On a televised call-in show, Wichita Mayor Jeff Longwell is proud of the performance of the city in growing jobs.
On the inaugural episode of Call the Mayor on KPTS, Wichita’s public television station, Wichita Mayor Jeff Longwell said this:
Three years ago the biggest concern in this community is we need jobs. Jobs, jobs, jobs. And today, we need people. And so keeping Cargill in Wichita and seeing Spirit grow and seeing companies invest is far different than what we had just three years ago when people were so concerned about the opportunity to find meaningful employment in our city.
What the mayor said sounds good. Now. here are statistics from Bureau of Labor Statistics, civilian labor force and nonfarm employment by metropolitan area, seasonally adjusted, for the Wichita Metropolitan Statistical Area:
May 2018
Civilian labor force: 306,574 (down by 1.5 percent)
Employment: 295,012 (down by 0.42 percent)
Unemployment rate: 3.8 percent (down by 1.0 percentage point, or 20.8 percent)
These are statistics from the Local Area Unemployment Statistics (LAUS) data set, also known as the household survey.
Here are some other statistics, again from Bureau of Labor Statistics, state and area employment, seasonally adjusted, for the Wichita Metropolitan Statistical Area:
May 2015
Employment: 295,500
May 2018
Employment: 298,600 (up by 1.0 percent)
These are statistics from the Current Employment Statistics (CES) data set, sometimes called payroll data.
These are two different sets of data. One shows employment rising, and one shows it declining. The difference comes from the fact that one set of data comes from households, and the other from employers. For a full explanation of the data and how there can be these differences, see Visualization: Metro area employment and unemployment.
The important thing is that Mayor Longwell said, in a roundabout way, that there are plenty of jobs in Wichita, and there are not enough workers to fill them.
If there are not enough workers in Wichita, it’s because the labor force (the number of people working plus those looking for work) shrank over the time period the mayor mentioned. That’s why there are not enough people to meet Wichita’s job growth (such as it is).
And while the number of jobs in Wichita rose in the employer survey, it rose by 1.0 percent over three years. The same statistic for the entire United States rose by 5.1 percent over the same period. This doesn’t seem like much of an accomplishment, Wichita growing jobs at a rate one-fifth of the nation.
Of 422 metropolitan areas considered, Wichita ranked 383, dropping 28 spots since the previous year.
Among 100 medium size metropolitan areas, Wichita ranked 93, dropping 5 spots from the previous year.
NewGeography.com uses employment data from the United States Bureau of Labor Statistics from November 2006 to January 2018. 1 Last year’s publication contains a more detailed explanation of how the rankings capture current year-growth, mid-term growth, and momentum. 2
In the analysis for 2017, Wichita had also fallen in ranking.
Wichita has momentum, they say
Despite this news, Wichita leaders are in denial. Recently Greater Wichita Partnership president Jeff Fluhr told a group of young people this:
From the innovation campus at Wichita State University and development along the Arkansas River in downtown, including a new baseball stadium, to the conversations happening now about a new convention center and performing arts facility, Fluhr said the momentum is pushing to keep Wichita on par with the development of other communities around the country.
That development, which has in recent years expanded to incorporate the entire region, is a critical component to attracting and retaining talent — the exact kind of talent in the ICT Millennial Summit crowd. 3
In March Sedgwick County Commissioner David Dennis penned a column for the Wichita Eagle praising the county’s efforts in economic development. 5 Dennis is also chair of the commission this year. In his column, the commissioner wrote: “Economic development is a key topic for the Board of County Commissioners and for me in particular. Right now we have a lot of momentum to make our community a more attractive place for people and businesses.”
At the same time, the Wichita Eagle editorialized: “Wichita’s economy struggled to rebound from the last recession, which held the city back. But there have been positive economic signs of late, including a renewed focus on innovation and regional cooperation. … There also is a sense of momentum about Wichita. Yes, challenges remain, but the city seems to have turned a corner, with even greater things ahead.”6
In announcing his candidacy for Sedgwick County Commission, Wichita city council member Wichita City Council Member Pete Meitzner (district 2, east Wichita) said, “We have enjoyed great progress and growth during my two terms as a City Council member and I plan to do my part to assure Sedgwick County is part of this continued success.” 7
Given all this, it ought to be easy to find economic data supporting momentum, progress, and growth. Besides the NewGeography.com report cited above, let’s look at some other indicators.
Personal income. For the Wichita metropolitan statistical area, personal income in 2016 rose slightly from the 2015 level, but is still below the 2014 level. In real (inflation-adjusted) dollars, personal income fell in 2016. 8
Personal Income Summary, Wichita, through 2016. Click for larger.
Trends of business activity in downtown Wichita. Click for larger.Downtown Wichita. There’s been a lot of investment in downtown Wichita, both public and private. But since 2008 the trend is fewer business establishments, fewer people working downtown, and lower earnings generated in downtown Wichita. Almost every year these numbers are lower than the year before. This is movement in the wrong direction, the opposite of progress. There may be good news in that the number of people living downtown may be rising, but business activity is declining. 9
Employment. While officials promote the low Wichita-area unemployment rate, there is an alternative interpretation. First, the good news: The unemployment rate for the Wichita metro area declined to 3.9 percent in March 2018, down from 4.2 percent in March 2017. The number of unemployed persons declined by 8.3 percent for the same period. 10
Is Wichita’s declining unemployment rate good news, or a byproduct of something else? The unemployment rate is the ratio of the number of unemployed persons to the labor force. While the number of unemployed persons fell, so too did the labor force. It declined by 3,367 persons over the year, while the number of unemployed persons fell by 1,056. This produces a lower unemployment rate, but a shrinking labor force is not the sign of a healthy economy.
A further indication of the health of the Wichita-area economy is the number of nonfarm jobs. This number declined by 1,200 from March 2017 to March 2018, a decline of 0.4 percent. This follows a decline of 0.7 percent from February 2017 to February 2018.
Of the metropolitan areas in the United States, BLS reports that 308 had over-the-year increases in nonfarm payroll employment, 72 (including Wichita) had decreases, and 8 had no change.
