Tag Archives: Jeff Longwell

Wichita City Council Member Jeff Longwell

Wichita city manager Robert Layton on the air

Yesterday Wichita city manager Robert Layton appeared as a guest on the Gene Countryman Show on KNSS Radio in Wichita and spoke on a number of topics brought up by the host and callers.

Several times host Gene Countryman referred to Wichita theater owner Bill Warren and his assessment of Layton as “best city manager the city’s ever had,” calling Warren’s assessment “high praise.” Warren has good reason to heap praise on Layton. He and his partners have benefited handsomely from actions the Wichita City Council has taken at Layton’s recommendation. Most recently Warren escaped paying property taxes on a new movie theater, and negotiated a deal in where the property tax on an existing property will increase at an agreed-upon rate that is likely lower than what would happen otherwise. Before Layton’s arrival in Wichita, the council heaped subsidy on Warren too, once bailing out the failing Warren Old Town Theater with an interest-free loan.

Layton also said criticism causes him to “bristle a little bit,” but dismissed his critics as a small minority, although he said he doesn’t discount it.

On the possible arrival of Southwest Airlines to Wichita, Layton said he feels “pretty good” about Wichita’s chances in receiving service from the popular discount airline. He said that we need to keep the Affordable Airfares Program to keep Southwest interested in Wichita. But later he said “The Southwest business model doesn’t require subsidies over a long period of time.”

But as I wrote in 2006, we’ve been told before that the airfare subsidies were meant to be temporary: “From the beginning, we in the Wichita area have been told each year that the AirTran subsidy was intended as a temporary measure, that soon AirTran would be able to stand on its own, and there will be no need to continue the subsidy.” History has shown, however, that the subsidy has grown to the point where the entire state funds the subsidy for Wichita. It appears to be a permanent part of the state’s economic program, with Governor Brownback expressing support for continued funding for the program.

On downtown, Layton said that the city doesn’t want to place businesses in downtown who will be on tax breaks or tax exempt for ten years. If the city is to achieve this goal, it will take a 180 degree change in the mindset in city hall where the mayor and vice-mayor Jeff Longwell complain that we don’t have enough “tools in the toolbox” to incentive businesses. In his State of the City address last week, one of the achievements Mayor Carl Brewer was proud of was the decision by Cargill to locate a facility in downtown Wichita. According to city documents, “The City has also offered a 100% five-plus-five year tax abatement on the new facility.” This is precisely the type of tax break Layton spoke against. Cargill, by the way, received many other forms of subsidy — let’s be clear — corporate welfare — for its decision.

On the plan for how to handle Wichita’s trash, Layton said his intent was to start a community dialog on the subject, and that has happened. Layton praised Iowa’s bottle bill, which adds five cents to the price of items sold in bottles. He said it makes it easier for people to recycle.

Kansas and Wichita quick takes: Tuesday January 18, 2011

Education reformer to speak in Kansas. Next week the Kansas Policy Institute hosts education reform expert Dr. Matthew Ladner at several events in Kansas. In Wichita, he will speak at a free breakfast event on Tuesday January 25th. Information on that event and those in Topeka and Overland Park can be found at Kansas Policy Institute Upcoming Events. Ladner, of the Goldwater Institute, will speak on the topic “Good to Great — Lessons for Kansas from Florida’s education revolution.” Florida has been at the forefront of education reform in recent years, according to a study by EducationNext. Kansas, on the other hand, ranks very low in studies that look at education reform among the states. An invitation to the Wichita event is here. RSVPs are requested by January 20th.

Wichita council candidate websites spotted. This is not a comprehensive list of candidates. Instead, these are city council candidates’ websites that have been noticed. District 2, currently held by Sue Schlapp, who may not run due to term limits: Steve Harris, Paul Savage, Charlie Stevens. … District 3, currently held by Roger Smith on an interim basis: Clinton Coen, James Clendenin…. District 4, currently held by Paul Gray, who may not run due to term limits: Joshua Blick, Michael O’Donnell. … District 5, currently held by Jeff Longwell: Jeff Longwell, Lynda Tyler.

Schools’ funding claims questioned. “Much of the increase in state spending for schools since 2005 has accumulated in cash reserve funds rather than being spent in classrooms, according to an analysis of unencumbered cash reserves held by districts.” The Kansas Watchdog story by Paul Soutar continues: “Carryover cash in accessible district funds has increased by $306 million since 2005, the year the Kansas Supreme Court’s Montoy decision went into effect. Cash in these funds grew to about $743 in 2010, up $187 million since 2008. The carryover, or unencumbered cash, is money appropriated in previous years but not spent and with no claims against it for unpaid bills or other obligations. The cash accumulates in more than 30 distinct funds.” … The balances in these funds rise when money is not spent as fast as it is put in. School districts argue that they need some fund balances — and they do — but the growing balances, year after year for most districts, undermines the claims of school spending advocates.

Kansas schools rated. “Kansas elementary and secondary schools rose one spot in a new national performance ranking, but are still below the U.S. average and many other states, the publishers of Education Week reported this week. The publication’s 15th annual ‘Quality Counts’ survey of how precollegiate schools are faring across the nation, ranks Kansas’ performance 37th in the nation, up one place from last year’s assessment, but still lower than the national average.” The Kansas reporter story mentions state school board member Walt Chappell and his concern that Kansas’ state-controlled student achievement scores — which show rapidly rising performance — may not be valid or reliable: “Even so, the Education Week rankings and others like them are important, said Walt Chappell, a state board of education member who in the past has expressed skepticism about claims of educational excellence that he believes don’t square with students’ college entrance exams or the state’s double digit high school dropout rates. At the very least, ‘here is another outside observer taking another look at our schools and telling us there is room for improvement,’ Chappell said.”

Insurance costs on the rise in Kansas. From Kansas Reporter: “Health insurance premiums have gone up 5 to 7 percent in Kansas because of the federal Patient Affordable Care Act, an underwriters’ group official told lawmakers Thursday.” Mandates for increased coverage are seen as a cause.

Kansas and Wichita quick takes: Tuesday January 11, 2011

Legislature website still down. Last week visitors to the Kansas Legislature website were greeted with a message indicating that an upgrade would be forthcoming. As of this moment, that message is replace with a generic error message and the site is not working. In a phone call yesterday, a clerk said the site would — hopefully — be available yesterday afternoon. The legislature’s site needed an update, as parts of it were frustrating to work with. But with it not working at all, Kansans are missing out on vital information. For example, it is not possible to remotely retrieve the Legislature’s calendars and journals.

Treasurer to ask for more information. In an effort to return more unclaimed property, new Kansas state treasurer Ron Estes will ask the legislature to allow him to obtain contact information from other state agencies. See Treasurer wants more data so office can return property.

Wichita CID proposals delayed. Proposals for two Community Improvement Districts in Wichita have been delayed from consideration at today’s Wichita City Council meeting. More information about these two proposals is at In Wichita, two large community improvement districts proposed. Today’s action would have simply accepted the petitions, setting a public hearing and approval — or not — for a future date. … In editorializing against these CIDs, the Wichita Eagle’s Rhonda Holman wrote: “As it was, insufficient time had been allowed for staff vetting of the proposals and thorough consideration by the council and public.” Time and time again, city staff assures the public that they have thoroughly vetted developers and projects, but here is another example of why citizens need to be wary of city hall bureaucrats. … In summary, Holman writes: “The council needs to treat the CID designations as the hidden tax hikes that they are — and use them only where and when they are mission critical, such as to implementing the Goody Clancy downtown master plan.. … By that standard, these two proposals don’t even come close.”

Longwell on citizen knowledge. My reporting on Wichita City Council member Jeff Longwell and his attitude towards citizen knowledge reminded me of a similar incident from the past. Recently, Longwell spoke in favor of signs telling shoppers that they’re about to enter a store that relies on Community Improvement District financing. But the signs would not tell shoppers how much extra tax they would be paying. Longwell said “So having something on the front door that says we are financing this with a CID tax, where they’re made well aware that it’s collected there, I think to try and include a percentage might even add some confusion as we collect different CID taxes around the city.” In other words, giving citizens too much information will confuse them. … In 2008, when a matter was rushed through the council with little time to study the issue, Longwell was quoted in The Wichita Eagle as saying: “It’s unlikely many residents would read the full contract even if it had been made public earlier.” … It doesn’t take many residents to read it. Just a few will usually be enough. … Not surprisingly, the matter Longwell wanted to rush through concerned taxpayer-funded welfare for Wichita theater owner Bill Warren. This is another example of how Longwell has been captured by special interests.

State of the State tomorrow. On Wednesday, Kansas Governor Sam Brownback will deliver the State of the State Address. It will be carried in Wichita on KPTS channel 8 at 6:30 pm.

This week at Sedgwick County Commission. Tomorrow’s meeting of the Sedgwick County Commission has a light agenda. It will be the first meeting for commissioners Richard Ranzau and Jim Skelton. At the end of the meeting, commissioners will elect a new chairman and chairman pro tem. Karl Peterjohn has been the chair for the last year. The chairman conducts the meetings and signs official documents. Speculation is that Dave Unruh, who is just starting his third term, has the inside track for election.

