Tag Archives: Richard Ranzau

Sedgwick County Commissioner Richard Ranzau

Job creation at young firms declines

A new report by the Kauffman Foundation holds unsettling information for the future of job growth in the United States. Kauffman has been at the forefront of research regarding entrepreneurship and job formation.

Previous Kauffman research has emphasized the importance of young firms in productivity growth. Research by Art Hall found that for the period 2000 to 2005, young firms created nearly all the net job growth in Kansas.

So young firms — these are new firms, and while usually small, the category is not the same as small businesses in general — are important drivers of productivity and job growth. That’s why the recent conclusion from Kauffman in its report Starting Smaller; Staying Smaller: America’s Slow Leak in Job Creation is troubling: “The United States appears to be suffering from a long-term leak in job creation that pre-dates the recession and has the potential to persist for an unknown time. The heart of the problem is a pullback by newly created businesses, the economy’s most critical source of job creation, which are generating substantially fewer jobs than one would expect based on past experience. … This trend has only worsened since the onset of the most recent recession. The cohort of firms started in 2009, for example, is on track to contribute close to a million jobs less in its first five to ten years than historical averages.”

The report mentions two assumptions that are commonly made regarding employment that the authors believe are incorrect:

First, policymakers’ focus on big changes in employment because of events such as a new manufacturing plant or the recruitment of a business to a community ignore the more important fact that our jobs outlook will be driven more by the collective decisions of the millions of young and small businesses whose changing employment patterns are not as easy to see or influence. Second, it is just as easy to be deluded into thinking that the jobs problem will be solved by growth in the number of the self-employed.

The importance of young firms is vital to formulating Kansas economic development policy. Kansas Governor Sam Brownback has incorporated some of the ideas of economic dynamism in his economic plan released in February. The idea of dynamism, as developed by Dr. Art Hall, is that economic development is best pursued by creating a level playing field where as much business experimentation as possible can take place. The marketplace will sort out the best firms. The idea that government economic development agencies can select which firms should receive special treatment is sure to fail. It is failing.

While the governor’s plan promotes the idea of economic dynamism, some of his actual policies, such as retaining a multi-million dollar slush fund for economic development, are contrary to the free marketplace of business experimentation and letting markets pick winning firms.

At the City of Wichita, economic development policy is tracking on an even worse direction. Among city hall bureaucrats and city council members, there is not a single person who appears to understand the importance of free markets and capitalism except for one: council member Michael O’Donnell, who represents district 4 (south and southwest Wichita).

The policy of Wichita is that of explicit crony capitalism, with city leaders believing they have the wisdom to develop policies that recognize which firms are worthy of taxpayer support. And if they want to grant subsidies to firms that don’t meet policies, they find exceptions or write new policies. Elected officials like Wichita Mayor Carl Brewer and city council member Jeff Longwell lust for more tools in the economic development toolbox.

At the Sedgwick County Commission, two of the five members — Karl Peterjohn and Richard Ranzau understand the importance of free markets for economic development. But the city has a much larger role in targeted incentives for economic development, as it is the source of tax increment financing districts, industrial revenue bonds, economic development exemptions, community improvement districts, and other harmful forms on economic interventionism.

Wichita and its political class

The discussion at yesterday’s Wichita City Council meeting provided an opportunity for citizens to discover the difference in the thinking of the political class and those who value limited government and capitalism.

At issue was Mid-Continent Instruments, Inc., which asked the city for a forgivable loan of $10,000. It received the same last week from Sedgwick County. According to city documents, the State of Kansas through its Department of Commerce is also contributing $503,055 in forgivable loans, sales tax exemptions, training grants, and tax credits.

At the city council meeting Clinton Coen, a young man who ran for city council earlier this year, spoke against this measure, which he called corporate welfare.

In response to Coen, Council Member James Clendenin (district 3, south and southeast Wichita) asked if we should ignore companies that want to do business here, or should we allow them to leave? Implicit in the question is that the threat dangled by Mid-Continent is real: that unless the city gives them $10,000, they will expand somewhere else. How citizens and council members feel about this issue largely depends on their perceived genuineness of this threat.

When Coen recommended that the city cut spending, Clendenin said “I can guarantee you, from what I have seen, this city government has cut a tremendous amount of spending.” When pressed by Coen for examples of cuts, he demurred. Clendenin also said that the $10,000 is needed to show the city’s commitment to the company.