Growth in output. The worst news, however, is that the Wichita-area economy shrank from 2015 to 2016. In real (inflation-adjusted) dollars, the Wichita metropolitan area gross domestic product fell by 1.4 percent. For all metropolitan areas, GDP grew by 1.7 percent. Since 2001, GDP for all metropolitan areas grew by 29.3 percent, while Wichita had 12.3 percent growth. 11
Wichita MSA employment, annual change. Click for larger.The GDP figures are for 2016, and figures for 2017 won’t be available until September. So what happened in 2017? Could 2017 be the genesis of momentum to drive our economy forward?
While GDP figures aren’t available, jobs numbers are. For the year 2016, total nonfarm employment in the Wichita metropolitan area grew by 0.62 percent. For 2017, the growth rate was 0.56 percent — a slowdown in the rate of job growth. These job growth figures are far below the rate for the nation, which were 1.79 and 1.58 percent respectively.
Annual change in job growth, Wichita and USA through 2017. Click for larger.
Furthermore, Wichita’s job growth rate in 2016 was lower than 2015’s rate of 1.07 percent. This is momentum in the wrong direction. Nearby charts illustrate. 12
What to do?
The failure of the Wichita-area economy to thrive is a tragedy. This is compounded by Wichita leaders failing to acknowledge this, at least publicly. While we expect people like the mayor, council members, and the chamber of commerce to be cheerleaders for our city, we must wonder: Do these people know the economic statistics, or do they choose to ignore or disbelieve them?
From private conversations with some of these leaders and others, I think it’s a mix of both. Some are simply uninformed, while others are deliberately distorting the truth about the Wichita economy for political or personal gain. The people who are uninformed or misinformed can be educated, but the liars are beyond rehabilitation and should be replaced.
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Notes
“The methodology for our 2018 ranking largely corresponds to that used in previous years. We seek to measure the robustness of metro areas’ growth both recently and over time, with some minor corrections to mitigate the volatility that the Great Recession has introduced into the earlier parts of the time series. The ranking is based on three-month rolling averages of the U.S. Bureau of Labor Statistics’ ‘state and area’ unadjusted employment data reported from November 2006 to January 2018.” 2018 How We Pick The Best Cities For Job Growth. Available at http://www.newgeography.com/content/005973-2018-how-we-pick-best-cities-job-growth. ↩
In some presentations these figures may differ slightly due to data revisions and methods of aggregation. These differences are small and not material. ↩
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.
Wichita and other population growth. Click for larger.
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Notes
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 City of Wichita proposes to extend a baseball consulting contract without public explanation or discussion.
Wichita city leaders want a better baseball team, not to mention a new stadium. To help find a minor league baseball team, the city engaged a consultant last October. 1 That contract called for a spending limit of $50,000. 2
You may have noticed that there has not been an announcement of a team. It also appears that the $50,000 spending cap of the October contract has been reached (or nearly so). So next Tuesday the city council will consider spending (up to) another $50,000 with the same consultant. 3
Why the need for a contract extension? City documents explain: “Over the course of the past six months, Beacon has made successful inroads into the affiliated baseball community presenting the opportunities for MiLB and its teams. Due to the success in attracting the interest of affiliated baseball, staff believes it is imperative to further pursue affiliated baseball discussions with the assistance and expertise of Beacon Sports Capital Partners, LLC.”
I’m afraid I just don’t understand. The consultant’s effort has been successful, says the city, but yet there is no team. It’s really puzzling because last August Wichita Mayor Jeff Longwell was confident there would be an announcement before the end of 2017:
“By the end of this calendar year, we feel confident that we will be able to announce a team, who the team is, all of the above,” Longwell told The Eagle Tuesday afternoon. “We hope that we can complete all of those conversations by the end of this year and be able to announce a contract in place.” 4
That confidence was expressed before the engagement of the consultant in October.
Consent agenda, again
The city council will deal with this matter on its consent agenda. A consent agenda is a group of items — perhaps as many as two dozen or so — that are voted on in bulk with a single vote. An item on a consent agenda will be explained and discussed only if a council member requests the item to be “pulled.” If that is done, there will be discussion. Then the item might be withdrawn, delayed, voted on by itself, or folded back into the consent agenda with the other items.
“Pulling” an item is uncommon, as items on consent agendas are not controversial, at least according to the city’s reasoning. I suppose that applies to this item, as the first contract with this consultant was also handled on the consent agenda. And on March 27 the council authorized the spending of over $7 million on a consent agenda item. 5
“MiLB Baseball Consultant Contract Amendment.” Wichita City Council Agenda packet for April 10, 2018. Agenda Report No. II-15. Available at <a href=”http://www.wichita.gov/Council/Agendas/04-10-2018%20City%20Council%20Agenda%20Packet.pdf. ↩
We can understand self-serving politicians and bureaucrats. It’s what they do. But a city’s newspaper editorial board ought to be concerned with the truth.
In February the Wichita Eagle editorialized about Project Wichita, a ramping-up effort to do something about the future of Wichita. 1 It’s worthwhile to take a look at the op-ed, if only to learn something about the quality of Wichita Eagle editorial writing.
I understand civic boosterism; the desire to paint a positive image of the future. But this rosy outlook has to be based, at least loosely, on facts. Following, a look at a few claims made in the editorial.
“Our downtown is becoming more of a destination and place to live.”
The problem is this: Wichita economic development officials use a circuitous method of estimating the population of downtown Wichita, producing a number much higher than Census Bureau estimates. Downtown Wichita, the city’s economic development agency responsible for downtown, says the population of downtown is 2,138, which is far — really far — outside the range the Census Bureau gives. For more about this, see Living in downtown Wichita.
As far as a destination for business, the U.S. Census Bureau tracks business trends by zip code. For zip code 67202, which is downtown Wichita, results since 2007 show fewer business establishments, fewer people working downtown, and lower earnings generated in downtown Wichita. In all cases, the trend is lower. For more about this, see Downtown Wichita business trends.
Further, Wichita leaders have exaggerated the number of people working in downtown. For years our leaders told us there were 26,000 daytime workers in downtown Wichita. But this claim is based on misuse of data so blatant it can be described only as malpractice. In fact, this figure is now omitted from the state of downtown reports. No one will accept responsibility for this mistake. See Downtown Wichita jobs, sort of and Downtown Wichita report omits formerly prominent data.
“But Wichita feels pretty good about itself, which suggests the community is at the perfect time to think about its future.”