Changes to Kansas campaign law recommended. Washburn University’s Bob Beatty writes about two “common sense bills” bills that the Kansas Legislature will consider this year, and which he recommends be passed “in order to help clarify for voters what they’re seeing when the political ad season begins anew.’ … The first measure would ban state officeholders from appearing in public service advertisements for a 60-day period before elections. The second would require candidates to state their approval of an advertisement. More at Fine-tuning political ads.

In Wichita, two large community improvement districts proposed

On Tuesday (January 11) the Wichita City Council will decide whether to accept petitions calling for the formation of two Community Improvement Districts (CIDs) in Wichita. In both cases, city staff recommends that the council accept the petitions and set February first as the date for the public hearing. It is on that date that the council will accept public input and vote whether to form each of the CIDs.

CIDs are a creation of the Kansas Legislature from the 2009 session. They allow merchants in a district to collect additional sales tax of up to two cents per dollar. The extra sales tax is used for the exclusive benefit of the CID.

The districts proposed are two well-established Wichita shopping centers. Westway Shopping Center is at the southwest corner of West Pawnee Avenue and South Seneca Street. Eastgate Center is at the southeast corner of Kellogg and Rock Road.

In the case of Westway, city documents indicate that the funds from the CID proceeds are to be used for “public and private improvements and the payment of certain ongoing operating costs.” At Eastgate, funds will be used for “renovation and modernization.”

Both projects ask for one cent per dollar to be added to shoppers’ sales tax. Both ask to be implemented using the “pay-as-you-go” method, meaning that the city will not issue bonds. Instead, the city will send to the applicants the proceeds from the extra sales tax as it is collected.

Both applicants are represented by Polsinelli Shughart, an Overland Park law firm that has represented other clients that have received approval for community improvement districts from the Wichita City Council.

Signage discussion at city council

At the December 7, 2010 meeting of the Wichita City Council, the council considered whether stores in CIDs should be required to post signs warning shoppers of the amount of extra tax being charged. Some, including myself, feel that shoppers should have this information before deciding to shop in such a store.

At the meeting Korb Maxwell, a representative of Polsinelli Shughart, spoke to the city council in support of the CID legislation. While Maxwell spoke as though he was advocating for the public interest, he in fact works for a law firm that is representing the narrow interests of its clients.

Speaking to the council, Maxwell denied that developers “have any interest in hiding something from the public, or keeping citizens from having full knowledge about these community improvement districts.”

But he said — rather obliquely — that the retailers they are trying to bring to Wichita would be discouraged by full disclosure of the extra sales tax that citizens would pay in their stores. “We want to make sure that anything that we do, or anything that we implement within a policy is appropriate and will not counteract the very tool we’re creating here.”

He provided a suggested sign design that states that community improvement district financing was used, but not that customers will pay a higher sales tax in CID stores. Retailers would accept this, he said.

In discussion from the bench, Vice Mayor Jeff Longwell said it is important that we disclose these “types of collections” as they are taxing the public. But in a convoluted stretch of reasoning, he made a case that posting a sign with a specific sales tax would be confusing to citizens:

“I was leaning to putting a percentage on there, but again if we have a website that spells out the percentage, I think that’s important. And number two, I guess I would be a little bit concerned how we would work through it — if you put a percentage on a development over here in downtown that’s only collecting one percent and someone walks in and sees a CID tax collected of one percent and just assumes every CID tax is one percent it would be confusing when they go to the next one, and it may scare them off if they see one that’s two percent, they’ll never go to one that’s maybe only one percent. So I think that proves an additional concern for some confusion. So having something on the front door that says we are financing this with a CID tax, where they’re made well aware that it’s collected there, I think to try and include a percentage might even add some confusion as we collect different CID taxes around the city.”

I think this means that Longwell’s okay with telling people as they enter a store that they’re being taxed, but not how much tax they’re being asked to pay. We can summarize his attitude as this: Giving citizens too much information will confuse them.

Council Member Sue Schlapp said she supported transparency in government:

“Every tool we can have is necessary … This is very simple: If you vote to have the tool, and then you vote to put something in it that makes the tool useless, it’s not even any point in having the vote, in my opinion. Either we do it, and we do it in a way that it’s going to be useful and accomplish its purpose. … I understand totally the discussion of letting the public know. I think transparency is absolutely vital to everything we do in government. So I think we’re doing that very thing.”

Schlapp understands and said what everyone knows: that if you arm citizens with knowledge of high taxes, they’re likely to go somewhere else.

Mayor Brewer said he agreed with Schlapp and the other council members.

In the end, the council unanimously voted for requiring signage that reads, according to minutes from the meeting: “This project made possible by Community Improvement District Financing and includes the website.”

This sign doesn’t mention anything about extra sales tax that customers of CID merchants will pay. Contrary to Schlapp’s assertions, this is not anything like government transparency.

This episode is a startling example of the council and staff being totally captured by special interests.

Sales tax increase spreading across Wichita

These two CIDs break new ground in that these shopping centers are not tourist destinations or trendy shops. Some council members like Longwell have justified past CIDs on the basis that since they are tourist destinations, much of the tax will be paid by visitors to Wichita. This is not a wise policy, but even it it was, it does not apply to these two shopping centers.

Instead, these two applications are more indications that soon Wichita — its major retail centers and destinations, at least — is likely to be blanketed with community improvement districts charging up to an extra two cents per dollar sales tax. Currently, merchants in a CID are running the very real risk that once their customers become aware of the extra sales tax, they will shop somewhere else. But as CIDs become more prevalent in Wichita, this competitive disadvantage will disappear.

Step by step, a sales tax increase is engulfing Wichita, and our city council and mayor are fine with that happening. This is on top of the statewide sales tax increase from last year, which, despite claims of its supporters and opposition by conservatives, is likely a permanent fixture.

Kansas and Wichita quick takes: Thursday December 30, 2010

Kansas Meadowlark blog recast. Earl Glynn of Overland Park has reformed his Kansas Meadowlark site from a blog to a news site along the lines of the Drudge Report. Glynn’s full-time job is working for Kansas Watchdog.

Longwell site noted. A website supporting the candidacy of Wichita Vice Mayor Jeff Longwell for re-election to his current position has been spotted. Title: Vote for Jeff Longwell.

Kansas legislative issues to watch. Fort Hays State University political science professor Chapman Rackaway lists the things to watch for in the upcoming session of the Kansas Legislature, which opens on January 10. Here’s his list: The budget, K-12 education funding, economic growth, higher education, entitlements, a balancing act between the “interests of the center-right and polar-alliance wings of the party,” and redistricting. The full article is in the Wichita Eagle at Seven legislative issues to watch in 2011.

Local governments are a model. H. Edward Flentje, public affairs professor at Wichita State University, explains the difference between the finances of local governments — cities and counties — as compared to states and the federal government: “So, why aren’t our cities and counties wallowing in red ink? For the most part, they do the basics right. They keep revenues and spending in balance. When times are tough, they tighten the belt. In good times, they pay off debt or pay for projects that might otherwise require debt. They maintain reasonable fund balances that buffer economic downturns and avoid unnecessary tax increases or draconian cuts in services. They use debt sparingly but never for ongoing obligations.” He also mentions the role of professional managers in local government, something that Kansas has a long tradition of using. Flentje plays a role in educating and training these managers, and served a stint as interim city manager for Wichita a few years ago. The full article is at State of the State KS at Insight Kansas Editorial: Local Clues for Stemming the Flow of Red Ink.

Truce in culture wars? Michael Barone in the Washington Examiner: “The fact is that there is an ongoing truce on the social issues, because for most Americans they have been overshadowed by concerns raised by the weak economy and the Obama Democrats’ vast increase in the size and scope of government.” Somehow I don’t think this message has made it to Kansas. As reported by Fred Mann in today’s Wichita Eagle: “Before Kansas lawmakers consider such a bill, Kinzer said, they will take up a host of previous abortion measures that were vetoed by former Govs. Kathleen Sebelius and Mark Parkinson, and that are more likely to be approved by incoming Gov. Sam Brownback.” Lance Kinzer is a member of the Kansas House of Representatives from Olathe and a member of Governor-Elect Sam Brownback’s transition team. Barone, in the article mentioned above, writes “Abortion remains controversial. But we are not going to see abortion criminalized, not in a country where the Supreme Court has been ruling for 37 years that it’s a right. At the same time, we are seeing abortion disfavored and restricted by state laws that are widely popular and have at least in some cases been upheld by the courts.” In Kansas, though, anti-abortion forces are preparing a number of laws that concern, according to Mann, “tightened reporting requirements for late-term abortions, remedies against doctors who violate the laws, and provisions allowing a woman, her husband or parents to sue a doctor if they thought a late-term abortion was performed illegally.” The biggest danger is the culture war in Kansas will take our focus off the state’s economy and the need to get it on track. Chapman Rackaway, in his piece mentioned above, wrote: “If Brownback can successfully balance pragmatism and the interests of the center-right and polar-alliance wings of the party, he can be a rousing success as governor. If open warfare breaks out between wings of the party, all could be lost.”

