businessmen and women who are willing to stand up and fight for capitalism and economic freedom. It’s an important fight. As Charles Koch wrote in his recent article: “This growing partnership between business and government is a destructive force, undermining not just our economy and our political system, but the very foundations of our culture.” The danger, he writes, is “Put simply, cronyism is remaking American business to be more like government. It is taking our most productive sectors and making them some of our least.”

    Koch favors ending all subsidies

    By Melissa Cohlmia, Corporate communication director, Koch Companies Public Sector

    Kevin Horrigan’s commentary was misleading and a disservice to readers (“GOP acts as bellhop for corporations, Kochs,” Sept. 21 Opinion).

    Yes, Koch Industries benefits from subsidies — a fact Charles Koch stated in his Wall Street Journal commentary. This is not hypocrisy, as Horrigan claimed. Rather, where subsidies exist, any company that opts out will be at a disadvantage and often driven out of business by competitors with the artificial advantage. This perverse incentive drives out companies that are in favor of sound fiscal policy and opposed to subsidies, and favors inefficient companies that are dependent on subsidies.

    Koch’s long-standing position is to end to all subsidies, which distort the market and ultimately cost taxpayers billions of dollars.

    Horrigan faulted Koch for not mentioning the company’s lawful contributions to “conservative politicians and causes.” Charles Koch has publicly advocated for and supported free-market causes for decades. This is a First Amendment right that people and groups across the political spectrum also exercise.

    The columnist falsely claimed that Koch has funded anti-labor organizations. About 15,000 of our 50,000 U.S employees are represented by labor unions. We have long-standing, mutually beneficial relationships with these unions.

    In this time when far too few speak up for economic freedom, Charles Koch challenges out-of-control government spending and rampant cronyism that undermines our economy, political system and culture. For this, he should be lauded, not vilified.

  • Surveillance state arrives in Wichita

    In an effort to control crime in Old Town, Wichita is importing the police surveillance state. Right now the targeted area is a small part of the city during certain periods of time. But once camera use has started, it is likely to spread across town, especially given the enthusiasm of police and elected officials like Wichita city council member Lavonta Williams (district 1, northeast Wichita), according to Wichita Eagle reporting.

    Many people may not be aware of the gross invasion of privacy that government cameras represent. Have you used the facial recognition technology in Google’s Picasa software? It’s uncanny how accurate it is. In the hands of government, it’s a concern.

    Some surveillance cameras can read car license plates two blocks away. With facial recognition technology and optical character recognition, police don’t have to actually watch the live or recorded video to learn who has been in a location. Computers can create databases, updated in real time with who is where at what time. Alerts can be programmed, so that if a person or car is seen, police can be notified.

    Then, we have to wonder whether the cameras work as advertised. The website You Are Being Watched, a project of the American Civil Liberties Union, comes to this conclusion: “An increasing number of American cities and towns are investing millions of taxpayer dollars in surveillance camera systems. But few are closely examining the costs and benefits of those investments, or creating mechanisms for measuring those costs and benefits over time. There is extensive academic literature on the subject — studies carried out over many years — and that research demonstrates that video surveillance has no statistically significant effect on crime rates. Several studies on video surveillance have been conducted in the UK, where surveillance cameras are pervasive. The two main meta-analyses conducted for the British Home Office (equivalent to the US departments of Justice and Homeland Security) show that video surveillance has no impact on crime whatsoever. If it did, then there would be little crime in London, a city estimated to have about 500,000 cameras.”

    An irony is that law enforcement likes recording citizens, but not the other way around. As John Stossel has noted, police don’t like to be recorded. In some states its a crime to tape a police officer making an arrest. A video excerpt from Stossel’s television shows the attitudes of police towards being recorded. At Reason Radley Balko details the problem, writing “As citizens increase their scrutiny of law enforcement officials through technologies such as cell phones, miniature cameras, and devices that wirelessly connect to video-sharing sites such as YouTube and LiveLeak, the cops are increasingly fighting back with force and even jail time—and not just in Illinois. Police across the country are using decades-old wiretapping statutes that did not anticipate iPhones or Droids, combined with broadly written laws against obstructing or interfering with law enforcement, to arrest people who point microphones or video cameras at them. Even in the wake of gross injustices, state legislatures have largely neglected the issue.”

    Further irony is found in the parties promoting the cameras. Council member Williams was instrumental in crafting Wichita’s smoking ban. So too was Charlie Claycomb, president of the Old Town Association. One of their arguments was that everyone should have the right to enter any business and not be subjected to secondhand smoke. It was an argument based on civil liberties.

    I’d like to be able to enjoy a cocktail in Old Town without my presence monitored and noted by the police. Is that a civil liberty worth preserving?

