Tag Archives: Jeff Longwell

Wichita City Council Member Jeff Longwell

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.

Wichita’s Jeff Longwell on TIF districts, tax abatements

Is a tax increment financing (TIF) district a tax abatement? Wichita city council member Jeff Longwell, now Wichita’s vice mayor, doesn’t think so. During this week’s city council meeting, Longwell said this in explaining his support of a TIF district created for the benefit of Real Development: “One of the things that people I think need to understand is that this is not a tax abatement.”

He said tax revenues will increase from $28,000 to half a million dollars, repeating that it is not a tax abatement.

So is it true that TIF is not a tax abatement?

A little background: The Wichita City council grants property tax abatements regularly as part of its Industrial Revenue Bond program. In the IRB program, the city is not the lender of funds, and it does not guarantee that the bonds will be repaid. Instead, the benefit of the IRB program is that the applicant won’t have to pay property tax on property purchased with the bond money. This abatement is generally granted for a period of ten years, although it is reviewed after five years to see if the company is fulfilling the promises it made to justify the tax abatement. In addition, a sales tax exemption may be granted on the property purchased with the bond money.

Confused? Many people are. A few weeks ago the city issued IRBs to a Wichita movie theater operator. Comments left at various online forums often argued that the city should not be lending money to the theater and its controversial ownership group. But as we’ve seen, the city is not making a loan. Instead, the IRB program is simply a vehicle that is used to grant relief from paying property taxes to the city, county, and school district.

So the IRB program, despite its name, is a tax abatement program. What about tax increment financing, then?

Under TIF, a 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 blighted or run-down, so this base is a very low value.

Then a development plan is created, perhaps to build apartments or a shopping center. 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.

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 apartments, 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 Longwell is correct, in a way. Real Development will pay increased property taxes.

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

Consider development not in a TIF district. Developers generally borrow money. 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.

So when considering the total economic reality, council member Longwell is wrong. Several other council members have the same mistaken belief.

Tax increment financing is a tax abatement in disguise. Actually, it’s worse than that. Tax abatements granted in the IRB program don’t require the city to be on the hook for a loan. But in a TIF district, the city is the lender, and city taxpayers are liable if the TIF district doesn’t perform up to projections. This has happened in Wichita, and taxpayers had to pay in one way or another.

Why is Longwell, now Wichita’s vice mayor, unable to grasp these facts? Perhaps he does but chooses to ignore them. He has a reason to do so. Downtown Wichita real estate developers — let’s be clear: developers who seek public subsidy instead of working to meet market demand — are generous with campaign contributions, funding both political liberals like Wichita city council member Janet Miller and self-styled fiscal conservatives such as Longwell.

Longwell’s term expires next spring, and he may choose to run for his same office or even the mayor’s office, as some political observers have speculated.

Longwell has already drawn one challenger for his city council position, tea party activist Lynda Tyler. While lacking experience holding elective office, Tyler has well-established conservative credentials and can be expected to run a vigorous and well-funded campaign.

Longwell, who along with Wichita Mayor Carl Brewer complains that Wichita doesn’t have enough “tools in the toolbox” for dishing out economic development incentives to politically-connected city hall insiders, will have to explain his actions to voters in his largely conservative west-side district.

Someone should ask him if he really understands the economic reality of tax increment financing districts.

Wichita Warren Theater IRB a TIF district in disguise

On Tuesday the Wichita City Council will consider an economic development incentive for a local business. The process the city is using to grant this incentive bypasses the scrutiny that accompanies the formation of TIF districts while providing essentially the same benefit.

The proposal provides Industrial Revenue Bond financing to American Luxury Cinemas, Inc., d.b.a. 21st Street Warren Theatre, a company owned in part by Wichita theater operator Bill Warren. Under the city’s IRB program, no city money is lent to Warren, and the city does not provide any guarantee that the bonds will be repaid.

Instead, the benefit of the IRB to Warren is that he will escape paying property taxes on the new theater. Also, he will likely avoid paying sales taxes on purchases made with the bond money. (The city-supplied material doesn’t mention the sales tax exemption, but this incentive is commonly granted, and mention of it was likely omitted by mistake from the agenda report.)

This project is a TIF district in effect. It has the same economic benefit to the applicant. But the way this deal is structured means it doesn’t have to go through the normal approval process of a TIF district. Specifically, the Sedgwick County Commission will not have a chance to consider approval of these incentives. That approval would probably not be granted.

The process being used also allows the city to bypass the 30 day notice of a public hearing required for formation of a TIF district.

In a TIF district, the city borrows money and spends it immediately for the benefit of the TIF district. What the city spends money on isn’t important, as long as it’s spent on things that the owners of the property in the TIF district would have to pay for themselves, if not for the city. This is important to remember, as defenders of TIF districts say that the city money is spent “only on infrastructure,” as if most developers don’t have to pay for their own infrastructure.

As improvements to property in the TIF district are made — buildings being built or renovated, etc. — the property taxes on the property go up. This increase in the tax payments — that’s the increment in TIF — goes to pay off the borrowed money that was spent on the TIF district.

Since the TIF district spending was for the exclusive benefit of of the TIF district applicant, and the increased property taxes are paying off the bonds that provided that spending, TIF districts, in effect, let the applicants keep the increase in their own property taxes for their exclusive benefit.