Perhaps coming to the rescue of her younger and less experienced colleague, Council Member Janet Miller asked City Manager Bob Layton how much has been cut from the budget, and he replied “we’ve cut over $20 million in the general fund over three years.”

In saying that, Layton is using the language and mind-set of bureaucrats and politicians. In this world, it’s a cut if spending does not rise as fast as planned or hoped for. As you can see from the accompanying chart, Wichita general fund spending has not been cut in recent years. It has risen in each of the last three years, and plans are for it to keep rising.

Wichita general fund spending

This illustrates a divide between the thinking of the political class and regular people. Blurring the distinction between plans and reality lets politicians and bureaucrats present a fiscally responsible image — they cut the budget, after all — and increase spending at the same time. It’s a message that misinforms citizens about the important facts.

Miller also praised the return on investment the city receives for its spending on economic development, citing Wichita State University Center for Economic Development and Business Research and the cost-benefit calculations it performs. These calculations take the cost of providing the incentives and compare it to the returns the city and other governmental entities receive.

What is rarely mentioned, and what I think most people would be surprised to learn, is that the “returns” used in these calculations is manifested in the form of increased tax revenue. It’s not like in the private sector, where business firms attempt to increase their sales and profits by providing a product or service that people willingly buy. No, the city increases its revenue (we can’t call it profit) by collecting more taxes.

It’s another difference between the political class and everyone else: The political class craves tax revenue.

Aside from this, the cost-benefit calculations for the city don’t include the entire cost. The cost doesn’t include the county’s contribution, the majority of which comes from residents of its largest city, which is Wichita. Then, there’s the half-million in subsidy from the state, with a large portion of that paid for by the people of Wichita.

But even if you believe these calculations, there’s the problem of right-sizing the investment. If an investment of $10,000 has such glowing returns — last week Sedgwick County Commissioner Jim Skelton called the decision a “no-brainer” — why can’t we invest more? If we really believe this investment is good, we should wonder why the city council and county commission are so timid.

Since the applicant company is located in his district, Council Member Pete Meitzner (district 2, east Wichita), praised the company and the state’s incentives, and made a motion to approve the forgivable loan. All council members except Michael O’Donnell (district 4, south and southwest Wichita) voted yes.

Going forward

While the political class praises these subsidies and the companies that apply for them, not many are willing to confront the reality of the system we’re creating. Some, like O’Donnell and Sedgwick County Commissioner Richard Ranzau, have recognized that when government is seen as eager to grant these subsidies, it prompts other companies to apply. The lure of a subsidy may cause them to arrange their business affairs so as to conform — or appear to conform — to the guidelines government has for its various subsidy programs. Companies may do this without regard to underlying economic wisdom.

We also need to recognize that besides simple greed for public money, businesses have another reason to apply for these subsidies: If a publicly-traded company doesn’t seek them, its shareholders would wonder why the company didn’t exercise its fiduciary duty to do so. But this just perpetuates the system, and so increasing amounts of economic development fall under the direction of government programs.

While most people see this rise in corporate welfare as harmful — I call it a moral hazard — the political class is pleased with this arrangement. As Meitzner said in making his motion, he was proud that Wichita “won out” over the other city Mid-Continent Instruments considered moving to.

Another harmful effect of these actions is to create a reputation for having an uncompetitive business environment. Not only must businesses of all types pay for the cost of these subsidies, some face direct competition by a government-subsidized competitor. This is the situation Wichita-area hotels face as a result of the city granting millions in subsidy to a hotel developer to build a Fairfield Inn downtown.

Even those not in direct competition face increased costs as they attempt to hire labor, buy supplies, and seek access to capital in competition with government-subsidized firms. Could this uneven competitive landscape be a factor that business firms consider in deciding where to locate and invest?

We can expect to see more government intervention in economic development and more corporate welfare. Former council member Sue Schlapp in April took a job with the Kansas Department of Commerce. Her job title is “senior constituent liaison,” which I think can be better described as “customer service agent for the corporate welfare state.” Her office is in Wichita city hall.

Increasingly we see politicians and bureaucrats making decisions based on incorrect and misleading information, such as claiming that the city’s general fund budget has been cut when spending has increased. Sometimes they are fed incorrect information, as in the case of a presentation at Sedgwick County Commission that bordered on fraudulent.