    Wichita should reconsider this decision. It seems like an easy solution to a problem. But it’s another journey down the road of the ever-growing regulatory regime in Wichita.

  • Pompeo: Wind production tax credit should expire

    U.S. Representative Mike Pompeo, a Republican who represents the Kansas fourth district, and U.S. Senator Lamar Alexander contribute the following article on the harm of the wind power production tax credit (PTC). The NorthBridge Group report referenced in the article is available at Negative electricity prices and the production tax credit.

    Puff, the Magic Drag on the Economy
    Time to let the pernicious production tax credit for wind power blow away

    By Lamar Alexander And Mike Pompeo

    As Congress works to reduce spending and avert a debt crisis, lawmakers will have to decide which government projects are truly national priorities, and which are wasteful. A prime example of the latter is the production tax credit for wind power. It is set to expire on Dec. 31 — but may be extended yet again, for the seventh time.

    This special provision in the tax code was first enacted in 1992 as a temporary subsidy to enable a struggling industry to become competitive. Today the provision provides a credit against taxes of $22 per megawatt hour of wind energy generated.

    From 2009 to 2013, federal revenues lost to wind-power developers are estimated to be $14 billion — $6 billion from the production tax credit, plus $8 billion courtesy of an alternative-energy subsidy in the stimulus package — according to the Joint Committee on Taxation and the Treasury Department. If Congress were to extend the production tax credit, it would mean an additional $12 billion cost to taxpayers over the next 10 years.

    There are many reasons to let this giveaway expire, including wind energy’s inherent unreliability and its inability to stand on its own two feet after 20 years. But one of the most compelling reasons is provided in a study released Sept. 14 by the NorthBridge Group, an energy consultancy. The study discusses a government-created economic distortion called “negative pricing.”

    This is how it works. Coal- and nuclear-fired plants provide a reliable supply of electricity when the demand is high, as on a hot summer day. They generate at lower levels when the demand is low, such as at night.

    But wind producers collect a tax credit for every kilowatt hour they generate, whether utilities need the electricity or not. If the wind is blowing, they keep cranking the windmills.

    Why? The NorthBridge Group’s report (“Negative Electricity Prices and the Production Tax Credit”) finds that government largess is so great that wind producers can actually pay the electrical grid to take their power when demand is low and still turn a profit by collecting the credit — and they are increasingly doing so. The wind pretax subsidy is actually higher than the average price for electricity in many of the wholesale markets tracked by the Energy Information Administration.

    This practice drives the price of electricity down in the short run. Wind-energy supporters say that’s a good thing. But it is hazardous to the economy’s health in the long run.

    Temporarily lower energy prices driven by wind-power’s negative pricing will cripple clean-coal and nuclear-power companies. But running coal and nuclear out of business is not good for the U.S. economy. There is no way a country like this one — which uses 20% to 25% of all the electricity in the world — can operate with generators that turn only when the wind blows.

    The Obama administration and other advocates of wind power argue that the subsidy provided by the tax credit allows the wind industry to sustain American jobs. But they are jobs that exist only because of the subsidy. Keeping a weak technology alive that can’t make it on its own won’t create nearly as many jobs as the private sector could create if it had the kind of low-cost, reliable, clean electricity that wind power simply can’t generate.

    While the cost of renewable energy has declined over the years, it is still far more expensive than conventional sources. And even the administration’s secretary of energy, Steven Chu, calls wind “a mature technology,” which should mean it is sufficiently advanced to compete in a free market without government subsidies. If wind power cannot compete on its own after 20 years without costly special privileges, it never will.

  • Special interests will capture south-central Kansas planning

    Special interest groups are likely to co-opt the government planning process started in south-central Kansas as these groups see ways to benefit from the plan. The public choice school of economics and political science has taught us how special interest groups seek favors from government at enormous costs to society, and we will see this at play over the next few years.

    Sedgwick County has voted to participate in a HUD Sustainable Communities Regional Planning Grant. While some justified their votes in favor of the plan because “it’s only a plan,” once the planning process begins, special interests plot to benefit themselves at the expense of the general public. Once the plan is formed, it’s nearly impossible to revise it, no matter how evident the need.

    An example of how much reverence is given to government plans comes right from the U.S. Supreme Court in the decision Kelo v. New London, in which the Court decided that government could use the power of eminent domain to take one person’s property and transfer it to someone else for the purposes of economic development. In his opinion for the Court, Justice Stevens cited the plan: “The City has carefully formulated an economic development plan that it believes will provide appreciable benefits to the community.” Here we see the importance of the plan and due reverence given to it.