Whenever anyone else improves their property and has to pay higher taxes, those taxes go to fund the general operations of government.

(If this sounds confusing and complicated, it is. It is confusing by design. A while back I told the council: “I’ve come to realize that this confusion serves a useful purpose to this council, because if the people of Wichita knew what was really happening, they’d be outraged.”)

In the Warren deal that the council will consider on Tuesday, no TIF district is being created. But because the property is in the IRB program, property taxes will be forgiven. Warren is agreeing to make payments equal to the present tax bill on the property (plus a small annual increase).

The net effect is that the Warren group will not pay property taxes on the value of the new project. It’s the same economic effect as a TIF district, without the scrutiny that accompanies formation of a TIF district.

Some city politicians and bureaucrats — particularly Mayor Carl Brewer, council member Jeff Longwell, and the city’s economic development chief Allen Bell — have complained that the city doesn’t have enough “tools in the toolbox” when it comes to dishing out economic development incentives.

This applicant has been the recipient of economic development incentives, including a TIF district formed for its benefit. When that business was failing, the city created a special tool for Warren’s benefit: a no-interest and low-interest loan.

Here we see another new tool being created — the formation of what is, in effect, a TIF district without accompanying scrutiny.

Warren IMAX Theater Project

Waterwalk hotel issue receives public input

Tuesday’s meeting of the Wichita city council featured a lengthy discussion of a proposal that in the past, might have been passed without much public discussion. Instead, some useful information emerged, and the meeting opened the possibility of more citizen input not only on this item, but also on future city initiatives.

The issue is a proposal for a hotel in the city’s WaterWalk district. My preview of the matter, which includes the city-supplied agenda report, is at Waterwalk hotel deal breaks new ground for Wichita subsidies.

As an example of information that was revealed at this meeting, there was concern expressed by council member Sue Schlapp that the proposed hotel might be granted a period in which it would be the only hotel in WaterWalk. Bell replied that we don’t have the answer to this question, and that this has not been addressed. Later, a representative of WaterWalk revealed that the proposed hotel had an agreement that it would be the only hotel in WaterWalk for three years and possibly up to four years.

This is an important piece of new information, as downtown boosters continually speak of the idea of “critical mass.” The idea, I believe, is that multiple hotels may feed off the presence of each other, instead of being in competition with each other. Or it might be that if other hoteliers see this proposed hotel doing well, they’ll be induced to build one on their own. But if there will not be another hotel in WaterWalk for at least three years, that puts a damper on the formation of critical mass. Hotels, of course, could be built in other parts of downtown.

Council member Lavonta Williams asked about the survey the city is conducting to see if the proposed hotel would harm the city-owned Hyatt Hotel: Will it look at nearby hotels that the city doesn’t own? Bell said the consultant may look at those hotels, interview their management, and may be able to offer some information as to that. But Bell said that the present agreement considers only the Hyatt Hotel.

Council member Jell Longwell said we’re sensitive about the burden on our local taxpayers. But the taxes on the proposed hotel would fall on out-of-area taxpayers, he said. His clear implication was that taxing visitors to our city is okay. The problem is that many visitors to a city pay attention to taxes. When a $100 hotel bill blooms to $114.30 with taxes, people notice, even business travelers whose employers may pay the bill.

(The taxes are 6% for the transient guest tax or “bed tax,” 6.3% for our present sales tax, and another 2% for the Community Improvement District tax. Then if the governor has his way, there will another 1% in Kansas sales tax, and if some downtown boosters have their way, there will be yet another 1% city sales tax to provide subsidy for downtown.)

Council member Paul Gray answered his own question with: “why would you?” The question was why would anyone build a hotel downtown privately when there are several subsidized hotels already operating? The unlevel playing field was created long ago, he said, and it’s unlikely that anyone will develop a hotel without receiving similar benefits from the city. He also said that we’re on the hook for the bonds sold for the WaterWalk TIF district. He made reference to the “giant hole that we’ve already created with the financial obligations we’ve placed on that.”

After citizen John Todd spoke, Longwell asked how much lead time the council should give citizens for matters like this. He said that the Wichita Eagle reported the story, adding “I thought everybody read the Eagle.” (I wonder if Longwell has noticed the layoffs at the Wichita Eagle and the poor financial performance of most newspapers as fewer people read them.)

A search of the Eagle for stories on this topic shows a blog column from Wednesday January 6, just six days before the city council meeting where the item was to be considered. The Eagle printed stories on Friday and Sunday. These stories, however, don’t report the detailed information that some people would like to have. There’s simply not room in a newspaper, as the agenda report for this item contained ten pages of small print. Not many people are interested in such detail, either.

(The city’s agenda packet for this meeting, which is the important source of detailed information, became available on the city’s website probably late Thursday. The pdf file indicates that it was created at 4:51 pm that day.)

Longwell pressed Todd: “How much lead time do we need?” I have an answer for him. After I read the agenda packet Friday afternoon, I emailed Wichita public information officer Van Williams with a few questions. By Monday afternoon I hadn’t received a response. I’m not criticizing Williams, as he might have had any number of valid reasons for not replying to my questions right away. But even if he had replied Monday afternoon, that’s just a few business hours away from the meeting. That is definitely not enough time to digest a project of this scope.