Sometimes, I think, officeholders just don’t care. It’s easiest to go along with the flow and not raise ripples. They participate in groundbreakings and get their photograph in the newspaper and on television that way. Which brings up an important question: why do none of our city’s mainstream media outlets report on these matters?

Sedgwick County, Golf Warehouse, reveal shortcomings in procedure

Wednesday’s decision by the Sedgwick County Commission to grant a forgivable loan of $48,000 to The Golf Warehouse is yet another example of local government relying on corporate welfare as economic development, and exposes how little deliberation is given to making these decisions.

This subsidy was promoted by the county and TGW’s consultant as necessary to persuade the applicant company to expand its operations in Wichita rather than Indiana, where the company has other operations and had also received an offer of subsidy. The same argument had been made to the Wichita City Council in May 10th, and it was successful in persuading all council members but one to vote in favor of granting a forgivable loan of the same amount as the county.

At the county commission meeting, commissioners received a presentation by Leslie Wagner, Director of Project Management and Development for Ginovus, an economic development and site location advisory services firm working on behalf of TGW.

While The Golf Warehouse was started in Wichita by entrepreneurs, Wagner told commissioners that the company is now owned by Redcats, a Paris, France company. That acquisition took place in 2006, she said.

A focus of Wagner’s presentation was how large and successful an enterprise Redcats is, with $4.8 billion in annual sales revenue and over 14,000 employees. As to TGW specifically, Wagner said it offers the largest and broadest selection of golf products in the world, and has expanded to included baseball, softball, and soccer products.

Right away some might be inclined to ask why, with the company so large and successful, local governments find it necessary to prop up this company with public assistance.

According to Wagner, TGW will add 105 new employees by 2015, and the company’s average annual payroll by then will be $9,995,000.

The argument for subsidy

In her presentation, Wagner listed the incentives offered to TGW by both Indiana and Kansas. But she did not supply the value of each incentive, which makes the comparison largely meaningless. Additionally, the list of the incentives and subsidies offered by the State of Kansas was not complete. Further, some of the incentives offered by Indiana are already present in Kansas.

For example, one incentive offered by Indiana was an abatement on personal property tax, which Wagner indicated was a factor in favor of that state. But Kansas does not tax business personal property, that is, business machinery and equipment newly purchased, leased, or moved into Kansas. This ranges from desks, computers, and copiers to large pieces of machinery and equipment. The incentive offered by Indiana, therefore, is already in place in Kansas without companies needing to ask for it, and Wagner should not have included this as a distinguishing factor between Indiana and Kansas.

In addition, Kansas has added “expensing,” which allows businesses to depreciate purchases in one year instead of several, which reduces Kansas state income tax. As TGW expands and makes these purchases, it will be able to take advantage of this new provision in the Kansas tax code.

Wagner also mentioned an Indiana program called EDGE (Economic Development for a Growing Economy), which rebates employees’ state income tax withholding back to the company. We have that in Kansas, too. It’s called Promoting Employment Across Kansas (PEAK), and the range of situations where this program can be applied has been expanded by this year’s legislature. This, again, is an example where an incentive offered by Indiana and promoted by Wagner as a reason as to why the county must grant a subsidy of its own to TGW is already present in Kansas.

Another part of Wagner’s presentation that deserves a second look is her analysis of the economic impact of TGW. Wagner said that over ten years the payroll — the wages paid to its employees in Wichita — of TGW would be $100,623,437, with a “conservative” apportionment to the county of $50,311,718.

She then showed the commission a slide where she computed the return on the county’s investment. For the “return,” she used the $50,311,718 figure of payroll that she attributed to the county. For the “investment,” she used $96,000, which is the sum of the forgivable loans from both Wichita and Sedgwick County. (Why she used both entity’s investment but only county payroll, I don’t know.)

Her calculations from these numbers produced a return on investment of 524 percent. “If I were making an investment, that’s a phenomenal return, and I’d make that one all day long,” she told commissioners.

But her actual calculation should have been as follows ($50,311,718 – $96,000) / $96,000 * 100 = 52,308 percent for the rate of return, if she was looking to fluff up her numbers as much as possible.

But even that calculation wouldn’t make economic or financial sense. The $50,311,718 is returned over a period of 10 years, so the receipt of that money needs to be spread over that time. Then, since long time periods are involved, the returns in future years need to be discounted, because a dollar expected to be received in ten years is not worth as much as a dollar received this year. I made a few other assumptions and used Excel’s internal rate of return function to compute a rate of return of 5,241 percent.