I have to say, we’ve been hoodwinked, and by our top leaders. Recently both the mayor of Wichita and chair of the county commission penned upbeat editorials praising our economy. See Mayor Longwell’s pep talk and Sedgwick County’s David Dennis on economic development.
But the reality is quite different. See:
Growing the Wichita economy. Wichita leaders are proud of our region’s economic growth. Here are the numbers.
Wichita employment up. Employment in the Wichita metropolitan area is on an upward tick.
Given this, why do the mayor, county commission chair, and our newspaper’s editorial board say what they do? The first two are politicians, but we ought to ask that our newspaper seek the truth, not personal political gain.
“It will get more serious in March, when students and volunteers from Wichita State University’s Public Policy and Management Center …”
This is the same organization on which the city relies for many services, including the gathering of public input in past campaigns like the 2014 sales tax election. The city seemed sure that tax would pass, but voters rejected it by a wide margin. 2
“Public Policy director Misty Bruckner and her group will deliver feedback and conclusions to Project Wichita’s four co-chairs.”
A few years ago Bruckner co-authored a paper titled “Citizen Attachment: Building Sustainable Communities.” 3 My reporting on it was titled Wichita needs more, and willing, taxpayers. An excerpt: “Increasingly, citizens are retreating from their responsibilities to community and demanding more from government than they are willing to pay for. But changes in local government behavior can be instrumental in reversing this trend, by strengthening citizens’ commitment to the well-being of their communities. Citizens who are committed to community are more willing to accept responsibility for the well-being of their fellow citizens and are also more likely to join with government and other parties to improve their communities.Citizens who are committed to community are also more willing taxpayers — that is, when government demonstrates that it can be trusted to invest public resources in ways that strengthen the community. The central thrust of this model is getting citizens and governments to work together, but realistically, many communities will require new revenue — including additional tax dollars — if they are to assemble the critical mass of resources necessary for meaningful change. Accordingly, citizens who are willing to pay increased taxes are an important component of building sustainable communities.” (emphasis added)
Please don’t fault me for being cynical when I suspect that this entire operation is designed to prepare Wichitans (or the region) for a tax increase.
“Community input will be as wide as the city limits.”
Wait a moment. I thought we were supposed to think regionally.
“Project Wichita seems similar to Visioneering Wichita …”
I wonder if anyone remembers anything positive that resulted from Visioneering Wichita. After a few years, the organization’s website went stale, and staff discontinued making presentation to the city council and county commission See Visioneering asks for money. Let’s ask these questions.
“Unlike Visioneering, Project Wichita isn’t headed by city or county government.”
Visioneering Wichita was led by the Chamber of Commerce, not government. Local governments made financial contributions to Visioneering, just as they are also contributing to Project Wichita. 4
The Wichita City Council authorized the spending of a lot of money without discussion.
At its March 27, 2018 meeting, the Wichita City Council passed a resolution authorizing the spending of funds for the River Vista development on the west bank of the Arkansas River in downtown.
The agenda packet for the meeting gave the details: “The overall project budget is $7,862,999 with STAR Bonds financing $4,750,000 of the costs and the City financing $1,050,000. The balance of the project costs will be assessed against the Improvement District.”
(STAR bonds are a mechanism whereby future sales tax revenue is routed to the project developer, rather than paying for the cost of state and Sedgwick County government. The “Improvement District” is the development itself, and the “City” is, of course, the taxpayers of Wichita.)
All this was approved by the city council at its meeting on July 21, 2015, under the item “Amendment to Amended and Restated Development Agreement – River Vista, L.L.C. (West Bank Apartments) and issuance of Sales Tax Special Obligation Revenue (STAR) Bonds (District VI).” It appeared on the March 27, 2018 agenda so that a resolution formalizing the arrangement could be passed.
Was the council’s action of public business and interest? The city council didn’t think so. The item was passed as part of the meeting’s consent agenda. This is a bundle of agenda items that are voted on in bulk, with one single vote, unless a council member requests an item be “pulled” for discussion and possibly a separate vote. If no council member asks to pull an item, there is no discussion.
No one asked to “pull” this agenda item for a discussion and vote.
Generally, items on consent agendas are not controversial, at least according to the city’s reasoning. I suppose that applies to this item, as the spending was approved in the past.
It might have been useful, however, to remind Wichitans of the taxpayer-supplied subsidy going to this project. Just so we’re reminded now and then of where our money is going.
But: The principals of the apartment project are frequent seekers of taxpayer subsidy, and likely plan to ask for more — much more — in the future. Some are also big funders of campaigns, in particular that of Wichita Mayor Jeff Longwell. We call this cronyism.
So the consent agenda provides a handy place to pass laws without discussing them, hoping that no one will notice. Semi-secret.
As it turns out, the Wichita Business Journal noticed this item and wrote the article West bank Arkansas River upgrades on City Council agenda. The article starts with “Wichita’s City Council on Tuesday is scheduled to discuss …” But because of the consent agenda and no council member believing the spending deserved attention, that discussion never happened.
In this episode of WichitaLiberty.TV: John Todd explains how cities in Kansas are seeking additional power to seize property, and tells us why we should oppose this legislation. View below, or click here to view at YouTube. Episode 188, broadcast March 17, 2018.
Following the Wichita Mayor, the Chair of the Sedgwick County Commission speaks on economic development.
Last week Sedgwick County Commissioner David Dennis penned a column for the Wichita Eagle praising the county’s efforts in economic development. 1 Dennis is also chair of the commission this year.
In his column, the commissioner wrote: “Economic development is a key topic for the Board of County Commissioners and for me in particular. Right now we have a lot of momentum to make our community a more attractive place for people and businesses.”
This emphasis on the word “momentum” seems to be a fad among Wichita’s government leaders. More about this later.
Dennis also wrote: “Traditional governmental incentives are a thing of the past. There are no more blank checks from Sedgwick County for businesses.”
Except: The county participates in incentive programs that allow companies like Spirit to escape paying taxes, and when you don’t have to pay taxes, that’s the same economic effect as someone giving you cash to pay those taxes. Spirit Aerosystems will receive Industrial Revenue Bonds, which are not a loan of money to Spirit, but allow the company to avoid paying property taxes and sales taxes. 23 These incentives are a cost to the county and other units of government, and are as good as cash to Spirit. (For this and many other projects the county is not involved in the approval of the IRB program, but it doesn’t object, and it sees its tacit approval as part of its partnership with the City of Wichita.)