Gray then asked Todd how much vetting does the public do on a project like this? The answer to this is: not enough, as the city has a recent history of problems with its development partners. In December 2008 the city was about to enter into an agreement with a developer when Dion Lefler of the Eagle uncovered very troubling facts about the developer’s past dealings. See Wichita city hall: more evidence of lax procedures for a summary.

Then-city council member Sharon Fearey — now a candidate for the Sedgwick County Commission — was disappointed that the Eagle uncovered these facts and reported them. See Sharon Fearey doesn’t appreciate the Wichita Eagle for the story and video.

Since then Wichita has a new city manager, and the city has said it has new procedures in place for investigation of the backgrounds of potential business partners. Other problems remain, however. Last month Wichita Eagle editorial writer Rhonda Holman wrote about missing or incorrect information provided to the city council:

Worse, when the council approved the Big Dog deal on a 5-2 vote, its members reportedly were unaware that the company had hired an investment banker to explore a possible sale or merger. Plus, city documents about Big Dog listed its employment at 115 when the number actually has dwindled to 30 to 40 (from a 2005 high of 336).

A policy meant to guide the use of tax abatements and other tools doesn’t work well if decisions are based on faulty information.

Going back to 2004, we have evidence that city council members were not familiar with even the most basic facts about our economic development programs. The article “Tax break triggers call for reform” published in the Wichita Eagle on August 1, 2004 reported this:

Public controversy over the Genesis bond has exposed some glaring flaws in the process used to review industrial revenue bonds and accompanying tax breaks.

For example, on July 13, Mayans and council members Sharon Fearey, Carl Brewer, Bob Martz and Paul Gray voted in favor of granting Genesis $11.8 million in industrial revenue bond financing for its expansion, along with a 50 percent break on property taxes worth $1.7 million.

They all said they didn’t know that, with that vote, they were also approving a sales tax exemption, estimated by Genesis to be worth about $375,000.

It’s not like the sales tax exemption that accompanies industrial revenue bonds was a secret at the time. An easily accessible web page on the City of Wichita’s web site explains it.

Regarding the present case, Schlapp said she would have liked to have known about the exclusivity period earlier. That’s just one example of something not contained in the agenda packet that is important for citizens and council members to know, and we didn’t know that before this meeting.

Gray also noted the history of some of the people at the council meeting who opposed the project, adding that he didn’t see them changing their minds. That attitude represents a simplistic view of the way public policy ought to be formed.

An issue like this has many facets. Some could possibly have merit, and some certainly are harmful. A discussion like what took place at this meeting can provide a forum for exploring these issues, and perhaps eliminating the bad in favor of the good. The fact that some might still be opposed to the project doesn’t negate this.

In the end, the council voted unanimously to defer this matter until its February 2 meeting.

Wichita city council discusses economic development incentives, again

At this week’s meeting of the Wichita City Council, underperforming companies that have received economic incentives was at issue.

Wichita grants incentives — usually in the form of an escape from paying property taxes — to companies. Usually there are conditions attached to the incentives, such as a certain amount of capital investment or employment targets. Recently — and in the past two or so years — several companies that received incentives have not met employment goals. Should the city rescind the tax breaks in these cases? Or should there be recognition that there’s a tough economy at the moment, and should the company be excused from meeting the goals it pledged?

During a period of questions from the bench, council member Sue Schlapp remarked: “We have to be flexible, don’t we? … Especially in today’s economy, we need to be very careful that we’re not too rigid in what we’re doing.”

Council member Jeff Longwell said he’d like to see something that rewards companies that bring in business from outside our community. Economic development head Allen Bell answered that the policy is limited to companies that bring in wealth from outside. Businesses that are here because their customers are here are not eligible for economic incentives, he said.

Longwell also expressed concern about companies that use temporary employees. Should that increase in payroll be included as a benefit, even if the employees are only temps? Bell said yes, even though these jobs are not as good as direct hire placements. Wichita City Manager Bob Layton interjected that we shouldn’t count seasonal peak employee ramp-up in benefit calculations.

Longwell added that we ought to include the fact that some companies drive up hotel occupancy rates due to the nature of their business. Bell said that this is a factor in the WSU analysis.

Vice-mayor Jim Skelton inquired about details of the model that WSU uses to calculate the economic benefit of incentives. These calculations, Bell said, are required by the Kansas Legislature. The model presently used is unique to WSU. It focuses on the fiscal impact that an economic development project has on cities, counties, school districts, and the state. It takes into account jobs created, capital that is invested, and other factors. It includes such factors as the need for additional police and other government services, additional sales and bed tax, and other revenue sources. It then performs a present value calculation and produces a ratio. A value greater than one means the benefits exceed the costs.

City manager Layton said that these incentives represent a contract between the business and the city. The business promises to grow the economy, and the city makes an investment in the company. The council presently is struggling with how to judge the performance of companies that have received incentives in a down economy. The WSU index makes sense, he said. If economic conditions are poor, we now have a tool to judge the performance of the companies that received incentives. There are now extenuating circumstances, he said.

Mayor Carl Brewer said that we recognize there are challenges, and that in an ideal world we shouldn’t have to provide incentives. But he said we have several options: Be competitive and provide incentives and fight to keep what we have, or don’t provide incentives and see what happens. He said we know what would happen in that case. Businesses will go where they can get these incentives, he said, and we can’t argue that. There will always be incentives, he said, and we have to be competitive.