Wind power: the transmission subsidy. From The Wall Street Journal column The Midwest Wind Surtax: The latest scheme to socialize the costs of renewable energy: “You’d think poor Michigan has enough economic troubles without the Federal Energy Regulatory Commission placing a $300 million to $500 million annual surtax on the state’s electric utility bills. But on December 16 FERC Chairman Jon Wellinghoff announced new rules that would essentially socialize the cost of transmission lines across 13 states in the Midwest. … This is another discriminatory subsidy for wind energy that will raise electricity prices on everyone, notably on those who don’t rely on wind for electric power. … Let’s be very clear on what’s happening here: Mr. Wellinghoff and FERC are trying to establish by regulatory fiat a national energy policy that Congress has refused to endorse. Last summer Congress rejected the Obama Administration’s renewable energy standard law because it would have inflated power costs.” In Kansas, outgoing Governor Mark Parkinson is proud of his accomplishments in forcing more wind power mandates on Kansans.

North Dakota TIF video reminiscent of Wichita

The North Dakota Policy Council has a video on YouTube that explains the mechanics of tax increment financing (TIF) districts and the public policy problems associated with TIF.

The video is presented in three sections. The material in the first section is different from the way TIF districts work in Kansas, but the other two sections are very similar to the way the law works in Kansas.

At the start of part 3 (“Problems with TIFs”) the narrator states the problem succinctly: “Tax increment financing negatively affects everybody’s property tax bill by taking the tax revenue from increased taxable valuations on the properties in the TIF areas and putting that into TIF accounts.”

She then presents an illustration showing how the property taxes for non-TIF properties have to rise to make up for the fact that taxes from TIF properties do not go towards paying for city, county, or school district services. While Wichita doesn’t use the term “TIF accounts” as used in this video, the economic effect is the same.

The video also mentions politically-favored developers being the beneficiaries of TIF districts, specifically mentioning “a friend of the city who might own property that is struggling.” I wonder: is the North Dakota Policy Council aware of the situation in Wichita, where many feel that the city has bailed out Real Development (also known as the “Minnesota Guys”) by not only granting TIF financing to them, but increasing the amount of TIF financing against the recommendation of its independent consultant?

Compounding the problem is the obvious lack of understanding of the economic effects of TIF districts by members of the Wichita City Council, and possibly by city hall bureaucrats, too. Wichita vice mayor Jeff Longwell has complained to the Wichita Eagle that the public doesn’t understand tax increment financing. We should be questioning Longwell’s own understanding, and that of council member Janet Miller, too.

Longwell and Miller — the rest of the council too, for that matter — are aided by newspaper reporters like the Wichita Eagle’s Bill Wilson, who is dismissive and hostile towards free markets and those who advocate for them, calling reliance on markets “intellectually shallow” and a “thin ideological argument.”

Wichita Old Town TIF district illustrates cost and harm of subsidy

At this week’s meeting of the Wichita City Council there was an item of good news: the closing of the Old Town tax increment financing, or TIF, district. But the expressed attitude of city council members towards TIF districts indicates that citizens must be concerned that the council will attempt to use this harmful form of developer and corporate welfare in the future.

Citizens need to be made aware of the uninformed and misinformed views of council members, particularly Janet Miller, who was the primary speaker on this item Tuesday. Most of the other city council members, however, also share these views, even those who consider themselves conservative and opposed to intervention in the economy.

While Miller expressed a correct view of the mechanics of TIF districts, she — and the other council members too — always miss the economic meaning of these districts.

In her remarks, Miller disagreed with a citizen who said that the TIF district “helped out” the property owners in the district. Miller said: “In tax increment financing districts, it is the property owners’ taxes that they pay, that pay the cost of the public improvements in that area. … The taxes that they paid in on their increased valuations in property have paid for the improvements.”

She also said that with careful planning the community benefits from TIF districts, and that we should look forward to “future great things that are going to come from this kind of initiative and creativity.”

It’s quite easy to see the mistakes and fallacies in Miller’s remarks. Do TIF districts help out the favored developers? Of course they do. Why else would the city create them?

A typical scenario is that a developer has an idea to build something, but claims a “gap” between the financial resources at their disposal and what the project costs. City staff checks the developer’s arithmetic and agrees. So the city creates a TIF district, and the project is able to proceed.

So the TIF financing filled the gap. How can this be interpreted as doing anything but helping the developer?

The city and council members like Jeff Longwell regularly claim that TIF districts don’t cost the city anything. We can easily see the errors in this thinking. Over the past 17 years, did Old Town require any attention from the police department? Of course it did. Old Town consumes vast police resources. In 2008 Wichita Police Chief Norman Williams was quoted in the pages of the Wichita Eagle: “Williams said that as Old Town changed from a warehouse district to an entertainment district, it has presented a ‘tremendous challenge’ to public safety.”

As was brought forth in Tuesday’s city council meeting, Old Town does pay some property taxes that go into the city’s general fund and can be used to pay for the police protection that Old Town requires. The valuation before the TIF district was formed was said to be $1 million dollars. Now it’s $9 million. So the city’s general fund has received taxes on $1 million in property valuation to pay for all the services Old Town requires. The property taxes paid on the other $8 million in valuation are directed back to the district for the benefit of the property owners.

So yes, TIF districts like Old Town do cost the city. Someone has to pay for the cost of police protection and other government services in Old Town. Its property taxes don’t even come close.

That’s what the city council doesn’t understand (or maybe it does, see below): The entire purpose of TIF districts is to benefit the property in the district.

How TIF districts benefit recipients

Here’s how it works. When using tax increment financing, a geographic district is formed. The property taxes being paid by a property in the district at the time of formation is noted and called the base. Usually this property is not very valuable, so this base is a low value. In the case of Old Town, it was $1 million.

Then a development plan is created. Based on that plan and the property taxes that the completed project will likely pay, the city will borrow money and give it to the developers. While cities like to say that TIF funds can be used only for things with a public purpose like infrastructure, this doesn’t make any difference. (If the expenditures had a truly public purpose, why wouldn’t the city pay for them without a TIF district?)

After the project is completed, the tax appraiser notices that there’s something new and valuable where there wasn’t before, and he levies a higher tax bill on the property. The difference between the original taxes — the base — and the new taxes is called the increment.

Under normal conditions when new property comes on the tax rolls, the tax revenue is used to provide public services such as police and fire protection. The school district is usually a recipient of a large portion of the new tax revenue, which might be used to pay for the schooling of residents of the new housing in the district, for example.

But in a TIF district, what happens to this new tax revenue — the increment?

Recall that the city borrowed money and gave it to the developers. The new property taxes — the increment — is used to pay off these bonds.

So council member Miller is correct, in a way. Old Town property owners paid increased property taxes.

But when these increased taxes are used to pay off bonds that exclusively benefit Old Town, how is this any different from not paying?

Consider development not in a TIF district. Developers may borrow money to build something. Then they have to make loan payments and higher tax payments.

But TIF developers pay only higher taxes. There are no loan payments, as their increased property tax payments are used to pay off the loan.

Public choice in action

I wrote earlier that the city council doesn’t understand this. It may be possible that council member Miller, the mayor, and others do understand this, but they decide to go ahead and create TIF districts and other forms of developer subsidy and welfare nonetheless.

That’s entirely possible, as TIF districts and other corporate welfare illustrate the worst aspects of public choice theory in action. In this case, we have a situation where a small group of people — the subsidized developers — have a huge and powerful motive to obtain TIF financing and other forms of subsidy. Politicians and bureaucrats want to see these things happen too, as they feel a need to justify themselves and increase their spheres of influence and power.

Average citizens may realize that these things cost them, but it’s a relatively small amount of money — certainly in contrast to the millions that subsidized developers received — so their motive to oppose them is small. This is a reason why many people don’t bother to vote.

Don’t forget that politicians want to receive campaign contributions, too. Developers who seek subsidy from city hall generally contribute to all city council members. It’s difficult to see how someone who has a political ideology — say fiscal conservatism — could contribute to all city council members. But they do.

Miller has received large amounts of campaign contributions from those who have benefited from TIF financing and other corporate welfare in the past, and who plan to benefit again in the future. She’s not alone in this regard.

Economic freedom at decline, across the U.S. and in Wichita

Earlier this year Robert Lawson appeared in Wichita to speak about economic freedom throughout the world. While the United States presently ranks well, that is changing. Writing this month in The Freeman, Lawson and his colleagues warn of dangerous trends — particularly the Obama Administration’s response to the recession — that pose a threat to the economic freedom that powers growth and prosperity.

While the article is focused primarily at the national economy, there are lessons to be learned locally, too. In particular, increasing intervention into the state and local economy leads to compounding the loss of economic freedom.

As an example, the Wichita City Council has just approved a plan for the revitalization of downtown Wichita that calls for public investment to be made downtown. While the plan is promoted as a market-based plan, it is, instead, a government plan to redirect investment from where people have decided it should be to where politicians, bureaucrats, and their patrons think it should be. These patrons are sometimes called “crony capitalists,” as explained in this passage from the article (James D. Gwartney, Joshua C. Hall and Robert A. Lawson:
The Decline in Economic Freedom
):

It is important to distinguish between market entrepreneurs and crony capitalists. Market entrepreneurs succeed by providing customers with better products, more reliable service, and lower prices than are available elsewhere. They succeed by creating wealth — by producing goods and services that are worth more than the value of the resources required for their production. Crony capitalists are different: They get ahead through subsidies, special tax breaks, regulatory favors, and other forms of political favoritism. Rather than providing consumers with better products at attractive prices, crony capitalists form an alliance with politicians. The crony capitalists provide the politicians with contributions, other political resources, and, in some cases, bribes in exchange for subsidies and regulations that give them an advantage relative to other firms. Rather than create wealth, crony capitalists form a coalition with political officials to plunder wealth from taxpayers and other citizens.