This tremendous rate of return, of course, makes no economic sense either. The $50,311,718 used as the “return” to the county is not that at all. This money is wages paid to workers. It belongs to them, not to the county. True, the county will get some of that in the form of sales taxes these workers pay as they make purchases within the county, and perhaps in other forms of taxes. Using an estimate of that number would make sense on some level, and that is the type of reasoning the Wichita State University Center for Economic Development and Business Research uses to compute the cost-benefit figures the city and county often rely upon in making decisions.

But the figures and calculations Wagner used to make the case for TGW make absolutely no economic or financial sense. Worse than being merely absurd, they are deceptive. Compounding the error, elected officials such as commission chair Dave Unruh cited them as a factor in making his vote in favor of granting the forgivable loan.

Completing her presentation, Wagner said “Perhaps as important, it’s goodwill. … Does the state want us to stay, does the community want us to stay, and are they willing to help us grow?” Brad Wolansky, CEO of TGW, said the loan is part of the “element of partnership” between the county and TGW, which he said was indicative of the county’s support. This is the same attitude expressed at the Wichita City Council meeting: Many of these companies requesting incentives and subsidies believe they deserve some sort of reward for investing in Wichita and creating jobs. The profits of entrepreneurs or capitalists are no longer sufficient, it seems, for some companies.

In remarks from the bench, Sedgwick County Commissioner Richard Ranzau questioned the need for this incentive, citing the recent example of a Save-A-Lot store which will be built by a developer without incentives, after the original developer failed to acquire all the incentive he asked for. Video of his remarks and an exchange with Wagner is below.

In his remarks, Commissioner Jim Skelton said this decision is a “no-brainer,” and that he was proud to do this for the community. Chairman Unruh said “we’re competing with someone else for this company.” He referenced the “great return” on the county’s investment, and that he could not find a reason not to support it.

All commissioners except Ranzau voted to grant the forgivable loan, with Karl Peterjohn absent.

City and county information not complete

The forgivable loan subsidy granted by both Wichita and Sedgwick County is not the only subsidy TGW will receive. An inquiry to the Kansas Department of Commerce indicates that from the state of Kansas, TGW will receive $125,000 from the Kansas Economic Opportunity Initiatives Fund, $125,000 in Kansas Industrial Retraining, $50,000 in Kansas Industrial Training, $96,000 in sales tax savings, $315,918 in personal property tax savings, and $623,796 from the High Performance Incentive Program, for total incentives from the state of $1,310,714.

These state incentives were not mentioned by the county. The value is also much higher than the City of Wichita reported in its material for its May 10th meeting when the city approved its forgivable loan to TGW. At that time, city documents reported the value of state subsidies at $275,000, a figure just 21 percent of the value reported by the Department of Commerce.

Corporate welfare, again

This episode, where subsidy is heaped on a company who presents a threat — real or imagined — of leaving Wichita or expanding elsewhere, represents local officials not grounding a decision on actual facts. The wild claims of return on investment made by the company’s representative simply can’t be believed. Her information about the incentives offered and available, as well as that from the City of Wichita, is incomplete or misleading.

With some time to analyze the claims made by Wagner (and others who appear in similar situations), we can expose them for what they are. But commissioners — city council members too — often don’t have time or expertise to examine the facts. Commissioner Ranzau told me that he did not receive Wagner’s slides before the meeting. The information delivered to the council by Sherdeill Breathett, Economic Development Specialist for the county, did not appear in the new agenda system the county recently implemented. During meetings there is not time to analyze calculations or examine the claims made by presenters.

We have to ask, however, if local government officials have the desire to examine these presentations and claims. Once the veneer of economic development hucksterism — thin as it is — is stripped away, we are left with what Ranzau has stated several times from his position on the commission bench: a simple transfer of one person’s money to another using the force of government as the agent. This reality of corporate welfare is something that officials would rather not recognize, and it’s not economic development in my book.

Wichita on corporate welfare, again

Yesterday’s award of $2.5 million by the City of Wichita to aircraft manufacturer Hawker Beechcraft to ward off a threatened move to Louisiana stands out as an example of corporate welfare given for its own sake, and not in response to any real threat.

Hawker will also ask Sedgwick County for the same amount, in addition to receiving $40 million in credits and incentives from the State of Kansas.