The council unanimously approved a revision to the policy that recognizes down periods of economic activity. Then, it approved the extension of tax breaks to three companies that had not met all their performance goals. Passage was not unanimous in two cases, with some council members voting against the extension of the incentives. Dion Lefler’s reporting in the Wichita Eagle is at Wichita City Council eases rules on tax abatements.

Analysis

Contrary to the belief of the mayor, council members, and city hall bureaucrats, economic development incentives aren’t all they’re promoted to be. The state of Kansas spent some $1.3 billion on incentives over five years. In a recent report produced by the Kansas Legislative Division of Post Audit, one of the summary points is this: “Most studies of economic development incentives suggest these incentives don’t have a significant impact on economic growth.” See In Wichita, let’s have economic development for all for more on this report and a link to the document.

There is an interesting academic paper titled The Failures of Economic Development Incentives, published in Journal of the American Planning Association. A few quotes from the study, with emphasis added:

Given the weak effects of incentives on the location choices of businesses at the interstate level, state governments and their local governments in the aggregate probably lose far more revenue, by cutting taxes to firms that would have located in that state anyway than they gain from the few firms induced to change location.

On the three major questions — Do economic development incentives create new jobs? Are those jobs taken by targeted populations in targeted places? Are incentives, at worst, only moderately revenue negative? — traditional economic development incentives do not fare well. It is possible that incentives do induce significant new growth, that the beneficiaries of that growth are mainly those who have greatest difficulty in the labor market, and that both states and local governments benefit fiscally from that growth. But after decades of policy experimentation and literally hundreds of scholarly studies, none of these claims is clearly substantiated. Indeed, as we have argued in this article, there is a good chance that all of these claims are false.

The most fundamental problem is that many public officials appear to believe that they can influence the course of their state or local economies through incentives and subsidies to a degree far beyond anything supported by even the most optimistic evidence. We need to begin by lowering their expectations about their ability to micromanage economic growth and making the case for a more sensible view of the role of government — providing the foundations for growth through sound fiscal practices, quality public infrastructure, and good education systems — and then letting the economy take care of itself.

On the surface of things, to the average person, it would seem that spending (or granting tax breaks, it’s the same thing) to attract new businesses makes a lot of sense. It’s a win-win deal, backers say. Everyone benefits. This is why it is so appealing to politicians. It lets them trumpet their achievements doing something that no one should reasonably disagree with. After all, who could be against jobs and prosperity? But the evidence that these schemes work is lacking, as this legislative audit and article show.

I have suggested to the city council that a broad-based tax abatement on new capital investment could propel economic growth in Wichita. See Wichita universal tax exemption could propel growth.

But a plan like this doesn’t give bureaucrats much to do, and gives politicians little to crow about to their constituents at election time. All it’s good for is the people who want economic growth.

Wichita city council discusses economic development incentives

Last week a Wichita company that’s expanding made an application for industrial revenue bonds and accompanying property tax abatements. The company’s application wasn’t timely, and for that reason is not likely to receive the requested help. The discussion surrounding the item provides insight into city council members’ ideas about the role of the city in economic development.

Industrial revenue bonds, or IRBs, are not a loan from the city, and the city does not make any guarantee that the bonds will be repaid. The primary benefit to the recipient of IRBs is that the property purchased with the bonds will generally be exempt, in whole or in part, from property taxes for some period. Also, the company may not have to pay sales tax on the property purchased with the bonds.

The agenda report for this item is at Request for Letter of Intent for Industrial Revenue Bonds, Michelle Becker, Inc. (District V).

In introducing the item, the city’s economic development chief Allen Bell said that because the project has already started construction, it falls outside the guidelines for the city’s IRB program. The construction is 85% to 90% complete.

A question by council member Sue Schlapp established that if the company had made application before the building was started, the application would have been approved as routine.

She also asked that if we approve this action today, will we have to go back and look at other businesses that are in the same place? Wichita City Manager Bob Layton asked that the council establish guidelines that if a project has already started, a project is not eligible for this type of assistance.

There was also some discussion about whether this company would move away from Wichita if the tax abatement was not granted. Since the building is already under construction, Bell said this is evidence that the company is intending to stay in Wichita. “It’s difficult to think of an incentive as something that’s given after the fact,” he said.

A question by council member Paul Gray established that there have not been many cases where companies have asked for tax breaks retroactively, according to Bell’s answer. Bell also said that he didn’t think that approving the current application would spur an avalanche of similar requests.

Gray also noted that we can create economic disparities between companies by granting incentives, so how do we justify doing this? Bell’s answer was that an important consideration is bringing business from out of state instead of taking business away from other local companies.

Layton added that an important consideration is whether the project can more forward without public assistance.

Council member Jeff Longwell remarked that “we really don’t have that many tools in our toolbox for emerging businesses.” Bell agreed.

In later discussion, Longwell said “I hate to penalize this emerging company … I should have got them in on this process long before we did and we wouldn’t even be having this argument. So I suppose I am at fault in part of this delay.”

Gray said that because we’re not competing against another community for this company — the normal use of incentives — he can’t support this application.

Council member Janet Miller said that the appropriate time to look at incentives is, as the manager said, when we think a company can’t move forward without the incentive. She also noted that we’re being asked to approve an action for which we’re going to soon have a policy against.