We are now in the midst of a great debate between the proponents of limited government and open markets on the one hand and those favoring more collectivism and political direction of the economy on the other. The outcome of this debate will determine the future of both economic freedom and the prosperity of Americans and others throughout the world.

In Wichita, “those favoring more collectivism and political direction of the economy” are winning. Not only are they winning the actual political votes, they are also winning the battles within their own minds. Astonishingly, many of the crony capitalists in Wichita have deluded themselves into believing that they are supporters of free markets and capitalism. But taxpayer-supported institutions like Wichita Downtown Development Corporation and Visioneering Wichita exist for the very purpose of directing taxpayer funds toward the crony capitalists. Even the Wichita Metro Chamber of Commerce plays a role in the plunder of the taxpayer, with its president nodding in approval as nominally conservative members of the Wichita City Council expressed their support for the collectivist, anti-market vision for downtown Wichita.

The heads of each of these organizations, along with city council members Sue Schlapp, Paul Gray, Jim Skelton, and Vice Mayor Jeff Longwell consider themselves to be conservatives. Many of these have personally assured me they are in favor of free markets.

The actions of the council members, not only their enthusiastic embrace of the downtown plan, but their interventions — at nearly every meeting, week after week — that interfere with the market economy and destroy economic freedom, show that none have even a basic understanding of the difference between the economic means and the political means. Writing in his recent book The Science of Success, Koch Industries Chairman and CEO Charles Koch explains the difference:

The economic means of profiting involves voluntarily exchanging your goods or services for the goods or services of others. Parties will not voluntarily enter into an exchange unless they both believe they will be better off. Therefore, you can only profit over time in a system of voluntary exchange (a market) by making others better off.

The political means of profiting transfers goods or services from one party to another by force or fraud. A coerced or fraudulent exchange leaves at least one of the parties worse off. Examples are stealing, committing fraud, polluting, using unsafe practices, filing baseless lawsuits, lobbying government to hamper competitors or obtain subsidies and promoting self-serving redistribution programs.

The economic means creates wealth by making each participant, and, therefore, society as a whole, better off. The political means, at best, merely distributes wealth. As a general system, it causes the overcoming majority of people to be worse off. (emphasis added)

Wichita Community Improvement District policy to be decided

Tomorrow the Wichita City Council is scheduled to decided the city’s policy on Community Improvement Districts (CID).

CIDs are a creation of the Kansas Legislature from the 2009 session. They allow merchants in a district to collect additional sales tax of up to two cents per dollar. The extra sales tax is used for the exclusive benefit of the CID.

One of the main issues to be decided is the issue of warning signage. Some have recommended that consumers be protected 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. Imagine that: people don’t want to pay any more tax than necessary!

City staff has recommended that a website be used to notify customers of CIDs. This form of notification is so weak as to be meaningless.

One of the follies in Wichita 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.

The rise of CIDs is an example of the city working at cross-purposes with itself, as many of the CIDs are for the benefit of hotels and other tourist attractions. Now we have the situation where we spend millions every year subsidizing airlines so that airfares to Wichita are low. Then we turn around and add extra tax to visitors’ hotel bills and perhaps the shops and restaurants they visit. Vice Mayor Jeff Longwell approves this as a wise strategy.

Developers say that Wichita will lose deals if businesses don’t have the ability to charge extra sales tax without the prior knowledge of customers. I would suggest we lose deals because of another reason: our high business property taxes. According to the Minnesota Taxpayers Association, commercial property in Wichita is taxed an an effective rate of 2.801 percent per year. The national average is about 1.9 percent, meaning the rate in Wichita is 47 percent greater.

These high commercial property taxes have driven developers such as Colby Sandlian and others out of Wichita. They continue to develop properties outside of Wichita and Kansas — in Sandlian’s case, over $100 million in commercial development outside of Kansas since 1989.

These high business taxes mean that the state and cities must concoct schemes like CIDs and other economic development giveaways in order to attract business to Wichita. This places governmental bodies like the Wichita City Council in the position of selecting which business firms it will invest in, when there’s no way the Council has the knowledge and incentive structure needed to make these decisions.

If we will lose deals because a special class of merchants can’t charge extra sales tax, then we have a big problem.

If we will lose deals because we’re afraid to notify consumers — in advance — of the taxes they will pay, we have a big problem.

Finally perhaps the simplest public policy issue is this: If merchants feel they need to collect additional revenue from their customers, why don’t they simply raise their prices? Why the roundabout process of the state collecting extra sales tax, only to ship it back to the merchants in the CID?

Kansas and Wichita quick takes: Monday November 22, 2010

Wichita city council this week. This week is workshop only, meaning that legislative action is limited to consent items. These items are voted on in bulk, unless a council member wants to “pull” an item for separate discussion and voting. Generally consent items are thought to be non-controversial, at least by the person who creates the agenda. This week one consent item may cause a bar to lose its license, as Hurst Laviana reports in the Wichita Eagle. Start time is 9:30 am instead of the usual 9:00 am.

Workshop to discuss Wichita trash. Tuesday’s Wichita city council meeting will have a workshop discussing a plan for a Wichita trash haulers’ cooperative and for a recycling plan. Brent Wistrom and Deb Gruver report in the Wichita Eagle. Conservatives on the council who favor big government — Jeff Longwell, Jim Skelton, and Sue Schlapp — seem to favor the proposal. I guess it is inevitable. But I worry that if we start relying on government to manage a simple thing like trash for us, the danger is that government will want to expand its realm of responsibility to providing things like water, jobs and economic development, employee training for business, housing for low-income people, golf courses, art museums and culture, transit, ice skating rinks, airports, dances for seniors, planning services, education, retirement plans, and health care.

Candidate for Wichita mayor noticed. Bob Nelson describes himself this way: “I am a 36 year old lawyer, technical consultant, and aviation industry professional. I am a long time Republican and conservative.” His website –maybe still in developmental state, but nonetheless visible to the world — is Bob Nelson for Mayor.

Former Wichita school chief in news. Former USD 259, the Wichita public school district superintendent Winston Brooks, now head of Albuquerque public schools, is in the news. An administrator alleges a hostile work environment and has been placed on leave with pay. It’s not the first time highly-paid administrators have been placed on paid leave for long periods since Brooks took over. The meaning of this to Wichita? Many of the current members of the Wichita school board loved Brooks and were sorry to see him leave Wichita.

Charter school studies examined. Carl Bialik, in a “The Numbers Guy” article in the Wall Street Journal, writes about the “confusing report cards” that charter schools have received in various studies. Some studies report glowing results for charters, and other report poor results as compared to regular public schools. Bailik does report one finding: “There is some consensus among these studies. Researchers generally have found that charter schools in low-income, urban areas boost test scores, while suburban charter schools in wealthier areas don’t.” Mentioned by one source quoted in the article is one of the best attributes of charter schools: they can’t force students to attend, so poor ones close down, unlike poor public schools.

Rasmussen polls from last week. “Talk about low expectations” was the start of the email message from Rasmussen Reports. Examples: “Just 26% of voters now think the country is heading in the right direction. This finding continues to fall since Election Day and is the lowest reading since mid-March, largely because Democrats are down but sentiments among Republicans and unaffiliated voters haven’t moved.” (Right Direction or Wrong Track) … “A plurality (47%) of voters believes America’s best days have come and gone, a number that has remained fairly constant since the beginning of the year.” … “Thirty percent (30%) of homeowners say the value of their home is less than what they still own on their mortgage.” … “Belief that a home is a good buy for a family remains at an 18-month low.” It’s all at What They Told Us: Reviewing Last Week’s Key Polls .

Kansas and Wichita quick takes: Wednesday November 3, 2010

Republican Party on probation. Noted conservative figure Richard A. Viguerie of ConservativeHQ.com expressed a common idea: “Voters have given Republicans one more chance to get it right. They are on probation, and if they mess up again, they won’t get another chance. The last time the Republicans were in charge, they became the party of big spending, Big Government, and Big Business. They abandoned the philosophy of Ronald Reagan and cozied up to lobbyists and special interests. And they paid a price at the polls.”

Limited government and economic freedom not desired. In today’s Wichita Eagle editorial assessing the election results, Rhonda Holman just can’t grasp the importance of limited government and economic freedom to prosperity. Instead, she prefers what some call “nuanced” politicians, who can be pressured by newspapers to vote for big-government boondoggles: “Incumbent Commissioner Dave Unruh and Wichita City Council member Jim Skelton already have proved to be thoughtful leaders; the same cannot be said of Richard Ranzau, whose tea party tendencies could put important county priorities at risk.” The victories of Ranzau — there were two, one in the primary over an Establishment Republican and again in the general election over a Democrat in a Democratic district — were gained the old-fashioned way: by meeting voters and letting them know what he stands for. And he was not bashful in his message of limited government. Both times, voters responded. The Wichita Eagle ought to take notice.