It was widely reported that Hawker had received an offer, said by some to be worth as much as $400 million, to move to Louisiana. But that offer was not a valid threat of Hawker leaving Kansas, as in a December 2010 television news report, Louisiana’s governor said “they couldn’t guarantee the number of jobs that would have been required for them to come here.”

Further evidence of the payment being corporate welfare for its own sake is lack of a cost-benefit analysis that usually accompanies such matters. Generally, the city justifies spending on economic development by citing a cost-benefit analysis performed by Wichita State University. By giving up some tax revenue or making a payment, the city feels it will gain even more tax revenue in the future. But no such numbers were cited as justification for this payment to Hawker Beechcraft.

Speaking from the bench, new council member James Clendenin (district 3, south and southeast Wichita) said “At the end of 10 years, I don’t think anyone wants to have to go this process again.” He asked economic development director Allen Bell if there was a process in place so that we wouldn’t be blindsided, so that we could “come up with solutions ahead of time.” A streamlining of the corporate welfare, so to speak. Bell said there is such an effort: IDEA (Industrial Development and Expansion Assistance), plus informal discussions between high level city officials and businesses.

Council Member Michael O’Donnell (district 4, south and southwest Wichita) brought out the fact that although it has been widely reported that the agreement requires Hawker to keep employment at 4,000 or more, it’s not until employment falls below 3,600 that clawback provisions become triggered. O’Donnell said he wanted to protect these 400 jobs, but Bell said the agreement was negotiated between Hawker and the State of Kansas (under former governor Mark Parkinson), and that O’Donnell was correct. O’Donnell expressed his concern: “I think that we definitely need to get the word out that we’re voting for something that could be 3,601 jobs and not 4,000 jobs like’s been sold to us and the public. … I think that’s problematic when we’re dealing with multi-millions of dollars.”

Two members of the public addressed the council on this matter, including myself based on my remarks in Hawker Beechcraft to receive subsidy from Wichita City Council.

In a lecture delivered to Clinton Coen, a young man who spoke against the Hawker incentive, Mayor Brewer spoke of the “employment rate [sic] before the recession” at Cessna, which the mayor cited as 12,000 employees, noting that there are only 6,000 today. The mayor said “That’s part of what contributed to this,” but did not make a connection between the decline in employment at Cessna and requirement of the subsidy being offered to Hawker. Cessna, by the way, received approval of similar incentives from the state and local governments for an expansion to be made in Wichita, but the declining aviation market led Cessna to cancel the expansion and the incentives.

The mayor also mentioned how we lost 1,500 jobs from one company because another state paid the company $1 million per job. The mayor did not mention the company, and inquiries to the mayor’s office and the city’s information office and staffers could not produce an answer. The mayor might have been referring to a 2008 offer by North Carolina to Spirit Aerosystems to build a plant there. That deal, as reported by the Triangle Business Journal, was an offer worth up to $250 million for employment expected to reach 1,031 within six years. That’s about $242,000 per job — a long way from a million. Furthermore, the report listed Jacksonville, not Wichita, as the main competition for the plant, even through Spirit is headquartered in Wichita.

The mayor also lectured Coen, as he has to others, about “philosophies or a theory” one may have concerning economic development, and how it is easy to say the things Coen did “if you really truly don’t know.” He also mentioned the threat of losing the entire company, not only to Louisiana, which he said is not the only competition, but the entire world.

All council members except O’Donnell voted for the measure.

Hawker as Wichita corporate citizen

At the city council meeting, I noted that the Hawker Beechcraft campus, although entirely surrounded by the city of Wichita, is not itself within the city limits. Apparently this does not limit the ability of Wichita to spend its citizens’ money on Hawker, but no one on the council or staff wanted to tackle that issue at the meeting.

Being outside the city limits of Wichita, Hawker pays no property tax to the city, as confirmed by examining tax records maintained by the Sedgwick County Treasurer’s Office.

Aviation summit

In his lecture to Coen, the mayor mentioned the recent aviation summit held by Kansas Governor Sam Brownback in Wichita. At that event, the attitude of the industry towards government assistance was clear: much is demanded.

Lynn Nichols, who is President of the Wichita Metro Chamber of Commerce and also owner of an aviation service business, answered several questions, including one asking which state incentives and tax and regulatory polices are important?

Nichols listed the sales tax exemption on aircraft service, repair, and modification; business expensing on capital expenditures; and reasonable and practical compliance policies from the Kansas Department of Health and Environment. Then, he added: “And of course, we can’t wait for Secretary [of Commerce Pat] George’s new cookie jar with his proposed economic development discretionary deal-closing fund. So we support you on that one, Secretary.”