Besides this, the county engages in traditional incentives — almost like a blank check — but disguises them. In this case, for example, the county is contributing $7 million towards the construction of a building exclusively for Spirit’s use. How will the county pay for that? The memorandum that the county agreed to states: “The county participation of $7 million US is anticipated to be available cash.” 4
You might be wondering if the county is treating this contribution as an investment that a business would make, where it would earn back its investment plus a profit by collecting rent from Spirit. After all, county leaders tell us they want to operate government like a business.
But, you’d be wrong if you thought that. The memorandum specifies the rent as $1 per year. Not $1 per square foot per year, but $1 per year for the entire building. Furthermore, at the end of 20 years, Spirit will have the option to purchase the property for $1.
There’s really no way to characterize this transaction other than as a multi-million giveaway to Spirit. Not directly as a blank check or cash, but in a roundabout way that costs the county and benefits Spirit in the same way as cash.
I can understand how Dennis and others like Wichita Mayor Jeff Longwell want to convince the public that they are no longer dishing out cash. Often, the public doesn’t like that. So instead they do the same thing in roundabout ways like leasing a building for $1 per year or paying millions in cash for a “parking easement” for which the city has no real use. 5 Chairman Dennis and others hope you won’t notice, but these leaders would be more credible if they didn’t try to obfuscate the truth.
Sedgwick County jobs. Click for larger.Sedgwick County jobs, change from prior year. Click for larger.At the end of his column, Dennis wrote: “There is a lot of momentum and forward movement in our community right now and I’m encouraged to see what we can achieve as a team.”
There’s that word again: momentum. Coincidently, shortly after this column was published, the Bureau of Labor Statistics published an update to the Quarterly Census of Employment and Wages. It shows the number of jobs in Sedgwick County declining. This update was released after Dennis wrote his column, but as can be seen from the nearby charts, the slowdown in Sedgwick County jobs and the Wichita-area economy is not a new trend.
If Dennis really believes our economy has “momentum and forward movement,” it is my sincere hope that he is simply uninformed or misinformed about these statistics. Because if he is aware, we can only conclude that he is something else that is worse than being merely ignorant.
A column written by Wichita Mayor Jeff Longwell ignores the reality of Wichita’s economy.
This week Wichita Mayor Jeff Longwell contributed a column to the Wichita Eagle that seems to defy economic reality. 1
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.
Wichita and national nonfarm employment. Click for larger.Wichita and national nonfarm employment, ratio. Click for larger.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.
For other measures of the Wichita economy, see:
Growing the Wichita economy. Wichita leaders are proud of our region’s economic growth. Here are the numbers.
Local governments in Kansas are again seeking expanded power to seize property.
In Kansas, officials of many city governments feel they don’t have enough power to deal with blight. This year, as in years past, there is legislation to expand the power of cities to seize property. 12
John Todd, along with Paul Soutar, made a video to explain the bill and the surrounding issues. It’s just five minutes in length. View it below, or click here to view at YouTube. Todd’s written testimony to the Kansas Legisalture has photographs and examples. It may be viewed here.
Background
Presently, tools are in place. Cities already have much power to deal with blight and related problems. Last year Todd and I, along with others, had a luncheon meeting with a Kansas Senator who voted in favor of expanding cities’ powers. When we told him of our opposition, he asked questions like, “Well, don’t you want to fight blight? What will cities do to fight blight without this bill?” When we listed and explained the many tools cities already have, he said that he hadn’t been told of these. This is evidence that this bill is not needed. It’s also evidence of the ways cities try to increase their powers at the expense of the rights of people. 3
The Governor’s veto. A similar bill passed the legislature in 2016. Governor Brownback vetoed that bill, explaining, “The right to private property serves as a central pillar of the American constitutional tradition.” 4
The Governor’s veto provoked a response from Wichita government officials. It let us know that they are not as respectful of fundamental rights as was Brownback. 5
For example, in remarks from the bench, Wichita City Council Member Pete Meitzner (district 2, east Wichita) said there is no intent to be “aggressive in taking people’s property.” 6 But expanding the power of government — aggression, in other word — is what the bill does. Otherwise, why the need for the bill with its new methods and powers of taking property?
And once government is granted new powers, government nearly always finds ways to expand the power and put it to new uses. Even if we believe Meitzner — and we should not — he will not always be in office. Others will follow him who may not claim to be so wise and restrained in the use of government power.
Government expands and liberty recedes. Government continuously seeks new ways to expand its powers through enabling concepts like blight. Did you know the entire suburban town of Andover is blighted? 7 Across the country, when governments find they can take property with novel and creative interpretations of blight, they do so. 8
It’s easy to sense the frustration of government officials like Wichita Mayor Jeff Longwell. In his remarks, he asked opponents of SB 338 “what they would do” when confronted with blight. That is a weak argument, but is advanced nonetheless. Everyone has the right — the duty — to oppose bad legislation even if they do not have an alternate solution. Just because someone doesn’t have a solution, that doesn’t mean their criticism is not valid. This is especially true in this matter, as cities already have many tools to deal with blight.
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
Personal Income Summary, Wichita, through 2016. Click for larger.
Population. In 1990 Wichita was the 80th largest metropolitan area. In 2016 its ranking had fallen to 87.
Trends of business activity in downtown Wichita. Click for larger.Downtown Wichita. There’s been a lot of investment in downtown Wichita, both public and private. But since 2008 the trend is fewer business establishments, fewer people working downtown, and lower earnings generated in downtown Wichita. Almost every year these numbers are lower than the year before. This is movement in the wrong direction, the opposite of progress. There may be good news in that the number of people living downtown may be rising, but business activity is declining. 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
Wichita MSA unemployment through September 2017. Click for larger.
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
Wichita MSA employment, annual change. Click for larger.The GDP figures are for 2016, and figures for 2017 won’t be available until September. So what happened in 2017? Could 2017 be the genesis of momentum to drive our economy forward?
While GDP figures aren’t available, jobs numbers are. For the year 2016, total nonfarm employment in the Wichita metropolitan area grew by 0.62 percent. For 2017, the growth rate was 0.56 percent — a slowdown in the rate of job growth.