Future of Sedgwick County Commission. Yesterday’s defeat of incumbent Gwen Welshimer by Jim Skelton replaces a commissioner committed to low taxes and spending with someone with a less convincing record. While Skelton has sometimes voted against TIF districts — he and Paul Gray voted against the $10.3 million Exchange Place TIF district, although they were okay with it at $9.3 million — he firmly believes it is his duty — as city council member and as future county commissioner — to direct the economic development of the region.

Future of Wichita City Council. Skelton’s move to the county commission means there will be another new face on the council be fore long. Already the spring elections will bring two new faces, as members Sue Schlapp and Paul Gray will be leaving the council due to term limits. Now Skelton will be replaced, either by city council appointment or election next spring, depending on the timing of Skelton’s resignation. That’s a total of three new members. Mayor Carl Brewer and Vice Mayor Jeff Longwell must run for relection in the spring if they want to stay on the council. Brewer has already announced his intent to run.

Commission criticized as “gutless.” Because Wichita real estate developer Rob Snyder wasn’t granted some $400,000 in taxpayer subsidy because of the action of the Sedgwick County Commission, he criticized the commission as “gutless,” according to Wichita Eagle reporting. When testifying before the Wichita City Council as to the need for his developer welfare, Snyder whined about how that earmarks are now unpopular with the American public and not available to finance his proposed Save-A-Lot grocery store. An earmark — that is to say, a grant of money paid for by U.S. taxpayers — was used as a large part of the financing for the other Save-A-Lot in Wichita at 13th and Grove.

Kahn to substitute at Pachyderm. A scheduling change means Wichita State University political science professor Mel Kahn will be the presenter at this Friday’s (November 4) meeting of the Wichita Pachyderm Club. The always-interesting and entertaining Kahn will speak on the topic “Do Political Attacks Help or Harm our Republic?” This seems like a timely topic given the recent general and primary elections. The public is welcome at Wichita Pachyderm meetings. For more information click on Wichita Pachyderm Club.

Economic development planning in Wichita on tap

Tuesday’s meeting of the Wichita City Council features four public hearings concerning Community Improvement Districts. One CID also will have a public hearing on its application for tax increment financing (TIF).

CIDs are a creation of the Kansas Legislature from the 2009 session. They allow merchants in a district to collect additional sales tax of up to two cents per dollar. The extra sales tax is used for the exclusive benefit of the CID.

Under tax increment financing (TIF), developers get to use their property taxes to pay for the same infrastructure (or other costs) that everyone else has to pay for. That’s because in TIF, the increment in property taxes are used to pay off bonds that were issued for the exclusive benefit of a development. Or, as in the case with a new form of TIF called pay-as-you-go, the increment in property taxes are simply given back to the developer. (Which leads to the question: why even pay at all?)

The developments seeking this form of public financing include a grocery story in Plainview, a low-income and, according to the application, underserved area of town. Material on this hearing provided by the city is at Plainview Grocery Store CID and TIF in Wichita, Kansas.

A second applicant asks to charge an extra one cent per dollar sales tax for Central Park Place, a proposed suburban shopping center. Read more here: Community Improvement District at Central Park Place, Wichita, Kansas.

Then the developers of Bowllagio, a proposed bowling alley and entertainment district, will make their pitch to add two cents per dollar sales tax. Read more here: Community Improvement District for Bowllagio (Maize 54 Development).

Finally, the developers of the downtown Wichita Broadview Hotel will ask to add two cents per dollar sales tax on purchases made by the hotel’s visitors. Read more here: Community Improvement District for Broadview Hotel, Wichita, Kansas.

All of these applications should be turned down by the city council, and for a variety of reasons.

For example, the goal of the Plainview grocery store is to serve a low-income area of town. To do that, however, the store will be charging its customers an extra $1 for every $50 spent. Supporters make the case that many of the potential customers presently shop at Quik-Trip, which is not an inexpensive store, so the city is really doing these people a favor. The developer makes the case that he’s just trying to do something for the community, giving back something.

But if the developer really wants to do something for the community, he should agree to pay his share of property taxes like almost everyone else pays. That won’t happen, as most of the taxes he will pay will be routed right back to him through the TIF district.

The extra sales tax is a consumer protection issue, both in the case of the Plainview grocery store and the suburban shopping center. Shoppers won’t have any idea that they’re going to be paying extra sales tax by shopping at these merchants until after they get their receipt. Most people probably won’t notice then.

There are several council members who normally would be in favor of exposing greedy merchants who overcharge people, but they haven’t shown this concern so far regarding Community Improvement Districts.

The Broadview hotel is already the recipient of potentially $4.75 million in Kansas historic preservation tax credits. Despite the name of the program, the tax credits are in effect a grant of money to the developers — the state might as well write the developers a check. The City of Wichita has also assisted the hotel in several ways. But now it’s back at the government trough asking for even more corporate welfare.

We ought to ponder the wisdom of renovating this hotel if it can’t survive without so much government assistance. And having plowed so much into an economically unfeasible project, we can easily see sometime a few years down the road where owner Drury Hotels come to the city saying they can’t make a profit, and they need some other form of assistance.

Having given so much already, the city won’t be able to turn down the request for a little more. It’s happened before.

Even pointing out how the city works at cross-purposes with itself doesn’t impress the council. We spend millions every year subsidizing airlines so that airfares to Wichita are low. Then we turn around and add extra tax to visitors’ hotel bills, with Vice Mayor Jeff Longwell and the Wichita Eagle editorial board approving this as a wise strategy.

People remember high taxes. I don’t think it’s a good strategy to establish high-tax districts designed to capture extra tax revenue from visitors to our city. A good strategy for Wichita to pursue would be to establish itself as a low-cost destination, but we’re going the other way.

Then we must consider: does all this economic development planning work? The answer, emphatically, is: No. City leaders tell us that they do these things to grow Wichita’s economy. The activity of developers who seek subsidy like this is called, in economic terms, rent seeking, and city leaders encourage it. But evidence shows that rent seeking activity harms economic growth.

It’s usually pretty good for the favored developers who receive such economic rents (subsidy). But it’s a bad deal for everyone else. It illustrates one of the primary problems with government taxation and spending. John Stossel explains:

The Public Choice school of economics calls this the problem of concentrated benefits and dispersed costs. Individual members of relatively small interest groups stand to gain huge rewards when they lobby for government favors, but each taxpayer will pay only a tiny portion of the cost of any particular program, making opposition pointless.

We see this in play nearly every week in Wichita as the city seeks to manage economic development. City leaders portray “success stories” (that’s when a company accepts subsidy from the city to build something) as evidence of people having faith in Wichita. Someone has confidence in Wichita because they’re investing here, they say.

But I wonder why these people won’t invest in Wichita unless they receive millions of dollars through preferential tax treatment such as tax abatements, CID, TIF, STAR bonds, forgivable loans, and other forms of local corporate welfare.

These preferential tax treatments increase the cost of government for everyone else in the city. That fuels the cycle of people coming to city council saying their plans are not feasible unless they receive tax breaks. This expanding role of Wichita in centralized economic planning is great if you’re a city hall bureaucrat like Wichita city manager Bob Layton and Wichita economic development director Allen Bell. It satisfies the incentives and motivations of bureaucrats. But it’s bad for economic freedom and the people of Wichita.

Finally, perhaps the simplest public policy issue is this: If merchants feel they need to collect additional revenue from their customers, why don’t they simply raise their prices? Why the roundabout process of the state collecting extra sales tax, only to ship it back to the merchants in the CID?

Wichita Community Improvement District approvals signal increased interventionism

Yesterday’s action by the Wichita City Council in approving two Community Improvement Districts signals a new era in increased intervention in free markets by Wichita politicians and bureaucrats.

CIDs are a creation of the Kansas Legislature from the 2009 session. They allow merchants in a district to collect additional sales tax of up to two cents per dollar. The extra sales tax is used for the exclusive benefit of the CID.

Although at past city council meetings some members seemed as though they might view the districts with skepticism, there was little meaningful discussion, and no council members voted against the formation of the districts.

The mayor and city council members are unable — or unwilling — to consider the harmful effects of their interventions in creating special tax districts.

Or, it might be that some strategic campaign contributions helped city council members make up their minds. While I believe that Council Member Lavonta Williams is an honest and honorable council member, we have to be concerned when campaign contributions are made by people who know they will be asking the council for special treatment and favor, as Christian Ablah did yesterday.

He got what he wanted from the council. Wichita taxpayers lost.

The city looks silly when it jumps through hoops to conform to laws that shape the way it conducts economic development. As I urged the council:

Let’s stop distinguishing between “eligible costs” and other costs. When we 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 to the developers.

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? As long as you were planning to spend $10 next Monday, or could shift your spending, this restriction has no economic meaning.

The issue of high-tax districts being a consumer protection issue didn’t resonate with the council, either. There are several council members who normally would be in favor of exposing greedy merchants who overcharge people, but not in this case. Maybe it’s the campaign contributions again.