Schlapp, indicating a desire to approve the incentive, asked for justification: “We have a company here that doesn’t need an incentive but wants an incentive … can somebody justify that?”

Longwell said it’s not as simple as a need and a want. He said the applicant is a smart, well-managed company. But we shouldn’t use the qualifier of helping only the companies that couldn’t succeed without the city’s help. “Why not reward some some of those companies that are very well managed and run smart and have the ability to grow even more with our help than without it?” Again he referred to the lack of tools for emerging businesses. “We ought to be helping these types of companies that we think can truly prosper even more with our help … I think they fully warrant our help because they’re successful …”

Mayor Carl Brewer said that we have a proven track record of trying to help businesses and to get businesses to come to our area. He agreed with Longwell in that we need additional tools to use for economic development, as other communities have been competing successfully. We don’t have the same tools that other communities have, he said.

Longwell suggested the city visit with the applicant about her financing. He made a motion to defer this item. Council member Williams asked about the impending completion of the project, since it’s scheduled to be completed at the end of December. The answer from the manager was that with regard to IRBs, the project would not be eligible after it’s complete. The motion passed with Council member and Vice-mayor Jim Skelton opposed.

Analysis

What’s striking about the discussion are these two things:

First, many council members and some city staff believe that the city doesn’t have enough “tools in the toolbox” for shoveling incentives on companies for economic development purposes. Evidently the ability to grant exemptions from property taxation — and not only the city’s property tax levy, but also that of the county, school district, and state — along with the ability to make outright gifts of money is not enough.

Second, many council members and some city staff believe that they can determine which companies are worthy of incentives.

According to city manager Layton, the city is going to revisit its economic development policies soon. This would be a good time for Wichita to come up with ideas that would benefit all companies, not only those that fall within guidelines that the council or city staff creates. My suggestion, explained in Wichita universal tax exemption could propel growth, is to give all new capital investment a tax abatement for a period of five years.

At the state level, there has been some discussion about the costs of tax abatements or exemptions. In a recent debate in Wichita, Kansas Secretary of Revenue Joan Wagnon used the term “tax expenditures” to describe these giveaways of the state’s income. The idea is that if the state (or other governmental body) didn’t create tax abatements or exemptions, revenue to the government would be higher. Her debate opponent Alan Cobb said it’s wrong to term these tax giveaways as “expenditures,” as the money belongs to the people first, a position I agree with.

There is the related issue of these tax abatements or exemptions really being appropriations of money that, if processed through the normal process of legislative hearings, etc., would be noticed for what they are. In Wichita city government we don’t have hearings quite like the Kansas Legislature, but the idea is the same: if this company had asked for a grant from the city for $22,253 (that’s the value of the first year of the requested tax abatement, with a similar figure for the following nine years, less $2,500 a year to the city for administrative fees), citizens — news media too — would quite likely look at this matter differently. Presented as industrial revenue bonds — just what are those anyway? — and a tax abatement, well, it all seems so … so innocent, so municipal.

A few more observations:

Council member Jeff Longwell’s confession of being at fault for the lateness of this company’s application should be remembered by voters in the next election, should he decide to seek to retain his current post, or — as some have told me — he seeks the mayorship of the city.

There’s also Longwell’s use of the term “reward,” in that the city should “reward some some of those companies that are very well managed and run smart.” I’d like to remind him and the rest of the council that the free enterprise system contains a very powerful reward mechanism for companies that do well: profit. That alone is sufficient.

Coverage from the Wichita Eagle is at Wichita City Council puts off tax breaks for accounting firm.

Wichita City Arts tech studio proposed

Randy Roebuck, in a presentation at the Wichita city council workshop, promoted the idea of a “digital oasis” in Wichita. It would be a place where people can go to get free help with technologies such as cell phones and computers.

He told of how an Apple Genius Bar does things like this. Council member Jim Skelton asked who runs an Apple Genius Bar? Apple Computer Corporation, of course.

Later council member Paul Gray continued with questions based on Skelton’s. Why not an Apple Genius Bar in Wichita? Why is the city competing with private business? City officials insist they are not trying to compete with private business. Instead, it’s a resource for training and education.

Council member Jeff Longwell said this idea is “on the right path,” as long as it doesn’t cost a lot.

Lavonta Williams said this will attract a different group of people to downtown Wichita. She said it’s something we need.

Mayor Carl Brewer mentioned that not everyone who would want to use a facility like this might not be able to afford its cost. He didn’t mention that someone else should pay for them, but that’s what this program will do.

“It’s part of creating an environment where we have everything that anybody could possibly want. … If the private sector’s really wanting to get out there and they’re willing to invest their dollars and they want to start their business, we should let them.”

This illustrates the mayor’s — and several other council members’ — vision of an expansive city government, providing for citizen needs all the way through arts, entertainment, and now computer tech support.

Then there’s the mayor’s language that we (Wichita city government) should let the private sector do something. I really hope the mayor misspoke here.

This is a bad idea. It seems to me that there may be people in Wichita city hall with too much time on their hands if they have time to come up with ideas like this.

View the video of the portion of the city council workshop where this presentation was made by clicking on Wichita city council workshop, March 24, 2009.