These job growth figures are far below the rate for the nation, which were 1.79 and 1.58 percent respectively. Annual change in job growth, Wichita and USA through 2017. Click for larger.
Furthermore, Wichita’s job growth rate in 2016 was lower than 2015’s rate of 1.07 percent. This is momentum in the wrong direction. Nearby charts illustrate. 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 some presentations these figures may differ slightly due to data revisions and methods of aggregation. These differences are small and not material. ↩
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.
Click for larger.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
Wichita metro employment and unemployment. Click for larger.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 of GDP by Metro Area and Industries. Click for larger.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.
In Community Improvement Districts (CID), merchants charge additional sales tax for the benefit of the property owners, instead of the general public. Wichita may have an additional three, contributing to the problem of CID sprawl.
This week the Wichita City Council will hold public hearings considering the formation of three Community Improvement Districts. In Kansas Community Improvement Districts, merchants charge additional sales tax for the benefit of the property owners, instead of the general public. 1
Each of these CIDs will charge customers additional sales tax, with a cap on the amount that may be raised, and a separate cap on the length of the CID. For the three projects this week, here are the details: 2
Delano Catalyst CID: 2% additional tax, raising up to $3,000,000, up to 22 years
Spaghetti Works CID: 2% additional tax, raising up to $3,118,504, up to 22 years
Chicken N Pickle CID: 1.5% additional tax, raising up to $2,300,000, up to 15 years
All these CIDs are of the pay-as-you-go type, which means the city is not borrowing money that would be repaid by the CID tax proceeds. Instead, the CID tax proceeds are periodically sent to the landowners as they are collected. The city retains a 5% administrative fee.
Additionally, two of these CIDs earmark 10% of the CID tax collections for public benefits, which are extra park maintenance for the Spaghetti Works CID, and street improvements for the Chicken N Pickle CID. While these earmarks may seem magnanimous gestures, they directly work to the developers’ benefit. For Spaghetti Works, Naftzger Park is, in effect, becoming the front yard to a development. It will be of great benefit for it to be maintained well, especially considering that the developers will be able to close the park for private events. For the Chicken N Pickle CID, the street improvements the CID will fund are usually paid for by special tax assessments on the nearby landowners, which in this case is the Chicken N Pickle. This is a large savings.
By the way, none of the applications for these economic development incentives pleads economic necessity. They simply want more money, and are willing to let government take the blame when customers notice they’re paying 9% or 9.5% sales tax in these districts.
Of additional note: The Delano and Spaghetti Works developments are receiving many millions of taxpayer-provided subsidy from other economic development incentive programs. 34
It will be interesting to see how the council’s two new members, Brandon Johnson (district 1, northeast Wichita) and Cindy Claycomb (district 6, north central Wichita), will vote in these matters. As Progressives, we might expect them to be opposed to higher sales taxes, which affect low-income households disproportionally. We also might expect them to be opposed to targeted tax incentives for the “wealthy,” such as the now-defunct exemption on pass-through business income in Kansas. Here, they are asked to vote on a highly targeted tax incentive that will benefit identifiable wealthy parties.
Issues regarding CID
Perhaps the most important public policy issue regarding CIDs is this: If merchants feel they need to collect additional revenue from their customers, why don’t they simply raise their prices? But the premise of this question is not accurate, as it is not the merchants who receive CID funds. The more accurate question is why don’t landlords raise their rents? That puts them at a competitive disadvantage with property owners that are not within CIDs. Better for us, they rationalize, that unwitting customers pay higher sales taxes for our benefit.
Consumer protection
Customers of merchants in CIDS ought to know in advance that an extra CID tax is charged. Some have recommended warning signage that protects customers from unknowingly shopping in stores, restaurants, and hotels that will be adding extra sales tax to purchases. Developers who want to benefit from CID money say that merchants object to signage, fearing it will drive away customers.
State law is silent on this. The City of Wichita requires a sign indicating that CID financing made the project possible, with no hint that customers will pay additional tax, or how much extra tax. The city also maintains a website showing CIDs. This form of notification is so weak as to be meaningless. See Wichita community improvement districts should have warning signs and In Wichita, two large community improvement districts proposed. In the latter, future Wichita Mayor Jeff Longwell argued that signs showing different tax rates for different merchants would be confusing. Council Member Sue Schlapp said she supported transparency in government, but informing consumers of extra taxes would make the program “useless.”
Eligible costs
One of the follies in government economic development policy is the categorization of costs into eligible and non-eligible costs. The proceeds from programs like CIDs and tax increment financing may be used only for costs in the “eligible” category. I suggest that we stop arbitrarily distinguishing between “eligible costs” and other costs. When city bureaucrats and politicians use a term like “eligible costs” it makes this process seem benign. It makes it seem as though we’re not really supplying corporate welfare and subsidy.
As long as the developer has to spend money on what we call “eligible costs,” the fact that the city subsidy is restricted to these costs has no economic meaning. Suppose I gave you $10 with the stipulation that you could spend it only on next Monday. Would you deny that I had enriched you by $10? Of course not. As long as you were planning to spend $10 next Monday, or could shift your spending from some other day to Monday, this restriction has no economic meaning.
Notification and withdrawal
If a merchant moves into an existing CID, how might they know beforehand that they will have to charge the extra sales tax? It’s a simple matter to learn the property taxes a piece of property must pay. But if a retail store moves into a vacant storefront in a CID, how would this store know that it will have to charge the extra CID sales tax? This is an important matter, as the extra tax could place the store at a competitive disadvantage, and the prospective retailer needs to know of the district’s existence and its terms.
Then, if a business tires of being in a CID — perhaps because it realizes it has put itself at a competitive disadvantage — how can the district be dissolved?
The nature of taxation
CIDs allow property owners to establish their own private taxing district for their exclusive benefit. This goes against the grain of the way taxes are usually thought of. Generally, we use taxation as a way to pay for services that everyone benefits from, and from which we can’t exclude people. An example would be police protection. Everyone benefits from being safe, and we can’t exclude people from participating in — and benefiting from — police protection.
But CIDs allow taxes to be collected for the benefit of one specific entity. This goes against the principle of broad-based taxation to pay for an array of services for everyone. But in this case, the people who benefit from the CID are quite easy to identify: the property owners in the district.