Even pointing out how the city works at cross-purposes with itself doesn’t work. We spend millions every year subsidizing airlines so that airfares to Wichita are low. Then we turn around and add extra tax to visitors’ hotel bills, with Vice Mayor Jeff Longwell and the Wichita Eagle editorial board approving this as a wise strategy.

People remember high taxes. I don’t think it’s a good strategy to establish high-tax districts designed to capture extra tax revenue from visitors to our city.

But perhaps the simplest public policy issue is this: If merchants feel they need to collect additional revenue from their customers, why don’t they simply raise their prices? Why the roundabout process of the state collecting extra sales tax, only to ship it back to the merchants in the CID?

No one at Wichita city hall wants to talk about this, at least in public.

Next month the city will hold public hearings for three proposed CIDs in addition to the two approved yesterday. I suspect that the next year will see many more proposed.

With each intervention like this — not to mention each TIF district, STAR bond, industrial revenue bond with accompanying tax abatement, forgivable loan, EDX property tax exemption, historic preservation income tax credit, and other programs — Wichita and Kansas move farther away from the principles of economic freedom that have created prosperity, and move closer to a centrally planned economy. Those have not worked out well.

Wichita community improvement districts should have warning signs

At today’s meeting of the Wichita City Council, council members may approve the start of the process to create two Community Improvement Districts in Wichita.

CIDs are a creation of the Kansas Legislature from last year. They allow merchants in a geographic district to collect additional sales tax of up to two cents per dollar. The extra sales tax is used for the exclusive benefit of the CID.

In Wichita, one CID is limited to a Fairfield Inn hotel being built downtown. That CID proposes to collect an additional two cents per dollar sales tax. The second is a retail and office development of about two blocks at Central and Oliver that asks to collect an additional one cent per dollar.

There are a few problems associated these CIDs. One is this: How will potential tenants of a CID know that they will have to charge their customers higher sales tax? I asked this question earlier this year at a council meeting, and no answer was given.

But more importantly, how will consumers considering purchases from a merchant located in a CID know that they’ll have to pay higher sales tax?

The City of Lawrence is considering how to deal with this problem. Normally I’m cautious of adopting ideas coming out of Lawrence, although that is where I received my university education.

In Lawrence the mayor and some city council members are concerned for the welfare of consumers, according to reporting in the Lawrence Journal-World. According to the article: “Commissioners said they have heard multiple concerns from residents who fear they may buy products at locations without knowing they are paying the extra tax.”

That’s a problem. Most people are generally aware of their state’s sales tax rate, and of that in the city where they live. But shoppers are just starting to realize that different stores in a city may charge different sales tax rates. And it’s not in the interest of merchants located in CIDs to publicize that their customers will spend more by shopping in a CID.

So mandated warning signs might be the answer to this issue of consumer protection and education.

Some might say this isn’t much of a problem, as the extra sales tax is just one or two cents. But it’s more than that. It’s an additional one or two cents per dollar spent. Since the sales tax in Wichita is now 7.3 cents per dollar, an increase of one cent per dollar is 13.7 percent more paid in sales tax.

Or, in the case of the Wichita hotel CID, it’s two cents per dollar, or 27.4 percent more sales tax.

Proponents of economic development tools like CIDs often attempt to justify their use by arguing that the proceeds can be used only for certain eligible costs. Because of this restricted use, it’s not like we’re simply giving money to the CID, they argue.

This type of doublespeak actually makes sense to some people. But as long as the CID proceeds pay for something that developers must pay for anyway, these restrictions have no meaningful economic effect.

It’s as if I gave someone $100 with the stipulation that it can be spent only on Mondays. Who could deny that I have not enriched that person by $100, even considering the restriction? As long as the person was going to spend at least $100 on any Monday, the restriction is without meaning.

Some on the Wichita city council, like council member and Vice Mayor Jeff Longwell contend that since some taxes — like the extra sales tax on hotel rooms in a CID — are paid mostly by visitors to Wichita, they’re a wise economic development strategy.

We ought to consider, however, that once visitors to Wichita examine their hotel bills and realize how much sales tax they’ve paid, they’re not going to feel happy about Wichita. The high sales tax rate expressed on the hotel bill may give visitors the impression that is the sales tax that applies to the entire city. Is that the impression we want to leave with our visitors?

Or, if visitors realize they paid extra tax by staying in a hotel located in a certain geographical district, they may regret their decision. They may also wonder why a city allows certain merchants to collect tax at such a high rate.

I have one question: If merchants feel they need to collect additional revenue from their customers, why don’t they simply raise their prices?

Is the answer as simple as this: that it’s preferable for merchants to blame the state for high prices?

Wichita, other city elections on horizon

Next spring Wichita and other cities in Kansas will hold elections for city council members, school board members, and perhaps mayor.

The filing deadline for candidates is January 25, 2011 at noon. The primary election is on March 1, and the general election is April 5.

These elections are non-partisan, meaning that candidates don’t run as members of a political party. Instead, the top two vote-getters in the primary advance to the general election.

The election calendar is a problem. Kansans presently have their political attention focused on our August primary, in which there are many hotly-contested battles. After that comes the November general election, which is likely to feature several races that generate intense interest and participation. Then comes the Thanksgiving and Christmas holiday season, when few want to think about politics.

Right after that is the filing deadline for city elections, and then quickly, the primary and general elections. It’s a schedule designed for incumbents.

In Wichita, there are three city council positions and the mayorship that are up for election. In district two, (click here for a map of districts), which is primarily the east side of Wichita, incumbent council member Sue Schlapp can’t run again because of the law limiting council members and the mayor to two four-year terms.

In district four — south and southwest Wichita — Paul Gray has also served two terms and can’t run again.

In district five — west and northwest Wichita — incumbent council member and Vice Mayor Jeff Longwell is in his first term and can run again if he chooses. He hasn’t revealed his plans publicly.

Mayor Carl Brewer is also in his first term and can run again. I’ve not heard him reveal his plans.

So far three candidates have publicly declared their intent to run. Former Executive Director of the Sedgwick County Democratic Party Jason Dilts has been actively running for the fourth district position for several months.

In April securities broker and tea party activist Lynda Tyler announced her intent to run in district five against Longwell.

Last week Galichia Heart Hospital CEO Steve Harris threw his hat in the ring for city council district two.

There are others — well-known and not — that are considering running.

Expect these issues to dominate the campaigns: First, downtown development — especially how to pay for it — is likely to be a dominant topic, as the Goody Clancy final plan is scheduled to be completed this fall. We can expect tremendous amounts of campaign funds to be directed to those candidates who favor taxpayer support and subsidy for politically-favored developers.

As many Wichita political and civic leaders speak admiringly of the city sales tax that has funded downtown redevelopment in Oklahoma City, we might even see a sales tax question on the primary or general election ballot.

The issue of taxpayer-funded economic development — whether downtown or elsewhere — may receive discussion too. Both Longwell and Brewer believe that Wichita doesn’t have enough “tools in the toolbox” for dishing out subsidy and tax breaks.

Water is likely to be an issue too, as Wichita’s water rates are going up.

Wichita should follow Lawrence’s lead in tax warnings

Is there a point where sales taxes become so high that consumers need to be warned?

Sales tax is already high in the northeast Kansas college town of Lawrence, home to the University of Kansas Jayhawks. After July 1, the combined sales tax rate — state, county, and city — will be 8.85 percent.

Lawrence has two districts where an extra one cent per dollar is added to that. Like Wichita, Lawrence is considering creating Community Improvement Districts, where merchants add up to another two cents per dollar in sales tax. The proceeds of that extra sales tax go to the exclusive benefit of the district.

In Lawrence, therefore, the sales tax in some parts of town could reach 10.85 percent. On in round numbers, eleven cents per dollar spent.

That has the mayor and some city council members concerned, according to reporting in the Lawrence Journal-World. According to the article: “Commissioners said they have heard multiple concerns from residents who fear they may buy products at locations without knowing they are paying the extra tax.”

That’s a problem. Most people are generally aware of their state’s sales tax rate, and of that in the city where they live. But shoppers are just starting to realize that different stores in a city may charge different sales tax rates. A Kansas Reporter story has more on this.

So the issue is this: should high-tax zones be required to post signage warning shoppers that they’ll pay more sales tax by shopping there?

Some in Lawrence are worried that the signs are bad for business, both within the high-tax districts, but also for the city as a whole. I think they’re right: taxes — and the realization thereof — are bad for business and consumers.

In Wichita, the only community improvement district approved so far is for a hotel. According to Wichita City Council Member and Vice Mayor Jeff Longwell, the fact that the extra sales tax will be paid almost exclusively by visitors to our city is a wise economic development strategy.

With or without signs warning of high sales tax districts, local shoppers will eventually learn where these districts exist. Our out-of-town visitors, however, probably won’t learn of the high tax rates until they receive their bill. Then, one of two realizations will set in: They’ll either curse themselves for staying at a hotel in a special high-tax district, or they they may form an impression that sales tax is very high in the entire City of Wichita or State of Kansas.

Either way, Longwell’s soak-the-visitors tax strategy isn’t likely to make Wichita many friends.

Wichita Bowllagio hearing produces only delay

Yesterday’s meeting of the Wichita City Council featured a lengthy public hearing for a proposed west-side entertainment development known as Bowllagio. Bowllagio is planned to have a bowling and entertainment center, a boutique hotel, and a restaurant owned by a celebrity television chef.