    Stevens followed up, giving even more weight to the plan: “To effectuate this plan, the City has invoked a state statute that specifically authorizes the use of eminent domain to promote economic development. Given the comprehensive character of the plan, the thorough deliberation that preceded its adoption, and the limited scope of our review, it is appropriate for us, as it was in Berman, to resolve the challenges of the individual owners, not on a piecemeal basis, but rather in light of the entire plan. Because that plan unquestionably serves a public purpose, the takings challenged here satisfy the public use requirement of the Fifth Amendment.”

    To Stevens, the fact that the plan was comprehensive was a factor in favor of its upholding. The sustainable communities plan, likewise, is nothing but comprehensive, as described by county manager Bill Buchanan in a letter to commissioners: “[the plan will] consist of multi-jurisdictional planning efforts that integrate housing, land use, economic and workforce development, transportation, and infrastructure investments in a manner that empowers jurisdictions to consider the interdependent challenges of economic prosperity, social equity, energy use and climate change, and public health and environmental impact.”

    That pretty much covers it all. When you’re charged with promoting economic prosperity, defending earth against climate change, and promoting public health, there is no limit to the types of laws you might consider.

    Who will plan?

    The American Planning Association praised the Court’s notice of the importance of a plan, writing “This decision underscores the importance for a community to have a comprehensive development plan formulated through a democratic planning process with meaningful public participation by everyone.”

    But these plans are rarely by and for the public. Almost always the government planning process is taken over and captured by special interests. We see this in public schools, where the planning and campaigning for new facilities is taken over by architectural and construction firms that see school building as a way to profit. It does not matter to them whether the schools are needed.

    Our highway planning is hijacked by construction firms that stand to benefit, whether or not new roads are actually needed.

    Our planning process for downtown Wichita is run by special interest groups that believe that downtown has a special moral imperative, and another group that sees downtown as just another way to profit at taxpayer expense. Both believe that taxpayers across Wichita, Kansas, and even the entire country must pay to implement their vision. As shown in Kansas and Wichita need pay-to-play laws the special interests that benefit from public spending on downtown make heavy political campaign contributions to nearly all members of the Wichita City Council. They don’t have a political ideology. They contribute only because they know council members will be voting to give them money.

    In Wichita’s last school bond election, 72 percent of the contributions, both in-kind and cash, was given by contractors, architects, engineering firms and others who directly stand to benefit from new school construction, no matter whether schools are actually needed. The firm of Schaefer Johnson Cox Frey Architecture led the way in making these contributions. It’s not surprising that this firm was awarded a no-bid contract for plan management services for the bond issue valued at $3.7 million. This firm will undoubtedly earn millions more for those projects on which it serves as architect.

    The special interest groups that benefit from highway construction: They formed a group called Economic Lifelines. It says it was formed to “provide the grassroots support for Comprehensive Transportation Programs in Kansas.” Its motto is “Stimulating economic vitality through leadership in infrastructure development.”

    A look at the membership role, however, lets us know whose economic roots are being stimulated. Membership is stocked with names like AFL-CIO, Foley Equipment Company, Heavy Constructors Association of Greater Kansas City, Kansas Aggregate & Concrete Associations, Kansas Asphalt Pavement Association, Kansas Contractors Association, Kansas Society of Professional Engineers, and PCA South Central Cement Promotion Association. Groups and companies like these have an economic interest in building more roads and highways, whether or not the state actually needs them.

    The planners themselves are a special interest group, too. They need jobs. Like most government bureaucrats, they “profit” from increasing their power and sphere of influence, and by expansion of their budgets and staffs. So when Sedgwick County Commissioner Jim Skelton asks a professional planner questions about the desirability of planning, what answer does he think he will get? It’s not that the planners are not honest people. But they have a vested economic and professional interest in seeing that we have more government planning, not less.

    And we have evidence that planners watch out for themselves. It is not disputed that this planning grant benefits Regional Economic Area Partnership (REAP). Sedgwick County Commissioner Richard Ranzau says that John Schlegel, Wichita’s Director of Planning, told him that “acceptance of this grant will take REAP to another level, because right now they are struggling, and this will help plot the course for REAP.” He said that REAP, which is housed at the Hugo Wall School of Public Affairs at Wichita State University, needs to expand its role and authority in order to give it “something to do.”

    We see that REAP is another special interest group seeking to benefit itself. In this case, our best hope is that REAP engages in merely make-work, that the plan it produces is put on a shelf and ignored, and that the only harm to us is the $1.5 million cost of the plan.

    By the way, did you know that Sedgwick County Commissioner Dave Unruh, who voted in favor of the plan that benefits REAP, is now chairman of REAP? Special interest groups know how to play the political game.