A development near downtown Wichita may receive subsidy through four different avenues.
This week the Wichita City Council will consider approval of a development agreement with EPC Real Estate, LLC, for the Delano catalyst site. This is vacant land north of Douglas, between the Advanced Learning Library and the River Vista project.
Update: The measure passed four votes to three, with Bluebaugh, Frye, and Longwell in the minority.
One form of additional subsidy is forgiveness of sales tax on the construction of buildings. The Letter of Intent for Industrial Revenue Bonds the council will consider states: “The City’s governing body has authorized an application for sales tax exemption with an estimated value of $1,611,822.”
But a really big gift to the developers is the price of the land. City document state the selling price for the 7.2 acre plot is $750,000. That’s about ($750000 / 7.2 acres) = $104,167 per acre. It’s a pretty good deal for the buyers. A look at some current commercial land listings in Wichita finds these:
1.20 acres at 47th South and Seneca for $425,000, or $354,167 per acre.
0.50 acres at 140 N. West St. for $225,000, or $450,000 per acre.
20.00 acres at 1462 S. Maize Road “Great for entertainment, retail, etc.” for $4,251,456, or $212,573 per acre.
0.52 acres at 640 N. Webb Road for $368,570, or $708,788 per acre.
It’s clear that the developers are buying the land from the city for a small fraction of its value.
By the way: Wichita Mayor Jeff Longwell says the city will no longer offer cash incentives for economic development. But selling land a deeply discounted price: Is that different from a cash incentive?
We might also note that this project will receive millions in benefits from Tax Increment Financing. This was a program born out of a perceived need to help redevelop blighted property. This development site, however, is vacant land.
Finally: If downtown Wichita is really progressing as well as its boosters say, why is it necessary to offer so much subsidy to develop a project like this?
Wichita Business Journal: “And many aren’t shy about bringing cash to the table as an incentive. In Wichita, in the wake of the defeat at the polls in 2014 of a sales tax measure that would have been used in part for economic development activities, such a war chest isn’t an option.”
Wichita and Sedgwick County are contributing cash and cash-equivalents to the deal. See below for more.
Further, the city has other ways to fund a “war chest” of incentives. While the sales tax failed to pass, there was nothing to prevent the city council from raising other taxes (such as property tax or franchise fees) to raise funds for economic development. Now there is a property tax limitation imposed by the state, but there are many loopholes the council could drive a large truck through, including holding an election asking voters to raise property taxes.
Also, the city justifies spending on economic development incentives by the positive return to the city. That is, for every dollar the city spends or forgoes in future taxes, it receives a larger amount in return. For this project, the analysis provided by Center for Economic Development and Business Research at Wichita State University reports a benefit/cost ratio of 2.75 to one for the city. That is, the city believes it will receive $2.75 for every $1.00 “invested.” If the city truly believes this, it should have no hesitation to issue bonds to fund this incentive, repaying the bonds with the projected benefits.
Wichita Business Journal: “‘Here … the state, city and county put together a very creative package focused on infrastructure and training,’ [Spirit CEO Tom] Gentile said.”
I suppose the innovative aspects of the package are the formation of a new business entity to build and own a large building, funded largely by the city and county. Also, the infrastructure referred to may mean the city’s forgiveness of Spirit’s debt to the city regarding a special water project.
Wichita Business Journal: “The government investment isn’t cash, but it is a way of helping Spirit grow that Gentile said combined with local training opportunities to make the government involvement important to Spirit’s decision to expand in Wichita.”
According to the agreement the city and county will consider this week, both Sedgwick County and the City of Wichita are contributing cash. The city will also forgive a large debt owed by Spirit. It’s hard to see how canceling a debt is different from giving cash.
Also, city, county, state, and school district are canceling millions in property and sales taxes that Spirit would otherwise owe, which is also difficult to distinguish from a cash benefit.
Finally, the state, under the PEAK problem, will likely refund to Spirit the state income tax withheld from their paychecks (minus a small fee).
Wichita Business Journal: “‘Because Spirit was willing to look at another way of investing, because this community said it was more important to invest in other ways, they’re allowing us to invest in infrastructure instead of handing Spirit cash,’ Wichita Mayor Jeff Longwell said Wednesday. ‘We believe that our community can rally behind that. We’re investing in Spirit and they’re investing in our community.'”
I’d really like to know the “another way of investing” the mayor mentions. Plus, contrary to the mayor’s assertion, the city is handing Spirit cash. Well, it’s giving cash to a new business entity whose sole purpose is to provide a new building for Spirit. Perhaps for Jeff Longwell that’s a distinction with a meaningful difference. If so, that’s too bad.
There are differing opinions as to the necessity and wisdom of economic development incentives. But we ought to expect the unvarnished truth from our mayor and economic development officials. It would be great if the Wichita Business Journal helped report the truth.
It’s good news that Spirit AeroSystems is expanding in Wichita. Let’s look at the cost.
While it is good news that Spirit AeroSystems is expanding its Wichita operations, it is not without cost to several governmental agencies. Here’s a summary of what is publicly available so far.
First, a new “entity” will be formed in order to facilitate the construction and ownership of a new building on the Spirit campus. 1
This entity will be funded with $7 million in cash from Sedgwick County and $3 million cash from the City of Wichita. Further, the city will forgive Spirit’s debt of $3.5 million associated with a water project. 2
Second, through the mechanism of Industrial Revenue Bonds,3 Spirit receives a property tax exemption of one hundred percent for five years, with renewal for another five years if goals are met. Despite the use of the term “bond,” no governmental entity is lending money to Spirit, and no one except Spirit is liable for bond repayment.