The developers of this project propose to make use of $13 million in STAR bond financing. STAR bonds are issued for the immediate benefit of the developers, with the sales tax collected in the district used to pay off the bonds. The project also proposes to be a Community Improvement District, which allows an additional two cents per dollar to be collected in sales tax, again for the benefit of the district.

The Kansas STAR bond process calls for several steps: First, a local governing body, like the City of Wichita, must approve the concept and set boundaries for the project. This is what yesterday’s agenda item called for. If approved by the council, the Kansas Secretary of Commerce would examine the project to see if it meets statutory criteria. If the Secretary approves the project, the city is then required to prepare a project plan and hold another public hearing concerning whether to adopt the project plan. The project plan must be passed by a two-thirds supermajority of the council.

One of the elements of the project plan, according to the 2010 Kansas Legislator Briefing Book, is a “marketing study conducted to examine the impact of the special bond project on similar businesses in the projected market area.” The effect of Bowllagio on existing Wichita-area businesses was a major source of concern for both council members and citizens speaking at the public hearing.

Speaking during the public hearing, Ray Baty, who is manager of a Wichita bowling center, said Bowllagio is not a new concept, but rather one that would compete with existing programs already in Wichita. The C.A.T.S. system, a training system promoted by Bowllagio developers, is actually a portable system, Baty said.

He contended that introduction of Bowllagio to the market will not grow the market for bowling, but will further divide the existing market, resulting in a loss of revenue and profit for existing bowling centers. He said that bowling centers lose six percent of their customers each year, a trend that he said is national.

Frank DeSocio, owner of several bowling centers in Wichita, told the council that the bowling training promoted by Bowllagio developers already happens in Wichita at the present. He mentioned five full-time bowling teachers and coaches already working in Wichita bowling centers.

He added that Wichita does very well in obtaining and hosting tournaments, mentioning 17 PBA live televised tournaments that took place in Wichita, 10 regional events, a BPA womens’ open, six intercollegiate championships that were televised live, and numerous Kansas state high school championships.

“Everything the Maxwell Group [developer of Bowllagio] claims they want to do is already being done in Wichita by the current bowling centers,” qualifying that he’s speaking only of the bowling side of the Bowllagio proposal, not the restaurants.

In my remarks to the council, I mentioned that Wichita has had examples of restaurants or other establishments being announced — sometimes by the mayor in his annual state of the city address — but then the development failed to materialize. I expressed concern that we might commit to a large amount of STAR bond financing based on big plans that never advance beyond some small initial stage.

Susan Estes told the council that “this is an extremely profound day” for the City of Wichita. She asked will the city help one business owner over another business owner in the same industry? She said that Bowllagio has some unique aspects, but it is a bowling alley. Its other entertainment features are also available in Wichita. We are using tax money to compete against existing businesses, she said.

In response to a question by a homeowner in the project area, the mayor, indicating he believed he speaks for the council, said the council would not support using eminent domain to remove the homeowner from his home.

During discussion by council members, a subject of controversy was whether approving project boundaries and forwarding the application to the Secretary of Commerce constitutes an endorsement of the project by the City of Wichita. Some council members wanted to pass an ordinance that would establish the boundaries of the district, and then have the Secretary decide whether the project meets the statutory requirements for a STAR bond project. Wichita economic development director Allen Bell mentioned that the council’s endorsement of the project might be a factor the Secretary would consider in determining whether to approve the project.

A question from Council Member Lavonta Williams elicited Bell’s further opinion that the Secretary is “looking for a signal from the council” regarding its support for the project. Lack of local support, he added, would be taken in a “negative way.” Council Member Paul Gray agreed with this assessment.

Vice Mayor Jeff Longwell disagreed, saying that all the Secretary needs is a geographic boundary for the proposed project. He contended that the process starts with setting the boundaries, and that other questions are difficult or impossible to answer without doing this. There are too many unknowns, he added, to give this project a formal endorsement at this time.

Longwell also mentioned a report that showed that the south-central region of Kansas, which includes Wichita, receives fewer state economic development funds, relative to population, than the northeast Kansas region. He said we needed to “equal the playing field.”

Longwell said he didn’t want to put together a package that would harm existing businesses, saying he wouldn’t vote for the project if an independent study showed that result would happen.

Council Member Jim Skelton asked about the property taxes the development would pay. Bell replied that the property taxes should increase by a large amount, as the land is vacant now and is planned to receive $95 million of development. He said that while STAR bonds and Community Improvement District financing is proposed for this development, the plan does not include property tax abatements, industrial revenue bonds, tax increment financing, or any other diversion of property taxes.

Council Member Janet Miller asked if the Kansas STAR bond statutes prohibited adding these other types of incentives to the project. The answer, according to Bell, is that these programs could be added on to this development, as has been done in some Kansas STAR bond districts.

Later Miller referred to the “lack of information to make an education decision about the project.” She wondered why the developers would not spend “one-tenth of one percent of their $50 million dollar investment” ($50,000) to produce the studies that would give the council the information it needs to decide whether to send the project to the Secretary of Commerce with its support.

When City Manager Bob Layton suggested a delay to gather more information from the developers, council members readily agreed. Layton said that city staff will visit with the developers, looking for an approach that will make council members comfortable with proceeding, addressing some of the information needs expressed today.

Due to scheduling, Layton said that this matter would need to appear on next week’s agenda, or there would be a one month delay before it could be considered at a council meeting.

The council voted unanimously to defer the item for one week, and to keep open the public hearing.

Analysis

An important issue to many council members is the potential harmful affect of Bowllagio on existing businesses, particularly bowling centers. Miller’s suggestion that the developers spend the money to have an independent assessment of this performed is entirely sensible.

But I don’t think a study of that scope can be performed in one week. As it is now, the city will probably rely on information provided by the developers. It must be recognized that they have a $13 million incentive to produce information favorable to their cause. In his remarks, Gray recognized that proof that Bowllagio will not harm existing businesses will not come from “somebody advocating for the project.” It would require a third-party, independent analysis, he said.

As of now, it is difficult to see how information that will satisfy council members can be produced by next week’s meeting.

In my opinion, the local bowling center operators are justifiably concerned that a subsidized competitor will harm their business. They were able to show that many of the purportedly unique aspects of the Bowllagio concept are already available in Wichita, and have been for some time.

Further, it’s not only direct competitors such as bowling centers that we need to be concerned for. Since the development is proposed to include a Mexican restaurant, what will its impact be on existing Mexican restaurants? And not only restaurants offering that cuisine, but all other restaurants?

In a broader sense, a subsidized business competes with all other businesses in the market for employees and other goods and services that all business firms purchase.

Longwell’s contention that we can still “kill” the project at a later date if reports come back showing negative impact on local businesses is, in my opinion, an empty promise. If the Kansas Secretary of Commerce approves this project, it would be very difficult for the council to vote against Wichita receiving $13 million in state tax dollars, especially in light of Longwell’s argument that the Wichita area doesn’t receive nearly enough of this economic development money.

While council members such as Schlapp say they’re in favor of free markets, she and the other council members nearly always vote in favor of intervention in markets. The fact that the city council members have so many questions about the proposal tells us that this plan is, in fact, a form of centralized planning by government.

As I remarked to the council, developments such as this are portrayed as a success story, in that someone has confidence in Wichita because they’re investing here. But I wonder why these people won’t invest in Wichita unless they receive millions in payments or tax forgiveness from the city, county, school board, and/or state.

Aren’t the real heroes in Wichita the people — many of them small business owners — who invest in Wichita without the benefit of TIF districts, tax abatements, STAR bonds, or other forms of subsidy or incentive?

These people, besides facing subsidized competition, additionally have to pay the taxes that make the subsidies to others possible.

Regarding the mayor’s statement that eminent domain will not be supported for this project: Kansas law does not prohibit the use of eminent domain to acquire property in a STAR bond district (K.S.A. 12-17,172).

If the city wants to assure property owners that their property will not be subject to seizure by eminent domain, the city can add language to that effect in the ordinance. With four city council positions — including the mayorship — up for election next spring, it’s possible that a future city council might not be opposed to the use of eminent domain. This change could take place during the time Bowllagio developers are acquiring property. An ordinance would help prevent this from happening.

Similarly, if it is not the intent of the developers to seek additional forms of subsidy such as tax increment financing or property tax abatements, appropriate language could be added to the authorizing ordinance.

Wichita Warren Theater groundbreaking raises policy issues

Friday’s groundbreaking of a new Warren Theater and renovation of the existing theater in west Wichita provide an opportunity to revisit some of the public policy issues surrounding Wichita city government and its intervention in the economy in the name of economic development.

Wichita Mayor Carl Brewer and Vice Mayor Jeff Longwell claim that the economic development incentives or subsidies offered to Warren do not cost Wichita taxpayers anything.

Reading comments left to stories at various media outlets, there is definitely a problem with citizens understanding the nature of the city’s industrial revenue bond program. There is no money being lent by the city, as many citizens seem to believe. Instead, the benefit of the program is the escape from paying property taxes and possibly sales taxes. The fact that tax forgiveness is mixed in with a private loan or bond purchase is definitely a source of confusion. The city should seek to simplify this program, if it intends to continue this practice.