The choice of language by Nichols — “cookie jar” — was found to be offensive by Sedgwick County Commissioner Richard Ranzau, and he commented on that at a recent commission meeting:

Overall, the tone of the summit was that the Kansas aviation industry is dependent on support and incentives from state and local governments. Without that, industry leaders said it will be difficult to survive or resist offers to move to other states.

But as we saw yesterday at the Wichita City Council, perceived threats need not be credible in order to extract taxpayer funds in the form of corporate welfare. The taxpayer-funded cookie jar is open for business.

Kansas and Wichita quick takes: Monday February 28, 2011

Elections tomorrow. On Tuesday voters across Kansas will vote in city and school board primary elections. Well, at least a few will vote, as it is thought that only nine percent of eligible voters will actually vote. Many of those may have already voted by now, as advance voting is popular. For those who haven’t yet decided, here’s the Wichita Eagle voter guide.

Kansas schools can transfer funds? A recent legislative update by Kansas Representative Bob Brookens, a Republican from Marion, tells readers this about Kansas school finance: “Most school districts in our area braced for this possibility by taking advantage of a law passed last year by the legislature; the new provision allowed schools this one time to transfer funds from certain other areas to their contingency reserve fund, just in case the state had a budget hole in fiscal year 2011; and most of the school districts around here moved all they were allowed to.” Thing is, no one can seem to remember the law Brookens refers to. There were several such laws proposed, but none made their way through the legislature to become law.

Ranzau stand on federal funds profiled. New Sedgwick County Commission member Richard Ranzau has taken a consistent stand against accepting federal grant funds, as explained in a Wichita Eagle story. While his efforts won’t presently reduce federal spending or debt, as explained in the article by H. Edward Flentje, Professor at the Hugo Wall School of Urban and Public Affairs at Wichita State University (“Those funds are authorized, they’re budgeted, they’re appropriated, and (a) federal agency will commit the funds elsewhere.”), someone, somewhere, has to take a stand. While we usually think about the federal — and state — spending problem requiring a solution from the top, spending can also be controlled from the bottom up. Those federal elected officials who represent Sedgwick County and are concerned about federal spending — that would be Representative Mike Pompeo and Senators Jerry Moran and Pat Roberts — need to take notice and support Ranzau. Those serving in the Kansas legislature should take notice, too.

Kansas legislative chambers don’t agree. Kansas Reporter details the problems conferees from the House of Representatives and Senate face coming to agreement on the rescission bill. Funding for special education seems the problem. The rescission bill makes cuts to spending so that the current year’s budget balances. More at House, Senate can’t agree how to fund special ed.

Citizens, not taxpayers. A column in the McPherson Sentinel argues that we should think of ourselves as “citizens,” not merely “taxpayers.” The difference, as I read the article, is that a citizen is involved in government and public policy: “It takes work, hard work, to make this system work.” Taxpayers, on the other hand, just pay and expect something back: “‘Look at how much I paid,’ these people cry. ‘Give me my money’s worth!'” The writer makes the case that government “is not a simplistic fiscal transaction” and that citizens must participate to make sure that government does good things with taxes. … The writer gets one thing right. Meeting the needs of the country is complex. Where I don’t agree with the writer is that government is the best way — or even a feasible way — to meet the needs of the country. A method already exists: people trading voluntarily in free markets, guided by profit and loss, with information conveyed by an unfettered price system. Government, with its central planning, its lack of ability to calculate profit and loss, and inevitable tendency to become captured by special interests, is not equipped for this task.

Kansas Economic Freedom Index. This week I produced the first version of the Kansas Economic Freedom Index: Who votes for and against economic freedom in Kansas? for the 2011 legislative session. Currently I have a version only for the House of Representatives, as the Senate hasn’t made many votes that affect economic freedom. The index now has its own site, kansaseconomicfreedom.com.