Third: The bonds confer another benefit to Spirit: According to city documents, “IRBs will, pursuant to STATE law, provide for a sales tax exemption on materials and labor subject to sales tax necessary to construct and equip FACILITY.” 4 City documents give no dollar amount is given for the sales tax exemption. But in the analysis conducted by Center for Economic Development and Business Research at Wichita State University these figures are used for the amount of sales tax exemption: City of Wichita: $279,445. Sedgwick County: $137,354. State of Kansas: $3,120,000. Total: $3,536,799. 5
Fourth, this project will undoubtedly qualify for PEAK, or Promoting Employment Across Kansas. This is a State of Kansas program that allows companies to keep the state income taxes their employees pay through paycheck withholding, less a small fee. 6 It isn’t possible to know in advance how much PEAK benefit the company will receive, because the individual circumstances of each employee determine the income tax withheld. The following calculation, however, gives an indication of the magnitude of the amount of PEAK benefits Spirit can expect:
$56,000 annual salary / 26 pay periods = $2,154 per bi-weekly pay period. For a married worker with two children, withholding tables show $55 to be withheld each pay period, or $55 * 26 = $1,430 per year. For 1,000 employees, the PEAK benefit is $1,430,000 per year. 7
There may be other programs that this project qualifies for.
Are these incentives necessary?
Taxpayers might be wondering if these incentives are necessary for Spirit to be able to expand its operations, and for it to select Wichita as the site. Spirit says it has received generous offers from other locations. If so, Spirit could do itself a favor by revealing these offers. So too, could other Wichita companies that have claimed intense courtship by other cities. But the economic development industry operates in darkness.
One thing that would also increase the credibility of economic development efforts is for Wichita Mayor Jeff Longwell (and others) to stop making claims of “no more cash incentives.” The city explicitly offers cash in this proposal. The city also offers to cancel a debt, which is just like cash. Forgiveness of future taxes is as good as cash, too.
For years we’ve been told that Wichita needs to diversify its economy, meaning that it relies too heavily on the aircraft industry. This expansion by Spirit will undoubtedly heighten that concentration. We should not turn down this expansion of our local economy. But the incentives that are offered have a cost, and that cost is paid — partly — by other business firms in other industries that are trying to grow in Wichita.
Many will undoubtedly cheer the Spirit announcement as an economic development win on a large scale. It will add many jobs. But the Wichita-area economy is so far behind it will take much more growth than this to catch up with the rest of the nation. In fact, the Wichita-area economy shrank last year. 8 And while many cheer our low unemployment rate, sole reliance on that number hides a shrinking labor force. 9
Also, let’s be appropriately humble when boasting about this expansion. A region’s largest employer deciding to expand in the same city: This is the minimum level of competence we ought to expect from our economic development machinery.
Further, economists caution us to look beyond any single project, no matter how large, and consider the entirety of the local economy. As economist Art Hall has noted, large-employer businesses have no measurable net economic effect on local economies when properly measured. “The primary finding is that the location of a large firm has no measurable net economic effect on local economies when the entire dynamic of location effects is taken into account. Thus, the siting of large firms that are the target of aggressive recruitment efforts fails to create positive private sector gains and likely does not generate significant public revenue gains either.” 10
That’s assuming that the incentives even work as advertised in the first place. Alan Peters and Peter Fisher, in their paper titled The Failures of Economic Development Incentives published in Journal of the American Planning Association, wrote on the effects of incentives. A few quotes from the study, with emphasis added:
Given the weak effects of incentives on the location choices of businesses at the interstate level, state governments and their local governments in the aggregate probably lose far more revenue, by cutting taxes to firms that would have located in that state anyway than they gain from the few firms induced to change location.
On the three major questions — Do economic development incentives create new jobs? Are those jobs taken by targeted populations in targeted places? Are incentives, at worst, only moderately revenue negative? — traditional economic development incentives do not fare well. It is possible that incentives do induce significant new growth, that the beneficiaries of that growth are mainly those who have greatest difficulty in the labor market, and that both states and local governments benefit fiscally from that growth. But after decades of policy experimentation and literally hundreds of scholarly studies, none of these claims is clearly substantiated. Indeed, as we have argued in this article, there is a good chance that all of these claims are false.
The most fundamental problem is that many public officials appear to believe that they can influence the course of their state or local economies through incentives and subsidies to a degree far beyond anything supported by even the most optimistic evidence. We need to begin by lowering their expectations about their ability to micromanage economic growth and making the case for a more sensible view of the role of government — providing the foundations for growth through sound fiscal practices, quality public infrastructure, and good education systems — and then letting the economy take care of itself.
—
Notes
“The CITY, COUNTY and COMPANY would each take action to establish a new legal entity separate and apart from the CITY, COUNTY and COMPANY for development of the PROJECT (the “ENTITY”) which will take such form as the PARTIES may approve.” Memorandum of Understanding for Project Eclipse, Section I.A. Contained within agenda packet for Wichita City Council meeting for December 13, 2017. ↩
“The COUNTY participation of $7 million US is anticipated to be available cash; the CITY participation would consist of cash in the amount of $3 million US, forgiveness of $3.5 million US in future COMPANY payments associated with the CAPITAL COMPONENT and an agreement to make additional capital improvements relating to the WATER AGREEMENT in an approximate cost of $1 million US.” Memorandum of Understanding for Project Eclipse, Section I.B ↩
“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.” Weeks, Bob. Wichita employment up. Available at https://wichitaliberty.org/wichita-government/wichita-employment-up/. ↩
William F. Fox and Matthew N. Murray, “Do Economic Effects Justify the Use of Fiscal Incentives?” Southern Economic Journal, Vol. 71, No. 1, 2004, p. 79. A ↩
Wichita Business Journal: “McClatchy Co. spokeswoman Jeanne Segal told the Wichita Business Journal on Wednesday that Kelly Mirt has resigned and will rejoin his family in North Carolina. … Mirt was announced as the Eagle’s publisher and vice president of advertising in July. … Mirt came to Wichita after the of former Eagle publisher Roy Heatherly in May. Mirt was the newspaper’s sixth publisher since 2007.” See Wichita Eagle publisher resigns, McClatchy says.
The system is rigged against you
Wichita Eagle Opinion Line, December 6, 2017: “Reading the article about Southeast High School has hardened my resolve even more that my kids will never attend public school.” Dear writer: I’m sorry to inform you, but there is an entire industry in Kansas that works to make sure that public schools are the only viable option for most Kansas families.
Will we ever know the cost?
Wichita Eagle headline: Spirit plans ‘mega project’ with $1 billion investment, 1,000 more jobs in Wichita. This is good news. I wonder, however, if we will ever know all the news, specifically how much it cost to make this happen. Also: Will Wichita Mayor Jeff Longwell’s pledge to forego cash incentives apply to this project?