But what about the claim that tax forgiveness does not cost other taxpayers? Will the new theater make use of city services such as fire and police protection? Will employees of the theater send their children to public schools? Vice mayor Longwell says that the city is not adding new police officers because of the new theater, so there is no additional cost for police protection. At the margin, that may be true — each additional house or building does not require a new policeman be hired. But at some time, additional city services and personnel will be required.

The city’s practice of liberally granting tax abatements goes against the constant refrain that we must “build up the tax base.” The city’s position is that by “investing” in tax breaks, the city will gain more revenue in the future.

The fallacy of the city’s investment philosophy can easily be seen. When the city grants tax abatements, there is a cost-benefit analysis that accompanies the proposal. The rationale of this analysis that by giving up tax revenue now, more will flow in at some future time.

That’s the source of the fallacy. The return to the city and other governmental units is more tax revenue. Is it the purpose of the city to generate more and more tax revenue? Is it productive to grant one taxpayer favored status so that other hapless taxpayers can be soaked instead?

When a business invests, it does so in order to increase its productive capacity so that it can earn higher future profits, those profits — or losses — being the measure of success of the investment. Government has no ability to calculate profit and loss, and therefore has no way to judge whether its investment has been wise and productive.

There is also, of course, the concept that private business investment is voluntary, while the action the city takes is not voluntary. Citizens must comply.

The companies that receive tax breaks are often prominent companies that ask for large tax abatements. It is worth considerable time and effort — and campaign contributions — for these companies to pursue these benefits. Small companies, however, often don’t fit into the various programs the city has. Instead, they face additional taxes to pay for the taxes the city doesn’t collect when it grants incentives and subsidies.

Recently Alan Cobb wrote of the harm that targeted incentives cause, using Detroit as an example: “While state and local government poured incentives into the Big Three’s trough, the marginal costs of doing business for everyone else crept up.” See Wichita targeted economic development should end.

An aspect of the incentive or subsidy package granted in this case is a fixed, negotiated, growth in property taxes the renovated theater will pay. There are a few points that deserve discussion. First, the base taxable value for the theater is the present value. The theater owner, however, is spending several million dollars on a renovation of that theater. This, according to the Sedgwick County Appraisers Office, would increase the taxable value of the theater by a large amount.

But based on the deal struck with the City of Wichita, this increase in value will not figure into the base taxable value and therefore, will not affect the taxes (PILOT, actually) the theater owner will pay.

Further, the rate of growth in value, 2.3 percent per year, is lower than what might be expected for commercial property to increase in value in many years. This fixed, predictable rate of growth is reminiscent of last year’s Proposition K proposal. The Wichita Eagle rejected this proposal, editorializing: “Over time, this system could result in significant disparities and a disconnect from actual market values, thus likely violating the Kansas Constitution’s requirement of a ‘uniform and equal basis of valuation.'”

But in this case one politically-favored business was able to receive this benefit. These special deals breed justifiable cynicism and distrust of not only City Hall politicians and bureaucrats but businesses that seek this form of pork-barrel spending through the tax system.

Finally, the payments the existing theater will make are not taxes, but payment in lieu of taxes, or PILOT. These payments are different in character from regular property taxes. Instead of falling under the Kansas property tax law regarding payment and possible sale of the property to pay taxes if the taxpayer falls behind for long enough, PILOTS are more in the form of a contract between the city and the taxpayer. If the taxpayer were to fail to pay, the city would have to sue for breach of contract. If the city should prevail in such a suit, it would stand in line with other creditors instead of taking a preferred position as in a tax sale.

This is, of course, assuming the city would choose to pursue such a lawsuit. Nothing would require it to do so. As the city has in the past bailed out this theater owner with a no-interest and low-interest loan, we could easily imagine the city deciding to let these missing or late PILOT payments slide by.

This too assumes that failure to pay PILOT payments as agreed would become public knowledge. The Sedgwick County Treasurer’s office prints lists of delinquent property taxpayers. There is no corresponding list of delinquent PILOT payments.

North Dakota TIF video informative, reminiscent of Wichita

The North Dakota Policy Council has a video on YouTube that explains the mechanics of tax increment financing (TIF) districts and the public policy problems associated with TIF.

The video is presented in three sections. The material in the first section is different from the way TIF districts work in Kansas, but the other two sections are very similar to the way the law works in Kansas.

At the start of part 3 (“Problems with TIFs”) the narrator states the problem succinctly: “Tax increment financing negatively affects everybody’s property tax bill by taking the tax revenue from increased taxable valuations on the properties in the TIF areas and putting that into TIF accounts.”

She then presents an illustration showing how the property taxes for non-TIF properties have to rise to make up for the fact that taxes from TIF properties do not go towards paying for city, county, or school district services. While Wichita doesn’t use the term “TIF accounts” as used in this video, the economic effect is the same.

The video also mentions politically-favored developers being the beneficiaries of TIF districts, specifically mentioning “a friend of the city who might own property that is struggling.” I wonder: is the North Dakota Policy Council aware of the situation in Wichita, where many feel that the city is bailing out Real Development (also known as the “Minnesota Guys”) by not only granting TIF financing to them, but increasing the amount of TIF financing against the recommendation of its independent consultant?

When you add the fact that our city manager’s girlfriend has the Minnesota Guys as a client and the city — specifically Mayor Carl Brewerwill not forthrightly explain this situation and the city’s response to citizens, we have a problem in Wichita.

Compounding the problem is the obvious lack of understanding of the economic effects of TIF districts by members of the Wichita City Council, and possibly by city hall bureaucrats, too. Wichita vice mayor Jeff Longwell has complained to the Wichita Eagle that the public doesn’t understand tax increment financing. We should be questioning Longwell’s own understanding, and that of council member Janet Miller, too.

Longwell and Miller — the rest of the council too, for that matter — are aided by newspaper reporters like the Wichita Eagle’s Bill Wilson, who is dismissive and hostile towards free markets and those who advocate for them, calling reliance on markets “intellectually shallow” and a “thin ideological argument.”

On Wichita’s Exchange Place TIF, Janet Miller speaks

Last week’s meeting of the Wichita City Council featured a message from Council Member Janet Miller that illustrated her firm belief in centralized government planning for the purposes of economic development. It also contained a material mistake in the understanding of the facts of the project.

In her remarks from the bench, Miller disagreed with those who testify at council meetings against tax increment financing (TIF). She said there is much information that says this type of economic development incentive is effective.

She said “Sometimes I wonder what city folks are living in when they talk about the negative, or the lack of results from TIFs.” She then named several Wichita TIF districts that she said performed well.

If her remarks were aimed at me and some of the other people who have testified at city council meetings against the formation of TIF districts, council member Miller may not have been listening very carefully. We do not deny that TIF districts produce results — within the district itself. Things get built, buildings get renovated. It is the effect of TIF on the city as a whole that we are concerned with.

It’s the observed effects of TIF, as economists Dye and Merriman have found and I have mentioned to the city council, including Miller, several times: “We find evidence that the non-TIF areas of municipalities that use TIF grow no more rapidly, and perhaps more slowly, than similar municipalities that do not use TIF.”

It’s also the unobserved effectsthe things that don’t happen because Wichita props up developers in politically-favored areas such as downtown. This form of centralized planning from Wichita city hall overrides the decisions that the citizens of Wichita make with their own pocketbooks, and concentrates power in the hands of bureaucrats and politicians.

As Randal O’Toole has written: “TIF today is often part of a social engineering agenda that Americans should reject.”

Miller praised the amount of office space Real Development has brought online in downtown Wichita. To the extent that this has been done without government assistance, this should be praised.

She agreed with Vice Mayor Longwell’s assessment of this project, saying “This is not a tax abatement project.” She is just as wrong as is Longwell and other council members who believe this.

In discussing the risk involved in this project, Miller told of how the disbursements from a HUD-guaranteed loan that will finance much of this project will made directly to contractors, not to Real Development. City of Wichita documents indicate that the City’s payments will be made in the same way. This is a quite peculiar arrangement: we are placing a huge bet of the success of downtown Wichita redevelopment in the hands of the principals behind Real Development, but evidently we don’t trust them enough to write them a check and be confident they will pay their bills.

Miller also spoke of the jobs that will be created by this project. Implicit in her argument is that this project, or something similar, would not occur without the city’s subsidy. Her argument also ignores what economists tell us — that TIF districts simply transfer development from one part of town to another.

What Wichitans should be most concerned about, however, is a misstatement by Miller that other council members may have relied on in making their decision on how to vote. Miller said: “The property tax increases, the increment that’s being calculated in this project, includes only the buildings in this project.”

This statement directly contradicts the facts. In the Longhofer study, other properties owned by Real Development — the Petroleum Building, Sutton Place, 105 S. Broadway, and others — are used to support the TIF loan for the Exchange Place project. In response to my question, Wichita’s urban development director Allen Bell confirmed the same.

In her message from the bench, Miller said that city staff and council members have had enough time to go over this proposal. Her mistaken remarks indicate, however, that the project is still not understood very well by the council, neither its mechanics or its economic effect.