The slides shown to the council members aren’t available on the city’s website, to my knowledge. I captured them from video, and they may be viewed by clicking on Wichita City Arts tech studio presentation.

Read Wichita Eagle reporting by clicking on Cyber Alliance plans to offer free technical training. reporting on KWCH is at Wichita Considers “Digital Oasis”.

YMCA – Wichita conflict of interest

A local non-profit organization, held in high esteem, seeks to purchase property owned by the City of Wichita. So what’s the problem?

During his State of the City address for 2009, Wichita Mayor Carl Brewer revealed his plan for a partnership between the city and the YMCA. So far this partnership has revealed itself in the city’s plan to sell some city-owned land at First and Waco Streets to the YMCA.

Council members Jeff Longwell and Sharon Fearey were appointed to represent the city in negotiations.

The problem is that Longwell is a member of the advisory board for the northwest branch YMCA. This is possibly a conflict of interest. It certainly is the appearance of a conflict of interest, and for that reason, Longwell should step away from the negotiations.

At the same time, the YMCA should request that Longwell be replaced with another council member.

I’m not accusing the YMCA of any wrongdoing.

I’m also not accusing council member Longwell of any wrongdoing.

But I’ve talked to several elected officials and many citizens about this, and only one has thought there wasn’t a problem with this arrangement.

This is especially confounding to me in that I’m sure there is probably no actual conflict of interest — at least as these things go — but its appearance is beyond doubt in the minds of most citizens.

A representative of the YMCA told me that the board Longwell serves on is an advisory board with no decision-making authority.

I asked Longwell if he could understand how people might think there is a conflict of interest, and he said he could appreciate that position. He added that’s why there is more than one city council member representing the city, and, of course, it takes four votes on the council to take any action.

Furthermore, he told me that he was out of town and missed a meeting, so he hasn’t been present at the negotiations.

I’ve talked with several people who have reminded me of the good things the YMCA does for Wichita and the surrounding area.

So why can’t the YMCA and the city conduct these negotiations in a way that eliminates even the slightest whiff of any appearance of a conflict of interest?

People are wondering, especially when it is likely that the land will be sold for much less than what some believe it to be worth.

Wichita TIF public hearing was bait and switch

This appeared in today’s Wichita Eagle.

On Tuesday December 2, 2008, the Wichita City Council held a public hearing on the expansion of the Center City South Redevelopment District, commonly known as the downtown Wichita arena TIF district. As someone with an interest in this matter, I watched the city’s website for the appearance of the agenda report for this meeting. This document, also known as the “green sheets” and often several hundred pages in length, contains background information on items appearing on the meeting’s agenda.

At around 11:30 am Monday, the day before the meeting, I saw that the agenda report was available. I download it and printed the few pages of interest to me.

At the meeting Tuesday morning, I was surprised to hear council member Jim Skelton expressed his dismay that a change to the TIF plan wasn’t included in the material he printed and took home to read. This change, an addition of up to $10,000,000 in spending on parking, is material to the project. It’s also controversial, and if the public had known of this plan, I’m sure that many speakers would have attended the public hearing.

But the public didn’t have much notice of this controversial change to the plan. Inspection of the agenda report document — the version that contains the parking proposal — reveals that it was created at 4:30 pm on Monday. I don’t know how much longer after that it took to be placed on the city’s website. But we can conclude that citizens — and at least one city council member — didn’t have much time to discuss and debate the desirability of this parking plan.

The news media didn’t have time, either. Reporting in the Wichita Eagle on Monday and Tuesday didn’t mention the addition of the money for parking.

This last-minute change to the TIF plan tells us a few things. First, it reveals that the downtown arena TIF plan is a work in progress, with major components added on-the-fly just a few days before the meeting. That alone gives us reason to doubt its wisdom. Citizens should demand that the plan be withdrawn until we have sufficient time to discuss and deliberate matters as important as this. What happened on Tuesday doesn’t qualify as a meaningful public hearing on the actual plan. A better description is political bait and switch.

Second, when the business of democracy is conducted like this, citizens lose respect for both the government officials involved and the system itself. Instead of openness and transparency in government, we have citizens and, apparently, even elected officials shut out of the process.

Third, important questions arise: Why was the addition of the parking plan not made public until the eleventh hour? Was this done intentionally, so that opponents would not have time to prepare, or to even make arrangements to attend the meeting? Or was it simple incompetence and lack of care?

The officials involved — council members Jeff Longwell and Lavonta Williams, who negotiated the addition of the parking with county commissioners; Allen Bell, who is Wichita’s director of urban development; and Mayor Carl Brewer — need to answer to the citizens of Wichita as to why this important business was conducted in this haphazard manner that disrespects citizen involvement.

Additional coverage:
Wichita TIF Districts Mean Central Government Planning
Downtown Wichita Arena TIF District Testimony
Jim Skelton is Frustrated
Downtown Wichita Arena TIF District Still a Bad Idea
Wichita Mayor and City Council Prefer to Work Out of Media Spotlight
Wichita’s Naysayers Are Saying Yes to Liberty
Tiff over Wichita TIFs
Downtown Wichita Arena TIF District
Do Wichita TIF Districts Create Value?
Wichita City Council’s Misunderstanding of Tax Increment Financing
Tax Increment Financing in Wichita Benefits Few
Tax Increment Financing in Iowa

Wichita Smoking Ban Starts. Sharon Fearey is Excited.