Increasing taxes not seen as solution. “Leaving aside the moral objection to tax increases, raising taxes won’t in fact solve the problem. For one thing, our public servants always seem to find something new on which to spend the additional money, and it isn’t deficit reduction. But more to the point, tax policy can go only so far, given the natural brick wall it has run into for the past fifty years. Economist Jeffrey Rogers Hummel points out that federal tax revenue ‘has bumped up against 20 percent of GDP for well over half a century. That is quite an astonishing statistic when you think about all the changes in the tax code over the intervening years. Tax rates go up, tax rates go down, and the total bite out of the economy remains relatively constant. This suggests that 20 percent is some kind of structural-political limit for federal taxes in the United States.'” From Rollback: Repealing Big Government Before the Coming Fiscal Collapse by Thomas E. Woods, Jr. Hummel’s article may be read at Why Default on U.S. Treasuries is Likely.

In Wichita, start of a solution to federal spending

At the Sedgwick County Commission, newly-elected commissioner Richard Ranzau voted three times against the county applying for grants of federal funds, showing a possible way that federal spending might be brought under control.

During the meeting, Ranzau asked staff questions about where the funding for the grant programs was coming from, which, of course, is the federal government, sometimes routed through the Kansas Department of Commerce. Sometimes local spending is required by these grants.

In opposing the programs, Ranzau said that federal government spending is too high. Also, our level of debt is too high, and that the cost of these spending programs is passed on to future generations. He also didn’t see where the U.S. Constitution authorizes activity like the commission — in partnership with the federal government — is considering undertaking.

Ranzau offered an alternative: if the commission believes these projects are important to us as a community, we could pay for them ourselves and pay for them now.

Commissioner Jim Skelton argued that if we don’t apply for and receive this money, the federal government will spend it anyway, and someone else will receive it. “I think we can end up screwing our constituency by opposing this on the philosophy that our government is too big.”

He said he doesn’t agree with the “rampant spending of stimulus money” and would like to see it end, but he didn’t see how refusing this money would make a difference.

Constitutional basis questioned

During discussion, Skelton asked county counselor Richard Euson a question: “Can you tell me about the constitutionality of this issue? How on earth can this happen if it’s not constitutional?”

Euson was flummoxed by the question, and admitted that he was not prepared to answer the question. This is not to be held against the county’s attorney, as questions like this are rarely asked — an indication of the novelty of Ranzau’s position and how infrequently elected officials and staff consider questions such as the fundamental role of government and its level of involvement.

The job of a commissioner, according to Norton

In discussion about one grant program, Commissioner Tim Norton asked a question designed to make sure that Ranzau knew that the project was located in his district. On a grant for a transportation plan, Norton again asked a question designed to make sure that Ranzau knew whose district this plan would serve, referring to former commissioner Kelly Parks’ support of the program.

These questions by Norton highlight the problem with district-based representation, where representatives of districts are expected to bring as much government largess as possible back to their districts. At the federal level this problem is illustrated by the earmarking process. Locally, we see that Sedgwick County Commissioners are assumed to be in favor of any project that benefits their districts, regardless of the overall worth of the project or its cost.

A bottom-up solution to federal spending?

At a town hall meeting on Saturday, I asked Kansas fourth district Congressman Mike Pompeo, who represents all of Sedgwick County, about his opinion of ground-up opposition to federal spending and debt, rather than waiting for Congress and the President to solve the problem from the top down.

Pompeo didn’t answer the question directly, but said that from now on, each law passed by Congress will have a section that states the constitutional authority for the legislation. He also said that the federal government is involved in many areas that it should not be involved in, adding “So many times the question is ‘should we reduce this agency’s budget by three percent,’ and the proper question is ‘why does this agency exist?'”

While the new U.S. House of Representatives is full of enthusiasm for cutting spending, here we see an example of just how difficult cutting spending will be. Local governments are addicted to grants like the three discussed above. A congressman who voted to cut programs like these will hear from the affected constituents, and would also likely hear from the Sedgwick County staff who are advocates for these projects and spending. If more elected officials would vote against these programs, that would make it easier for Congress to cut off the flow of spending.

We should also remember that Ranzau offered an alternative: fund the programs ourselves. The problem is that we are funding them ourselves, through the roundabout trip of tax dollars going to Washington, which then sends them back, in this case in the form of grants with many conditions and restrictions on the way the money can be spent. So Skelton is correct: the federal government will spend the money anyway. But to go along means that the hole is dug deeper. More crudely, the federal government says: implement this program in our way, because you’ve already paid for it, and you don’t want to piss away your taxes somewhere else.

Perhaps a coalition of forward-thinking local government officeholders like Ranzau and U.S. Congressmen like Pompeo can join together to bring the spending under control. It will take courage, especially from the local officeholders.