DeMint in Wichita this week
At the Wichita Pachyderm Club this week: Former Senator Jim DeMint of South Carolina. DeMint served in the U.S. House of Representatives from 1999 to 2005, representing the fourth district of South Carolina. From 2005 to 2013 he served in the United States Senate, again representing South Carolina. From 2013 to 2017 he was president of the Heritage Foundation, one of the nation’s leading conservative think tanks. Now he serves as senior advisor to Citizens for Self-Governance, a group which is seeking to call a convention to propose amendments to the United States Constitution in order to reduce federal government spending and power. See here for details.
The Wichita city council will consider an item that, I believe, is of sufficient interest and controversial enough that it should appear on a regular agenda, not a consent agenda.
Update: at Tuesday’s meeting, the council passed the consent agenda without discussion of this agenda item.
Meetings of governmental bodies like the Wichita City Council may contain a consent agenda. That’s a collection of agenda items that are voted on in bulk, with one single vote, unless a council member requests an item be “pulled” for discussion and possibly a separate vote. Generally, items on consent agendas are not controversial, and it may hold two dozen or more items. If no council member asks to pull an item, there is no discussion.
Tomorrow the Wichita city council will consider an item that, I believe, is of sufficient interest and possibly controversial enough that it should appear on a regular agenda, not a consent agenda. It involves the hiring of a consultant to help the city find a baseball team. 1
Tomorrow’s meeting, being on the fourth Tuesday of a month, is traditionally for consent agenda items only, plus workshops. But the council has, a few times, declared this meeting to be a “regular” meeting in order to conduct business other than consent agenda items.
The Wichita city council has a history of placing controversial items on the consent agenda. It has, at least once, removed an item from the consent agenda to place it on a regular agenda. 2 There are some things the council doesn’t want to talk about.
In addition, Current Mayor Jeff Longwell has wondered if the city holds too many public hearings. 3 Some things, the mayor feels, don’t need public input.
Wichita considers hiring a consultant to help find a baseball team.
In August the Wichita Eagle reported:
Wichitans can hope for an announcement on a new affiliated baseball team coming to Wichita by the end of 2017, Mayor Jeff Longwell says.
“By the end of this calendar year, we feel confident that we will be able to announce a team, who the team is, all of the above,” Longwell told The Eagle Tuesday afternoon. “We hope that we can complete all of those conversations by the end of this year and be able to announce a contract in place.” 1
Evidently the mayor and the city are feeling less confident. Next week’s city council agenda includes a proposal to hire a consulting firm to help the city. The contract the council will consider states: “Wichita desires to retain Beacon Sports as its advisor and exclusive representative for the Assignment, and perform such other advisory services as are mutually agreed upon between the two parties.” 2
The city’s analysis advises: “Based on the encouraging findings, City staff have reached the conclusion that, due to Minor League Baseball (MiLB) rules and protocols, it is necessary to formally contract with a specialized baseball consultant.”
The contract has a cap of $50,000. For this, the contract states, “Beacon Sports will use its best efforts and endeavor to assist Wichita in obtaining and having present to it qualified offers on terms that are acceptable to Wichita, but makes no representation regarding the successful outcome of this Assignment.”
Of note, this item appears on the consent agenda. That’s a collection of agenda items that are voted on in bulk, with one single vote, unless a council member requests an item be “pulled” for discussion and possibly a separate vote. Generally, items on consent agendas are not controversial, and it may hold two dozen or more items.
“We’re no longer going to play in this traditional incentive game and offering cash to companies,” said Mayor Jeff Longwell. “We think quality of life will do more.”
What is wrong with what the mayor said? It’s mostly true that the city is no longer paying cash as jobs incentives, although that was never a large part of the city’s spending on incentives. What’s troubling about the mayor’s remarks is that the city has many incentives programs that are just as valuable as paying cash. The State of Kansas adds others. Here are the major programs the city and state offer that are as good as cash:
The city offers programs (IRB and EDX) in which companies escape paying property taxes, which is just as good as receiving the same amount in cash. 1
The IRB program, once bonds are authorized by the city, often allows a company to escape paying sales taxes, in some cases several million dollars. Not paying a dollar in sales tax is just as good as receiving a dollar in cash. 2
The city uses tax increment financing (TIF), in which property taxes paid by a property owner are redirected for the property owner’s benefit. So instead of paying cash for improvements, developers let their property taxes pay for these. 3
The city uses STAR bonds, in which future sales tax revenue is redirected for the benefit of a specific property owner. This lets the property owners avoid spending cash on things. 4
The city approves the formation of community improvement districts in which the taxing authority of the city is used to allow merchants to collect extra sales tax. 5
For one company, the city cut permitting fees in half. It’s estimated the company will save $85,000. That’s as good as receiving cash. 6
And if this is not enough, the city might pay your company $6,500,000 in cash to use your parking garage during the hours you don’t need it. (Never mind this parking isn’t really needed.) 2
Besides these programs, the state has programs such as PEAK, which pay cash benefits to companies. Also, the city supports applications for state and federal historic preservation tax credits. Receiving tax credits is as good as receiving cash.
Set aside the question of whether these incentive programs are necessary and effective. Then we’re left with a few questions:
Is the mayor not aware that these incentive programs are as valuable to companies as receiving cash payments?
Or does the mayor believe that the methods by which these programs are implemented obscure the economic realities?
Or is there some other reason?
Wichita MSA employment since 2010. Click for larger.It’s encouraging that the mayor wants to change something. Since the last recession, Wichita is falling further behind the rest of the country in job growth. 8 For the two recessions before that, Wichita was able to catch up to the rest of the country in job growth. But that isn’t happening now.
But if the mayor thinks we’re doing something other than using the equivalent of cash to lure companies to Wichita — or just to retain existing companies — he is wrong.
Trends of business activity in downtown Wichita. Click for larger.By the way, the Journal article reports this: “Wichita, known as the ‘air capital of the world,’ is working with the industry to train thousands of new workers while sprucing up downtown in an attempt to make it a place where people want to stay — and to dissuade companies from shipping the jobs overseas.”
It’s true that a lot of money, but public and private, has been spent on downtown. The economic results, unfortunately, are not good: Since the time of increased investment, there are fewer business establishments, fewer people working downtown, and lower earnings generated in downtown Wichita. 9