Today, September 4, 2008, marks the first day of the ban on smoking in Wichita. It’s not quite a total ban, and that has some smoking ban supporters upset. In a letter to the Wichita Eagle, anti-smoking activist Cindy Claycomb writes “If you are a supporter of clean indoor air, please do not spend your money in businesses that allow smoking indoors, including smoking rooms. If we continue to spend our money at places that allow smoking indoors, that tells the business owners that we do not care — that we will tolerate secondhand smoke even though we all know the harmful effects.”

Not everyone is upset, though. In the Wichita Eagle article Smoking ban takes effect; for smokers, end of an era, Wichita city council member Sharon Fearey is quoted as “I feel this is an exciting time for the city.” If, like council member Fearey, you appreciate increasing government and bureaucratic management of the lives of Wichitans, you might be excited, too. Those who value liberty and freedom, however, are saddened — even if they aren’t smokers.

Fortunately Ms. Fearey is precluded from running again for her seat on the city council by term limits. The two architects of this smoking ban — Lavonta Williams and Jeff Longwell — can run for election again. The position held by Ms. Williams is up for grabs in the March 2009 primary. Hopefully the citizens of Wichita city council district one will elect someone respectful of property rights, not to mention personal rights.

For more coverage of the smoking issue and why it’s important, these articles will be of interest: It’s Not the Same as Pee In the Swimming Pool, Haze Surrounds Wichita Smoking Ban, Property Rights Should Control Kansas Smoking Decisions, Let Property Rights Rule Wichita Smoking Decisions, Testimony Opposing Kansas Smoking Ban, and No More Smoking Laws, Please.

Do Wichita TIF Districts Create Value?

A recent Wichita Eagle article City tax districts aren’t breaking even reports on some of the problems with tax increment financing, or TIF, districts in Wichita:

One promise of TIFs was that revitalizing certain areas — such as Old Town and the East Bank — would boost property values throughout downtown.

In the past four years, assessed valuation has risen 14.9 percent a year within the downtown TIF areas where millions of dollars of public money have been invested.

But take away those TIF districts and valuations have grown at 4.1 percent a year for the rest of the downtown area. Countywide, commercial property values have gone up about 10.7 percent a year.

One question I have, and one that might be difficult to answer, is if property values in TIF districts are being assessed accurately and fairly. For assessed valuations in TIF districts to grow at only 1.4 times the rate as all commercial property seems to indicate that perhaps TIF district property is undervalued by the assessor. After all, it is in TIF districts that we expect to see rapid growth — “exponential,” as Wichita city council member Jeff Longwell explained to me — in value as developers renovate old buildings or build new buildings.

The primary problem, however, is that these TIF districts represent the city government’s desire for more development in places or things that people don’t value it as much as they do in other places. It is government central planning, led by politicians and bureaucrats, making decisions rather than people expressing their preferences through voluntary transactions in a free market.

Since politicians and bureaucrats have different goals than entrepreneurs, it is not surprising that TIF districts may not live up to the expectations of the public. Of course, it depends on your expectations. If you desire simply to get something built — this would be the politicians’ goal — then TIF districts work. Buildings, indeed, are built.

If, on the other hand, your goal is to create wealth by building something that the public values enough that you can earn a profit — this being the goal of entrepreneurs — government central planning simply doesn’t work.

Kansas Blog Roundup for July 3, 2008

Even with a holiday-shortened week, there was quite a bit of activity in Kansas blogs.

At the Kansas Republican Assembly blog, the post Sebelius: Slattery needs help raises questions about U.S. Senate candidate Jim Slattery’s acquisition of certain email addresses, and the etiquette of using them. In Democratic delegate shunned for endorsing McCain over Obama, the anonymous writer of this blog wonders whether the Democratic Party is really the big tent party.

The Kansas Trunkline reports that U.S. House of Representatives candidate Nancy Boyda is not shy with her support for increasing motor fuel taxes in Nancy Boyda: Yes, new taxes! Also, reporting on Kansas Republican Party chairman Kris Kobach and his remarks in Slattery fundraising wilting, DSCC bailing.

This week, the Kansas Meadowlark has posts on judicial nominating commissions in Kansas. First, can campaign contributions of $13,000 to Kansas Governor Kathleen Sebelius and covering some airplane expenses purchase a seat on the Kansas Supreme Court Nominating Commission? The post Did $13,000 given to Gov. Sebelius play part in Supreme Court Nominating Commission appointment? answers. Second, the title of the post Political makeup of Third District Court Nominating Commission doesn’t reflect district? asks the question that needs answers. This district is Shawnee County, where Topeka is located.

The Kansas Governmental Ethics Commission seems to fall short of fulfilling its duties in these two posts: Kansas Ethics Commission can’t find political activist, who didn’t file PAC report, but newspapers can? and Kansas Ethics Commission ignores missing $25,000 payment by PAC?

The anonymous blogger Stay Red Kansas supplies in Talk around T-Town some political gossip obtained from some “power players.” It’s hard to know how much weight to give to posts like this from an anonymous blogger. Is the information real, or just the sowing of the seeds of rumor? Unless we know who the blogger is, or unless you read the blog enough to form an opinion as to the writer’s reliability, it’s hard to treat these posts seriously.

In the post Is Congress shilling their constituents?, The Patriots (news from citizen advocates) blogger Allen Williams wonders about U.S. Energy policy.

Kansas Federalist blogger Currie Myers comments on the difference between Iowa Floods versus New Orleans Floods.

At the Joyful Cynic, the very fine post Charity at a Distance explains the difference between charity and “legally mandated charity,” although I believe Sharon is too mild in describing government activity as anything resembling charity.

Just when I think I’ve become aware of all blogs with a Kansas connection, I find out that I’ve been missing out on a very good blog. The Blog About All Things MBM (market-based management) is a blog that I’m sorry I’ve overlooked. One of its contributors is a Kansan, and market-based management was developed by Wichitan Charles Koch. The post Did Adam Smith Hate Businesspeople? contains the sentence “MBM considers any form of political profit completely unacceptable.” When you read my Voice For Liberty in Wichita post Wichita and the Old Town Warren Theater Loan, you’ll realize why I am glad I found this blog.

At The Quite Conservative, the post When the Republic Hung by a Thread comments on the recent U.S. Supreme Court decision and the right to bear arms.

At In Media Res the interesting post Ten Things I Like About Canada (In Honor of Canada Day) contains this good thing about Canada: “Relative avoidance of sugar processed from high fructose corn syrup.” Why in the U.S. do we use corn syrup instead of sugar? Do government tariffs have anything to do with it? If you don’t like the government meddling with the way we sweeten soft drinks, how will you like another “good thing” in Canada, which is number four in this list: socialized medicine.

At the Voice For Liberty in Wichita, Karl Peterjohn of the Kansas Taxpayers Network contributed the article Socialism And Big Government Expand In Kansas.

In Wichita, big news this week was the Wichita City Council’s giveaway to a theater owner. My remarks to the council are in the post Wichita and the Old Town Warren Theater Loan. John Todd testified too; his remarks are here: Wichita Old Town Warren Theater Public Hearing Remarks. Some follow-up analysis is here: In Wichita, is Economic Development Proven Public Policy?, and you may read of Wichita city council member Jeff Longwell’s unfortunately low opinion of Wichitan’s interest in these civic matters in the post Wichita Council Member Jeff Longwell: We Can, and Do, Read.

Some Wichita news media outlets revealed some sloppy reporting and bias in these posts: Wichita Business Journal: Where is the Increasing Enrollment in Wichita Schools?, Wichita Business Journal: Please Explain the Wichita School Bond Impact, and Wichita Eagle Reporting Bias.

Some coverage of a candidate forum is here: Kansas School Board Candidate Forum, June 30, 2008.

How is former Wichita public school superintendent Winston Brooks doing at his new post in Albuquerque? Someone there doesn’t have too high of an opinion: In Albuquerque, Someone Already Doesn’t Like Winston Brooks.

An important series of posts at the Voice For Liberty in Wichita deal with the involvement of Earthjustice, a radical environmentalist group, in Kansas energy policy. This, to my knowledge, has not been covered by Kansas news media util very recently. The post Kansas Governor Kathleen Sebelius at Earthjustice reports on the governor’s recent talk an at Earthjustice event. Earthjustice in Kansas: What is Their Agenda? contains a fellow blogger’s interpretation of the motives of Earthjustice. In Earthjustice in Kansas: The Press Release I report on how I have made a records request to the governor’s office so that Kansans can learn more about the activities of this extremist group and its relationship to our governor.

Wichita Council Member Jeff Longwell: We Can, and Do, Read

Wichita City Council Member Jeff Longwell, in the news article Little time to review Warren loan terms (July 1, 2008 Wichita Eagle), was reported as remarking “It’s unlikely many residents would read the full contract even if it had been made public earlier.”

Mr. Longwell, many people in Wichita do read documents such as these. I think a better question is whether city council members read and understand these documents. This is from before Mr. Longwell’s time on the council, but in the article The Real Scandal at City Hall, I report how city council members are sometimes not aware of even the most basic facts about city affairs:

… council members were described as being surprised upon learning that the industrial revenue bonds and property tax abatement awarded to a local business also included a sales tax break. How could they be surprised? The City of Wichita website contains a nicely-done page titled “Industrial Revenue Bonds” (located at http://www.wichitagov.org/Business/EconomicDevelopment/IRB) (This is the first result that appears when you use the wildly popular Google search engine and search for “Wichita IRB.”) The first link on this page is titled “IRB Overview: Industrial Revenue Bond Issuance in the State of Kansas,” and you don’t have to read very far before you come to the sentence reading “Generally, property and services acquired with the proceeds of IRBs are eligible for sales tax exemption.”

(The city’s website has been rearranged a little since then. The new location for this page is http://www.wichita.gov/CityOffices/CityManager/Urban/EconomicDevelopment/IRB/.)

Besides being wrong on whether people read documents like these, I think Mr. Longwell’s statement reveals an unfortunate attitude towards the people of Wichita. I don’t think he always felt this way, as earlier this year it was reported he “strongly believes in transparency in government.” (Rule seeks to stop leaks after private city council meetings)

Mr. Longwell is correct in that the Old Town Warren Theater loan documents should have been released to the city council and the public earlier. Mr. Longwell could have shown us evidence of his belief in transparency by moving to delay yesterday’s council action until these documents could be read, digested, and debated.